By Cassandra Faurote, founder and CEO of Total Reward Solutions, LLC and member of NAWBO Indianapolis and NAWBO Kentucky
Savvy business owners understand that people matters fuel business success. They know that focusing on diversity, equity and inclusion can enhance the company’s reputation in the marketplace. And they recognize that valuing and respecting employees makes it easier to attract, motivate and retain this most vital resource. Unfortunately, not all business owners are quite so savvy. Instead of prioritizing pay equity, they end up sacrificing long-term success for short-term cost savings. How serious is the problem? Why does pay equity matter for people matters? And what is the solution? Let’s take a look:
The Scope of the Pay Equity Problem
Pay equity has been a persistent problem for generation after generation of workers. A recent Workspan article reported these statistics:
• Women earn 80 cents for every dollar paid to a man.
• African American women earn 63 cents for every dollar paid to a man.
• Hispanic women earn 54 cents for every dollar paid to a man.
Sadly, these facts are not surprising. Despite having the Equal Pay Act in effect since 1963, the problem endures, with only modest gains in closing gender pay gaps. Nonetheless, the Equal Employment Opportunity Commission (EEOC) considers pay equity a strategic priority (and has since 2012). They are now asking for more pay data upfront in audits.
The statistics may begin to tell the big-picture story, but this problem ultimately affects individual workers and their families. Employees care deeply and stand ready to leave their employers over pay equity issues. In fact, according to a recent Randstad U.S. Survey, four out of five women indicated they would switch employers to achieve greater gender pay equity. And 53% of employees believe unequal pay is the top factor impacting gender inequality.
While many states, cities and counties have taken the initiative to address the pay equity problem—such as by banning questions about salary history on job applications—a workable national solution remains elusive. Sadly, the US ranks a dismal 49th worldwide for gender equality according to the World Economic Forum.
Why Pay Equity Matters
Businesses, of course, pay the price for allowing the issue to continue, both financially and in terms of their corporate reputations. These days, it’s easy for an employee to do an online search for, and to file, a discrimination suit in any state. As a result, many organizations have had to pay high-dollar settlements and watched their public perception become tarnished. It can take many years to regain the trust of the public, consumers and employees when a suit is filed, let alone when the complainant prevails.
Even if lawsuits aren’t filed, employee disengagement can carry a heavy cost to the organization as well. Consider this example, assuming an employee earns $50,000 annually:
|
IMPACT OF DISENGAGEMENT ON EMPLOYEE VALUE TO AN ORGANIZATION |
||
|
Engagement Level |
Investment Return Ratio |
Annual Employee Dollar Value |
|
Highly Engaged |
1.25 |
$62,500 |
|
Engaged |
1.0 |
$50,000 |
|
Somewhat Disengaged |
.6 |
$30,000 |
|
Disengaged |
.4 |
$20,000 |
As this example shows, if an employee earning $50,000 annually is highly engaged (i.e., satisfied and motivated), they bring $62,500 in value to the organization. But if pay inequity or other factors cause them to become disengaged, they can quickly become worth only $20,000 in value to the company.
How to Achieve Pay Equity
While it’s unreasonable to expect that every woman and man be paid exactly the same in the same job, pay disparities should occur only due to differences in experience, job performance and tenure. It is worthwhile and cost-effective for companies to review jobs and close unwarranted gender pay gaps. If the gaps are too large to be closed with a one-time increase, it might be possible to implement increases every six months until the inequity is fixed. (It pays to undertake this same initiative regarding inequities for minorities and other protected classes.) Studies have shown that companies with a formal process to address pay equity have 13% higher employee engagement. What’s more, fairly and properly compensated employees tend to be happier and more productive. Doing nothing, however, carries significant legal and financial risks for the organization.
Competitive pay and pay equity are vital for employee attraction, motivation and retention. To make sure your company is well-positioned with fully engaged workers, schedule an internal compensation analysis focused on discrimination and pay equity. After all, true commitment to diversity and inclusion demands commitment to pay equity, too.
About the Author
To learn more about Cassandra Faurote and the Total Reward Solutions team, please visit www.totalrsolutions.com.