With rumblings of a recession on the horizon, the world’s CEOs are rightfully concerned about the economic atmosphere of 2020. Paradoxically, they may not be concerned enough about the one thing that will help them weather the looming storm: pay equity.
According to a recent survey from The Conference Board, recession risks, global trade uncertainty, and intensified competition rank as the top external challenges on CEOs’ minds this year. As for internal challenges, CEOs are most worried about attracting and retaining the top talent their organizations will need to rise to these external threats.
Curiously, however, CEOs rank equal pay for equal work as No. 16 out of a list of 19 internal challenges, suggesting they don’t see closing the pay gap as a particularly pressing matter at the moment.
It’s understandable why. As beqom cofounder Tanya Jansen notes, the big-picture economic issues can easily overshadow more seemingly minor problems, like individual employees’ salary levels. But Jansen also sees a flaw in this thinking: “While these issues are certainly of great importance to leadership in a variety of industries, focusing on only these ideas will likely drive top talent to companies that demonstrate that they care about equality for their employees.”
In other words: Companies want to prepare themselves for a potentially trying year, and they need top talent to do that, but they’re overlooking the key to landing that top talent in the first place. Unwittingly, CEOs may be setting themselves up for failure.
If You Want to Recruit and Retain the Best, You Need to Share Their Priorities
In a 2016 survey, 69.44 percent of respondents told Paychex they’d leave a job if they felt the salary was too low, making this the top reason for turnover. Benefits were another a major factor in the decision to look for work elsewhere: 44.27 percent of respondents said they’d head out the door if the company didn’t offer sufficient benefits.
The gender pay gap in particular can also drive employees to leave. In a survey conducted by beqom, 37 percent of respondents said they would “seek a job at a company that disclosed a lower gender pay gap than that of their current employer.”
But why has salary fairness become such a critical concern for today’s talent? Aside from the obvious fact that everyone wants to be compensated appropriately for their work, Jansen notes that two trends in particular are influencing “the progressive shift toward fairness and equality in the workplace.”
“This is partially due to the tight labor market, which makes hiring and retaining employees a challenge and shows employees the potential value and opportunity for fair pay at another employer,” she says. “But it is also in part due to employees’ increasing pressure on companies to provide equal pay and equal opportunity in the workplace.”
The tight talent market — the very thing CEOs are worried about — both makes employees value equal pay more and gives them the leverage to demand fairer pay from employers. By placing pay equity so low on the list of concerns, CEOs may actually be preventing themselves from capitalizing on one of the most powerful tools for attracting and retaining talent right now.
“A lack of focus on compensation equality from leadership is certainly making attracting and retaining top employees in any industry more challenging,” Jansen says. “If willing to take steps to address pay inequities within their organizations, leaders and HR professionals can leverage pay equality and compensation transparency as a differentiator for their company for recruiting and retention purposes.”
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If anything, Jansen believes pay equity will only become increasingly important to recruiting and retention efforts in the coming years. As more and more employees demand fair pay — and more and more companies actively take steps to address their pay gaps — those organizations that trail behind will find their talent pools growing smaller and smaller by the day.
To put it bluntly, Jansen says that “companies that choose to ignore this societal progression will ultimate lose out on attracting and retaining the best candidates.”
Fair Pay Begins With Pay Transparency
If CEOs truly want to win the war for talent, they’ll need to make pay equity more of a priority. For that to happen, it’s likely the HR department will have to step up and make the case. In that event, Jansen recommends avoiding the “emotional component and guesswork … of compensation-related decisions” and relying on hard numbers instead.
“HR professionals can show leaders the advantages of providing equal pay and transparency through industry data,” she says. “For example, they can provide an analysis of retention rates for companies that provide fair pay versus companies that do not.”
The other key component of any pay-equity initiative is employee messaging. Sure, fair pay is the ethical thing to do, but there’s a business component, too: It’s good for employer branding and employee engagement. To reap those benefits, the HR team will need to make sure that current and future employees alike are aware of the company’s efforts to close its pay gaps. After all, according to the beqom survey cited above, 29 percent of employees cannot identify any actions their employers have taken to close or prevent gender pay gaps.
“Some companies are nervous to be transparent about where they may be lacking, but communication is key to creating an environment where employees feel valued,” Jansen says. “Backing up this acknowledgment of areas for improvement with plans to make a change, or progress thus far, is key in delivering this message to employees, potential candidates, and stakeholders.”
In addition to transparently communicating about existing gaps and efforts to close them, organizations should also be transparent with each individual employee about what they’re earning and why. One way to offer that insight, according to Jansen, is to provide employees with total rewards statements that tally up the value of every piece of their compensation package, from salary and bonuses to benefits, equity, and anything else they might receive in exchange for their work.
Finally, Jansen stresses the importance of making bonus structures transparent. Without clearly defined criteria, bonuses lend themselves all too well to discriminatory pay practices — whether leaders are conscious of it or not.
“There should be clear goals and objectives that employees must meet to determine their bonus,” Jansen says. “This leaves little room for potential bias when this structure is properly in place, as an employee should be able to look at his or her bonus and understand how that particular amount was determined based on the goals and objectives they achieved.”