Staying Off the ‘Naughty List’ Is a Growing Concern for HR Leaders

Staying Off the ‘Naughty List’ Is a Growing Concern for HR Leaders

For many years, business publications and research organizations have put out “best employer” lists, ranking organizations based on their employees’ reported job satisfaction, the quantity and quality of their benefits, learning opportunities, and other selling points of the employee experience. These lists offer employers an opportunity to earn some good press and burnish their employer brand, and can be particularly valuable in helping lesser-known companies get their names out there and compete for talent with their higher-profile peers. These lists are typically opt-in: Employers that have good stories to tell submit their information, the top ten or 20 of them get a brand boost, and the rest don’t need to tell anyone they didn’t make the cut.

With more information about organizations’ talent policies becoming publicly available, these lists have evolved to draw on new sources of information and to focus on issues of increasing importance to employees today, like diversity and inclusion or corporate social responsibility. Glassdoor, for example, puts out an annual list of best places to work based on employee ratings and reviews, while Forbes and the activist investment firm Just Capital have begun publishing a “Just 100” ranking of the most socially responsible publicly-traded companies in the US and Bloomberg’s Gender Equality Index highlights companies that are investing in gender equality. The proliferation of best-of lists, however, has led to diminishing returns in their reputational value: Our research at Gartner has found that only 7 percent of candidates say being on one of these lists was an important factor for them in deciding whether to accept an offer from an employer.

The Lists Organizations Don’t Want to Be On

At the same time as the value of a spot on the nice list is waning, a growing trove of publicly available data has led to the emergence of new lists on which employers didn’t ask to be included. Some of these are extensive indices that identify both the best and the worst, like FertilityIQ’s Family Builder Workplace Index, which ranks employers based on the generosity of their fertility benefits. In some rankings, even the best-scoring companies are not great: Equileap recently published a special report on gender equality in the S&P 100, in which the highest grade was a B+. Furthermore, investors, governments, and media outlets have begun to compile what we might call “naughty lists” of companies that are not living up to expectations in terms of fairness, inclusion, transparency, or social responsibility — and you really don’t want to see your organization’s name on one of those.

These naughty lists tend to focus on gender pay equity, executive compensation, handling of sexual harassment claims, and the experiences of diverse employees. One recent, prominent example was a BuzzFeed report in November that pressed leading US tech companies on whether they required employees to resolve sexual harassment claims in private arbitration and called out those that did have such policies or declined to answer (Ironically, the reporters also discovered that BuzzFeed had a mandatory arbitration policy itself). The publication of this report prompted several companies to announce changes in their policies.

The Spotlight of Government-Mandated Transparency

New laws mandating transparency around pay equity and executive compensation are having similar effects. Indeed, a driving rationale for these laws is to compel companies to “do better” by putting their practices under the spotlight. Since coming into effect in 2017, the UK’s gender pay gap reporting requirement for large and mid-size companies has forced high-profile multinational employers in finance, professional services, and other industries to publicly explain large disparities in the earnings of their male and female employees and make public commitments to shrink those gaps. This reporting requirement has spurred UK businesses to act on closing their gender pay gaps, particularly by addressing the underrepresentation of women in leadership roles. On that subject, a UK government-commissioned report last November spotlighted the five FTSE 350 companies with no women on their boards and the 75 others with just one woman.

The UK government is using a similar “name and shame” strategy to rein in executive compensation deemed excessive, with a new law requiring listed companies with over 250 employees to disclose and justify the ratios between their CEO’s salary and the median, lower quartile and upper quartile pay of their UK employees starting next year. The government also regularly publishes the names of all employers that are caught paying their staff less than the national minimum wage, even if they only underpaid a single employee.

In the US, the Equal Employment Opportunity Commission has begun requiring employers to track how much they pay employees of different races and genders; the new rule was halted by the Trump administration in 2017, but civil rights groups contested that decision in court and a federal judge ruled this month that the new EEO-1 form with diversity pay data disclosures should come into effect this year as scheduled, with an extended deadline of May 31. The US Securities and Exchange Commission has also required public companies to publish their CEO-to-median-employee pay ratios since last year.

Investors Are Paying Attention, Too

Investors, meanwhile, are compiling naughty lists of their own: Since 2015, the shareholder advocacy group As You Sow has released an annual list of the 100 “most overpaid CEOs” of the S&P 500, based on a comparison between the CEO’s salary and total shareholder return, as well as how many shareholders voted against the CEO’s pay package that year. Activist investment funds like Arjuna Capital have made a practice of calling out companies on their gender pay gaps and pressuring them to be more transparent, Activist investors are also pushing for major companies to improve the gender balance on their boards.

The New Normal

Whereas it was once relatively easy for big companies to keep quiet about their HR practices and not be noticed unless they had something good to say, today, earning a spot on a list has transformed from an opportunity to a risk. These naughty lists make bigger splashes in the news than the nice lists, and we expect them to have a greater impact on candidates’ and employees’ decisions about whether to join or stay at your organization. This emerging challenge requires HR leaders to make important decisions about how to keep their organizations off the naughty lists, as well as how to respond to the dubious honor if and when they do end up there.

Three Ideas for HR Leaders
  1. Be Proactive. If you land on one of these lists, should you address that issue with your current and prospective employees or not? It may be tempting to ignore it, but your employees and candidates are going to see it, react to it, and talk about it among themselves. If you communicate with employees about these lists, you get to be a part of that conversation and potentially mitigate the harm to your employer brand, but you also run the risk of calling attention to something many employees and candidates didn’t know about. Despite this trade-off, we consider proactive transparency the better choice in most cases, because if employees are going to find out regardless, better they hear an accurate version of the story from you than get incomplete or inaccurate information secondhand and feel like you tried to hide it from them.
  2. Look Deeper. Externally-imposed transparency increases the urgency of addressing the underlying issues. HR policies that didn’t look like problems before are cast in a new light when third parties are making lists of “bad” companies. In many cases, the changes you’d need to make are things HR wants to do anyway, but now they have an additional longer-term strategic benefit of keeping you off the next edition of the naughty list.
  3. Engage With the List Makers. You must start to engage with the third parties that are creating these lists whenever you have the opportunity. This is critical, because the data underlying their rankings may not be accurate and doesn’t tell the whole story of what your organization does and why. Communicating directly with the list-makers will help them make better-informed decisions about how to evaluate your practices in the proper context.

This post is published for informational purposes only and does not constitute legal advice or an opinion on the legal matters discussed within. Employers should consult their general counsel whenever they have questions pertaining to laws, regulations, or potential liabilities.