Research Summary: The State of Pay Equity 2020

Advance your talent objectives by analysing and addressing pay equity issues

    

Compensation can help organizations reach important goals such as employee engagement, higher productivity, healthier operations, and full legal and regulatory compliance.

By ensuring pay rates are equitable within their organizations, companies can often advance those corporate goals. However, attaining that state of equity can be a challenge given historical pay gaps among gender, ethnic and other groups that were traditionally viewed as “minorities.”

For the purpose of our report, we defined equitable pay/pay equity as follows:
It is comparable pay for work of equal or comparable value. It can also mean equal pay for employees who are similarly situated and have the same job function. The goal is to eliminate bias from the labor market, especially in the area of compensation and wages.

To better understand the degree to which organizations are embracing pay equity--particularly with respect to offering compensation that is competitive, measurable, ethical and defendable-- HR.com’s HR Research Institute conducted an extensive study and wrote a full report, The State of Pay Equity 2020.

On average, the World Economic Forum (WEF) found that women make just 63% of what men make for the same work, and earn 50% less than men each year overall.

In fact, The 2020 Global Gender Gap Report,¹ released by the WEF, estimates that it will take 99.5 years for gender economic equality between men and women to be achieved around the world. At the current pace, for example, gender gaps can potentially be closed in 54 years in Western Europe, 59 years in Latin America and the Caribbean, 95 years in Sub- Saharan Africa, 107 years in Eastern Europe and Central Asia, 151 years in North America, and 163 years in East Asia and the Pacific.

Along with gender income disparity, U.S. women have remained vastly underrepresented in leadership positions in the country, according to the WEF. For example, the forum's report noted that, among U.S. companies, only 21.7% of members of corporate managing boards are women.

Several countries are putting laws into effect to make pay more transparent and equitable. Though some gaps are closing, there is still much work to be done across the globe. This report will delve into the overall state of pay equity today and share what organizations can do to improve equity.

Participants were asked to rate their organization in the area of pay equity based on their perceptions. Just 9% indicate pay equity is excellent and about another third (31%) say it is good, totalling two-fifths (40%) of participants.

Among organizations that do not already have equitable pay, about two thirds (64%) think pay will become more equitable over the next two years. Just 9% of participants, however, say pay will be much more equitable, while more than half (55%) think pay will be somewhat more equitable.

More than one-third (36%) report pay equity will not change because it is not a priority. This suggests that while many organizations think pay will change somewhat, most do not think pay will become much more equitable over the next two years.

When asked how high of a priority pay equity is to executives at their organization, just 6% says pay equity is a top priority, and another one fifth report it is among the top five priorities. The remaining three-quarters either say pay equity is one of the many competing priorities but not near the top (42%) or not an organizational priority at all (33%).

 

Three-fifths of participants (59%) say their organizations focus on pay equity to retain the right talent and another half (53%) say they do so to recruit the right talent. A sense of fairness, reported by nearly half of participants (47%), probably matters to both retention and recruitment.

More than a third (38%) of HR professionals cite legal/regulatory considerations or requirements as one of the drivers of equitable pay. It’s clear, therefore, compliance issues also help drive the need for equitable pay in many organizations.

Participants were asked to indicate the extent to which they agree their organization analyzes and leverages data to increase pay equity and reduce pay gaps. Only two-fifths (42%) indicate that this is done to any extent, with 31% agreeing and another 11% strongly agreeing.

Among organizations that analyze and leverage data in an effort to increase pay equity, virtually all review at least one variable to help determine if there are pay gaps and what might be causing them. Among those that conduct such analyses, 77% include performance in their calculations. About two thirds also look at organizational role. Many (59%) also consider education and 53% consider tenure with the organization. Half consider business
outcomes, maybe with an eye toward gaining more valid insights into performance.

Indeed, we believe that the notion that performance is usually correlated with pay may be an example of wishful thinking for some companies. After all, other HR.com studies show that many organizations are not measuring performance well. In fact, only about a third of HR professionals believe that the performance management system in their organizations “accurately portrays employee performance.” ² This represents a conundrum. If few systems accurately portray performance, then how can most organizations make pay equitable?

Among organizations that analyze and leverage data in an effort to increase pay equity, the majority (76%) look at pay among comparable jobs. Such data can potentially be gathered using external benchmarking data and internal data.

Three-fifths compare pay within pay bands (60%). Among organizations that analyze and leverage data in an effort to increase pay equity, the majority (76%) look at pay among comparable jobs. Such data can potentially be gathered using external benchmarking data and internal data. Three-fifths compare pay within pay bands (60%).

As discussed previously, the number one variable organizations look at to address pay equity issues (when they conduct any analysis at all) is performance (77%). Yet, two-fifths (42%) of HR practitioners say that in their organizations, there is no assumption that higher pay is given to better performers. One reason for this is that performance reviews can include too many subjective components that make raises and bonuses arbitrary in nature.

Participants were asked to indicate the job levels their organizations are investing in terms of detecting, preventing, and closing the pay equity gaps. Only 28% of participants say their organization invests in closing the gap at all job levels, which is somewhat surprising given the very public discrimination cases that exist across a variety of positions and levels.³

Organizations more commonly invest in establishing pay equity among roles that include management VP, director, and manager (35%) and senior executive/C-suite (31%).

Investing in closing pay equity gaps at the EVP or SVP levels occurs less than one-quarter of the time.

When asked to indicate the constituents at the organization who are involved in formal communication pertaining to action plans for predicting, preventing, and closing pay gaps, nearly two-thirds (63%) say formal action plans are communicated with C-level/senior executives. Only one-quarter communicate action plans to all managers (25%) and/or middle managers (22%). About 8% communicate pay equity action plans to individual contributors, and 15% do not communicate them with anyone or do not have action plans to begin with.

For the purpose of this survey, we define "actively investing in the understanding of the pay equity gap" as expending resources on developing and implementing good metrics that are used to create or use initiatives that improve pay equity.

Only one-fifth of participants say their organizations are actively investing in closing pay equity gaps to a high (13%) or very high (7%) degree. Participants most commonly report that their organizations are actively investing at a moderate rate (43%). Together, these three groups comprise nearly two-thirds of participants.

To learn much more about the survey results and insights and for strategic takeaways, we invite you to read the complete report.













Notes 

¹ World Economic Forum. (2019). Global Gender Gap Report 2020. 
² HR.com. (2019) The State of Performance Management 2019: Learn about the current state and future direction of performance management. 
³ Noguchi, Y. (2019, March 8). #MeToo Awareness Sharpens Focus On Pay Equity.npr