In its race to address to pay equality, Nike took one big headline-grabbing stride this week. Now the question becomes: Can others follow?
The company announced it will raise salaries of more than 7,000 employees (about 10% of its global workforce) to ensure more competitive pay and to, in the company’s words “support a culture in which employees feel included and empowered.” The company also adjusted its bonus structure to make payouts based on a company-wide earnings target, rather than a mix of individual and corporate performance. Nike’s moves, experts say, are a step toward solving a nagging problem that a surprising number of organizations face—compensating everyone who has the same role equally.
“Equal pay, i.e. paying people the same for doing the same job, ought to be a given, but in many cases it is not,” says Benjamin Frost, general manager of Reward Products at Korn Ferry.
Women, on average, get paid about 5% less than men even when they work at the same company, are at the same level and doing the same job, according to a Korn Ferry analysis of gender and pay data of 12 million workers worldwide. But isn't just a gender issue. After mergers, expansions into new markets or other corporate moves, an employee’s pay may depend nearly as much on location and business unit as it does on experience and job responsibilities. Indeed, organizations that do an analysis of their pay practices often find that around 10% of their employees are so called outliers; they get paid very differently than their colleagues for doing the same job, says Tom McMullen, a Korn Ferry senior client partner and a leader in the firm's Rewards and Benefits Solutions practice.
Experts say organizations that manage pay equity well see more employee trust in leadership, greater employee engagement, less turnover, and improved company performance overall. On the flip side, firms that fail to adequately manage pay equity wind up having less-motivated employees and higher job turnover, plus an increased risk of litigation. “The reason why the best performing organizations are finally doing something about it, rather than paying lip service to diversity and simply ticking boxes on pay equity compliance, is because it makes business sense to do that,” McMullen says.
Nearly as important as equalizing pay, McMullen adds, is how a firm communicates its pay strategy to employees. Explaining what the pay process is and to whom employees can ask questions is critical, he says. Not being transparent could erode employee trust in the firm’s leaders.
Korn Ferry experts recommend a five-step process, called "EQUAL," for companies to identify if a pay gap exists and addressing its root cause. EQUAL stands for Establish parameters, Quantify gaps, Understand drivers, Action planning, and Lead change. The process can help one understand all aspects of pay inequity. From there, a company should run a statistical analysis to determine whether a gap actually exists and identify the root causes of discrepancies in pay.
Executives at Korn Ferry also offer one key piece of advice: The process can’t be limited to just the compensation and benefits group, as it often is. Legal and other departments across the organization need to play a role in the evaluation, too. “Don’t go it alone,” says McMullen. “Build a team to address this multifaceted issue.”