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This Week in Leadership
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With all of its complexity, sensitivity, and nuance, pay equity is an issue some businesses might end up tip-toeing around. But experts say there are too many good business reasons not to—and a sizeable majority of companies have apparently realized it.
According to a webinar hosted by Korn Ferry, experts say organizations that manage pay equity well see more employee trust in leadership, greater employee engagement, less turnover, and improved company performance overall. Organizations that fail to adequately manage pay equity face the inverse consequences, 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,” says Tom McMullen, a Korn Ferry senior client partner and a leader in the firm's Rewards and Benefits Solutions practice. Indeed, about 60% of organizations surveyed recently by Korn Ferry say they have taken action on assessing gender pay equity in the past two years, and another 17% say they plan to do so in the next year or so.
The pressure on companies from employees, activist groups, and legislators is only getting more real. In several U.S. states, such as California, Oregon, and Delaware, along with New York City, employers are no longer allowed to ask job candidates about their compensation history during the recruitment process. This forces employers to find other ways of determining what a given role should pay. Globally, Iceland hit the issue directly, enacting a new law requiring firms to show progress on closing pay gaps, while other countries appear on the cusp of similar legislation.
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 understand all aspects of pay inequity. For example, during the establishing parameters phase, “factors such as business units, location, job functions, job levels, and, thereby, must be considered before conducting a pay equity analysis,” says Lilly Lin, senior principal consultant at Korn Ferry.
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. “For instance, are starting salaries different between men and women because male candidates may be more adept at negotiating starting salaries than their female counterparts. Or, assuming that males and females start at the same salary, could compensation differences be a result of different treatments via promotion or base salary increases” says Lin.
One key piece of advice: executives at Korn Ferry say 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. “Don’t go it alone,” says McMullen. “Build a team to address this multi-faceted issue.”