A Pay Equity Tipping Point?

History buffs know it as the state where the colonists turned the tide against the British, and where Thomas Edison invented the incandescent lightbulb, while music fans remember it as where Bruce Springsteen got his start.  Now, New Jersey could be known for something else: being the catalyst for organizations to completely overhaul how they hire and pay people.  

In late March, both houses of the Garden state's legislature passed a bill containing some of strongest pay equity rules in the country, making it easier for women to prove they’re being paid unequally and increasing the damages women can collect. It’s a bill the state’s governor has pledged to sign. If he does, the changes could go into effect as early as July. Experts say the measure may convince some firms to systematically review their pay practices, now that California, Colorado, Delaware and other states have passed similar measures.

“As more and more states pass new laws, there will be a tipping point where it will become too costly and administratively complex to have different process for different locations,” says Tom McMullen, a Korn Ferry senior client partner. “Organizations will be forced to address issues in their core process and get their house in order in key gap areas,”

According to the American Association of University Women, 42 states, as well as Puerto Rico and Washington, D.C., proposed new pay equity legislation last year. Not all of the measures passed, but enough did that figuring out how to handle all the new laws presents has become asizable challenge for organizations and their leaders. For instance, in some states, such as Oregon, make asking candidates about salary history illegal. Other new measures, like New Jersey’s, call for companies that win contracts from public agencies to submit compensation reports for all workers within certain job categories or pay brackets. 

For organizations that have large distributed workforces—retailers like Walmart come to mind—where hundreds of people are making thousands of pay decisions every day, the good intentions behind such laws can easily turn into a bureaucratic mess. Korn Ferry Senior Client Partner Maryam Morse suggests that one way organizations can ensure across the board compliance is to “identify the state where they operate that has the most stringent pay equity laws and adopt and apply them across the enterprise.” Some companies, such as Amazon and Bank of America, have already banned asking job candidates about salary history, perhaps realizing that it is only a matter of time before every state in which they operate enacts legislation making the question illegal. 

The U.S. isn’t alone in enacting new pay equity laws. Australia, Iceland, the U.K., and other countries have passed new measures in the last year, adding another layer of complexity for organizations that operate in multiple geographies. As a result, McMullen says organizations that are serious about diversity, inclusion and pay equality are making broad decisions that are more influenced by their own corporate culture and purpose rather than laws from a specific state or country. 

That type of pay overhaul means firms will need to use sophisticated market data, create new compensation guidelines (where to place workers within a position’s pay band) and update job grading systems, among other inputs. But Morse says smart organizations can turn it into a talent advantage. Rather than simply making sure they are compliant with current law, savvy leaders can embed gender equality—and diversity broadly—into the corporate culture. Committing to those can become a strategic advantage, Morse says, making it easier to create diverse, talented leadership teams. Research shows that organizations that manage pay equity well and have diverse, inclusive cultures not only post higher financial returns, but also have more employee trust in leadership, greater employee engagement, and less turnover. Organizations that fail to adequately manage pay equity well face the inverse consequence, plus an increased risk of litigation.