Written by
Ruth Thomas
Senior Consultant and Co-Founder, CURO
LinkedIn

12 April 2021

Diversity, equity, inclusion and belonging (DEIB) have become a priority for many companies across industries this year, with the goal of creating a more fair and inclusive workplace for all. But for some, this leaves room for questions and uncertainties about how to proceed, specifically around fair compensation. Understanding if your pay policies are working the way they’re supposed to, rather than contributing to unfairness, is an important place to start.

 

In this blog, Ruth Thomas, Co-Founder and Senior Consultant, and Vicky Peakman, HR and Gender Pay Gap Consultant, answer your burning questions from our recent webinar, where they covered best practices to ensure your compensation policies are aligned and fair, how to build a sustainable pay equity management framework, and how auditing your pay policies can lead to a more inclusive and transparent company culture. We've summarized their insights here:

  1. Recruitment
  2. Reward
  3. Pay Gap
  4. Pay Equity
  5. Pay Audit

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Recruitment


Why is it okay or not okay for recruiters to ask about a gap in employment history?

VP: The issue here is whether there are any underlying biases. It is better to reframe the question. So, instead of asking what the gap was for, ask what they learnt during that time. Research shows that returners from career breaks have a broader perspective, more focus and are highly motivated, so they should be seen as a positive.

 

If we do not ask for a current salary then there may be a chance we lose out on a good candidate who is currently above the market, when we are offering P50 salary. How do we handle this issue? Should we start low and keep the salary negotiable?

VP: If you are transparent with the salary range for the advertised role, as well as all the other benefits of working for you, then potential employees will make the decision themselves as to whether to apply. They can set out their expectations in terms of the range, and you can decide whether you think that their skills and experience warrant that amount. If you use recruitment consultants, suggest that they still approach prospective candidates with higher current salaries and highlight the benefits of working for you. There are many reasons people move to lower paid roles.

 

How do you correct gender prevalence in certain job functions or career levels if genders are disproportionately represented in the candidate pool (i.e. only 1 woman or 1 man out of 10 candidates)?

VP: The aim is for an organization to reflect the society from which it comes, so in gender terms that is pretty much 50:50. However, we do find both vertical and horizontal segregation. Solving vertical segregation, where there are generally more men in senior roles, is perhaps easier than horizontal as there will be capable women inside and outside your organization at the level required. 

When it comes to horizontal segregation, where there are mainly men in one sector and mainly women in another, it is a longer term issue. First, organizations need to be culturally ready to welcome people who are not from the majority gender. Then they need to actively work to recruit and retain that talent. Some proven ways include: recruiting senior leadership roles in the non-majority gender so that there are role models for those joining the organization; widening the search approach from those with the exact qualifications, skills and experience to those of related qualifications, skills and experience; and setting achievable targets.

 

How can we properly educate our managers/HR managers when it comes to appropriate hire-in or promotion rates, especially when they may not be able to find our current rates for external hires?

RT: This is hard to do without pay transparency. But transparency in pay systems is essential in uncovering and addressing unlawful pay discrimination. The more complex and less transparent a system is, the more vulnerable it will be to pay inequities. But, employers still feel uncomfortable disclosing pay ranges. If your processes are fair, you should have nothing to hide and the right pay framework should be easy to explain because it obviously aligns to how you attract, retain and reward talent. Ultimately, transparency breeds trust - not only in leadership but in fair pay. So, establishing pay ranges for hires and advertising roles with pay ranges is a step in the right direction.

 

Reward

 

In a performance-driven environment, how can companies pay if not based on performance?

RT: There has been much talk about removing performance ratings and the annual performance review in recent years (from an ROI perspective, companies are not seeing them have enough of a positive impact on performance). But performance assessments are still needed and many have successfully replaced them with ongoing performance feedback approaches, and there are many strong technology solutions that support this approach. These have really helped in the remote working environment as well. I also think as we see the pay for skills trend take hold, base pay will increasingly be used to recognize skills and skills acquisition rather than just performance.

 

What are your thoughts on consolidating bonus into base pay for certain populations within an organization to drive better performance?

VP: Many organizations are coming to the conclusion that individual pay for performance schemes are short term and are not driving the behaviors that they wish to see in their employees. They are therefore moving to collective schemes, where everyone shares in the success of the company. Most bonus schemes are discretionary so there is no need to buy them out. However, employees who have received bonuses in the past need to be reassured that the impact that they have is rewarded. Organizations are moving to a transparent model of base pay determined by factors relating to the individual, such as: place on the pay structure, market movements, impact, and skills, and bonus being related to collective performance.

 

Any thoughts on pay equity with more workers being remote? What are the risks if businesses do not focus on these areas?

RT: Increased remote work and how to manage geographical pay differences are on the agenda with many employers working on new hybrid work models with corresponding work schemes. As we transition to new ways of working it is important to deploy a DEI (diversity, equity and inclusion) lens to ensure certain groups of employees are not negatively impacted. So, track who opts to take which model/package and whose pay gets reduced – women may gravitate to WFH due to the burden of care.

 

Pay Gap

 

Do you think that the pay gap is partially due to availability of talent 24x7? It is observed that a boss will not mind telling his male subordinate to stay late to work over a weekend, for example. 

RT: Yes, to some degree. Historically, performance often for all intents and purposes rewarded the amount of time you spent in the office, whether it be by billable hours or volume of output. Women, who more often bear the burden of caring responsibilities and work reduced hours, can simply be qualified out of achieving against such metrics. During the pandemic, we have also seen how the burden of care has fallen to women and more women than men have dropped out of the labor market as a result. This will inevitably impact representation which as we know drives pay gaps.

 

Are we seeing salary survey providers begin to offer market data in subsets by gender, age, race, etc.?

VP: We are not seeing this and we do not think that it would be appropriate to do this, as this may exacerbate inequity. However, it would be great to see survey providers assess their data to see whether or not there are differences that are due to protected characteristics. If there are differences, there is then a question of whether the survey providers should be adjusting the market data accordingly. The problem is that this would require them to collect this information from the companies that supply the data, and we are not sure that companies would be happy to do this or that employees would be happy for their companies to share it. Our recommendation would be not to rely too heavily on market data but to use it as one input into your salary decisions, thereby ensuring that you are not perpetuating any bias in the data.

 

If a benefit or allowance that is based on seniority ultimately skews towards a particular group, should it be addressed and how? Is it considered a gap?

VP: If there are more men, for example, in senior roles and those roles receive different or enhanced benefits or allowances, then yes, there will be a gender pay gap for the benefit or allowance. There are two ways to fix this. You can fix the representation issue. This will reduce the gap. However, there will still be the issue of whether it is appropriate for only the senior employees to receive the benefit or allowance. Many companies are actually deciding to flatten their reward structure, so allowances and benefits are either for all employees or none.  

 

How do you ensure there are no compensation disparities within gender in the company?

RT: You can only really do this by undertaking a pay equity analysis. Understanding both your unadjusted and adjusted pay gaps by gender will provide powerful insights on your general position on gender equity.

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Pay Equity

 

Any advice on how to handle pay inequity from acquisitions and how to address any inequities found?

RT:  When two organizations merge, both organizations should capitalize on each other’s strengths, including business strategy and team habits. For the HR function, company culture is a differentiator between a successful and failed M&A. Any perceived inequity between the two organizations threatens the desired culture. Moreover, critical to any M&A is aligning compensation, and more importantly, how to ensure fair pay across the integrated workforce. Understanding the organization’s equal pay status should be part of the due diligence process pre-merger as inequity issues can adversely affect valuation, labor costs and talent retention, or increase the risk of future litigation.

 

Is there a risk of an equity program favoring one group or another? What are the best ways to avoid inequity in an equity program regarding DE&I?

VP: There is always a risk of unintended consequences of a program. It is always a good idea to assess them in advance for obvious issues such as benefitting more senior employees or a certain group. It is also worth getting as broad a range of stakeholder input, including employee groups, to check that it has been assessed by a diverse audience. Then, once a program is enacted, you will need to assess the data to ensure that it is working as planned and not impacting one group more than another.

 

What are some recommended measurements to find trouble spots and monitor inequity progress?

RT: Recognizing vulnerable moments in the talent lifecycle are critical to help address pay gaps and pay inequity.

Some key trouble spots where measurements should be taken are:

  • Examining the gender/ethnicity breakdown across the organizational hierarchy
  • Looking at hires and leavers to determine the primary drivers of under or overrepresentation
  • Considering progression and promotion rates for different employee groups
  • Comparing turnover rates for different employee groups especially controlling for job position
  • Comparing job satisfaction or other survey responses again controlling for job position to understand the lived experience of employees at different levels

How do compensation professionals determine the amount of a reasonable pay differential for factors such as years of experience or level of education, etc?

VP: There isn’t one reasonable pay differential for any factors – they will be different for each organization and can vary for different parts of organizations. Regression analysis, such as a type of analysis in CURO Pay Equity, can help you calculate what the differential is in your organization, assuming you have the data. However, that might not be the model that you want to use when determining pay in the future. 

 

What tactics are organizations using to address salary compression associated with the new minimum wage?

VP: This is a really interesting issue that organizations around the world are grappling with as they try to ensure that the lowest paid employees are paid a living wage. There will be some roles for which you will want to maintain differentials – for example, supervisors and the employees they supervise. But there will be some compression, the extent to which depends on the size of the increase for the lowest paid. Some organizations manage this by having a scale of increases, gradually decreasing in size as they go up the organization. However, this is also a good time to check your pay equity and do a pay range audit. That way, you target your increases to ensure that employees are where they should be on the range.

 

How can pay equity and other forms of social justice legislation be integrated into Env/Social/Gov (emphasis on the Social component) reporting to inform investment community decisions?

RT: We know when investors look at the social criteria from an employee perspective, they’re interested in how a company manages its relationships with employees and the recommended WEF metrics cover things like equality and diversity, health and safety, and labor relations.

At CURO, we are focused on the equality and diversity metrics - so measuring wage ratios, pay gaps, diversity of representation and the general fairness and appropriateness of wage allocation. There is an increasing focus now on capturing these metrics and using these to report to investors.

 

Do you have advice regarding manager pay equity training?

VP: There is training out there, but our advice would be to provide the data for your managers in a clear way. What is the breakdown of their employee group? Are there any pay disparities? When doing pay reviews or ad hoc adjustments, allow them to work out how that will impact their pay gaps and pay range progression, in advance of any decision. It is sometimes easier for people to learn 'on the job' rather than trying to work out how to apply training.

 

Can you offer guidance on introducing pay scales and what to consider?

VP: This is a large topic, but the first thing to do is to develop a job classification framework for the organization. Looking at what differentiates your roles, both in terms of level and type of work (often called job families), you can develop a framework that is generally between four and six levels for the whole organization. Once you have that, you can look at the market data for the roles in each level and job family, along with what you currently pay, to determine a range that encompasses the roles and has enough spread so that there is overlap between levels. Most ranges are between 20% and 25% either side of the midpoint. CURO offers consultancy alongside its pay equity technology to help organizations get started, and partners with consultancies around the world if more in-depth work is required.    

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Pay Audit

 

How much variance is acceptable from a pay equity perspective?

VP: For overall company pay gaps, this isn't an easy answer as it depends on the size of the company, the distribution of wages, and the proportions of the groups. For large companies, a pay gap of less than 5% is thought of as good. For small companies, a higher percentage could be fine. For individual pay analysis groups, where everyone is doing similarly situated roles, the gap should be close to 0%. So, although the range might be 5% either side of the median, there is no gap between the medians of the sub-groups, such as gender.

 

We're a small company (>200 people) - how do we begin to review and implement fair pay?

VP: You are lucky in that it is easier to work on smaller datasets. You can start collecting your data and seeing whether there are any issues. You can also decide now what your objectives are and ensure that they inform all your pay, recruitment and progression processes. Although you are small, it is important to start thinking about pay analysis groups early on, which could also inform pay ranges. You should also find it easier to get your employees involved.

 

What is your view on whether the pay equity audit is run internally, or by an external company? What is best practice? What are the pros and cons of each approach?

RT: Many companies are just at the start of their pay equity journey and so using an external resource is probably a necessity to ensure you have addressed all relevant legal issues and gained a solid understanding of how best to conduct pay equity analysis. Then it is possible to be able to take greater ownership of the process and the ability to flex the model as your workforce evolves – which is what we aim to do with our technology, providing a more scalable cost model that represents value for money.

How frequently should an organization audit internal equity? Annually? As-needed?

RT: At a minimum, an annual audit is recommended, and many of our clients will do this in advance of their annual pay review cycle so any pay remediation can be effected as part of this process. But, workforces are dynamic with many employee related activities that open up the opportunity for pay inequities to creep back in, which is why we explained in the webinar that pay equity is not meant to be a one-and-done effort. Pay equity can only be maintained through fair compensation management combined with ongoing assessment.

 

What is the best way to conduct an external communication once a pay equity audit is completed?

RT: Communication of pay equity analysis outcomes and mitigation tactics are a critical and sensitive part of a pay equity audit. Choosing who to communicate with is likely to be determined by the goals of the pay equity study. If the objective was simply to quantify legal risk, then an organization may choose not to communicate to anyone outside of the working group. This is accepted as the best way to maintain legal privilege.

As pay equity has emerged as a multi-stakeholder issue, some companies also decide to make a public statement on their pay equity position. In the last two years, a number of larger companies have chosen to do this. It’s worth noting that communicating externally can have a greater impact on employees internally and is a wider demonstration of commitment. Public statements tend to be short and well drafted, having decided what the company is comfortable disclosing. It’s advisable to emphasize ‘fairness’ rather than ‘equality’ and pledge a ‘commitment’ to fair pay rather than specific steps.

 

Should companies include age (along with gender and ethnicity) in their pay equity analysis?

VP: Age is definitely something to consider when doing a pay equity audit. Sometimes age can be seen as a proxy for experience, but that is often not the case. Calculating overall pay gaps is not easy for age, as it is not a characteristic that has two obvious sub-groups, or an obvious baseline. The best things to do is to group ages into reasonably sized ‘buckets’ and then calculate the pay gaps between each. If you are running a regression analysis, include these buckets in the analysis to see if there are any significant differences between them. However, as it is a protected characteristic in many countries, do not use age in any model used to determine pay.     

 

It’s time to prioritize pay equity.

2021 is the year of DEIB, so there’s no better time than now to take a closer look at your organization’s compensation policies and understand if they may actually be contributing to unfairness in the workplace.  

Ensure your employees are being paid fairly by conducting a pay equity audit that will uncover pay differences and help you to understand what factors actually drive pay variance in your organization.

 

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