ReimagineHR: 3 Objections to Pay Transparency, and How to Overcome Them

ReimagineHR: 3 Objections to Pay Transparency, and How to Overcome Them

Employees today are more likely than ever to demand transparency about compensation practices at their organization. Total rewards leaders agree that pay transparency would benefit the organization in numerous ways. Yet even though everyone seems to be on board, organizations are slower to adopt this practice than you might expect. In our latest research at Gartner, 60 percent of the organizations we surveyed said they had not yet acted on pay transparency at all, while only 14 percent had fully realized it.

So why aren’t we making faster progress toward an outcome all stakeholders agree is the right thing to do? In a session at Gartner’s ReimagineHR event in London last Thursday, Advisory Leader Ania Krasniewska armed the total rewards leaders in attendance with strategies for surmounting obstacles to pay transparency and getting senior leaders and line managers at their organizations on board. Here are some of the most common reasons why organizations shy away from pay transparency, along with some counterarguments HR leaders can use to win over a skeptical CEO:

“It’s just a trend.”

The pressure organizations are facing today to be more transparent about their compensation practices comes from several directions: Millennial employees expect more transparency than previous generations did, employees have more access to (often inaccurate) pay information from outside sources like Glassdoor or PayScale, and governments and the media are advocating transparency as a means of driving pay equity. For an executive wary of pay transparency, it may be tempting to reason that these trends will eventually pass, but there is good reason to believe otherwise.

While Millennials and Gen Z are the employee cohorts most commonly associated with demands for pay transparency, they’re not the only employees who want it. Like other Millennial-driven trends in the workplace today, the younger generation of employees is simply more vocal in demanding things that in fact, employees of all ages would like. Their attitudes also influence their parents, neighbors, and older colleagues. Millennials aren’t the only ones using Glassdoor: Many of the employees who use these external sources to compare their salaries with those of their peers are in senior positions at their organizations. Furthermore, Millennials aren’t going away; they are already the largest segment of the workforce and Gen Z will eventually be even bigger. Gambling that these generations will stop caring about pay transparency later on is a very risky bet.

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Study: White Employees More Likely to Succeed When Asking for Raises

Study: White Employees More Likely to Succeed When Asking for Raises

In a new study, the pay transparency and compensation data analysis site PayScale surveyed over 160,000 US employees to find out who is asking for raises, who is getting them, and what determines whether a request is granted. It will come as no surprise to leaders versed in the challenges of diversity and inclusion that the survey turned up gender and racial gaps, not in how likely employees were to ask for a raise, but rather in how successful they are in getting them, Aimee Picchi reports at CBS Moneywatch:

Compared with white men, people of color are significantly less likely to receive raises when they ask supervisors for more money. The reason may boil down to bias, although it’s unclear whether it’s due to overt or unconscious bias, said PayScale Vice President Lydia Frank. … Women of color are 19 percent less likely to have received a raise than white men, while men of color are 25 percent less likely, the analysis found. The research found that no ethic group was more or less likely to have asked for a raise than any other group. …

Workers are often told it’s up to them to ask for a raise, but the findings suggest that employers should scrutinize their own processes for distributing pay hikes, Frank added. “If people don’t receive the same consideration, employers have a responsibility to ask how do we ensure everyone is treated fairly,” she noted.

The study did find a meaningful difference between men and women in terms of rationale among those who don’t ask for raises, with 26 percent of women saying they didn’t ask for a raise because they felt uncomfortable negotiating their salaries, compared to 17 percent of men. Still, the study doesn’t support the notion that women experience pay gaps because they are less likely to negotiate their pay; PayScale notes that it found ” no statistically significant difference in the rates at which women of color, white women, men of color and white men ask for raises.”

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After Pay Ratio Disclosures, Employees Will Have Questions About Their Pay

After Pay Ratio Disclosures, Employees Will Have Questions About Their Pay

A regulation mandated by the 2010 Dodd-Frank financial reform legislation and adopted by the Securities and Exchange Commission in 2015 requires public companies to publish the ratio between the compensation of the CEO and the median annual compensation of every other employee in their proxy statements, starting with the 2017 fiscal year. The regulation was left in place by the Trump administration, although the SEC has made it slightly easier for companies to comply.

Not surprisingly, as companies have started to share this information, much attention has been paid to how much CEOs earn. The net result of this information coming out is the rather unsurprising insight that most CEOs make a lot of money. Companies have rightly been more worried about reporting the median employee salary, which some business groups have said is difficult to calculate and to communicate.

The intent of the rule was that by publishing this information, companies would have an incentive to raise the average wage of their employees to lower their CEO-median employee ratio in comparison to their peers. After all, as the denominator grows bigger, the ratio gets smaller. While there is certainly some truth to this effect, a much more interesting effect is emerging as companies release information about the median wage of their employees. Some of these disclosures are eye-popping; Facebook, for instance, reported a median employee salary of over $240,000, according to the Wall Street Journal, but of course this doesn’t count all the subcontracted workers it uses for services like security, cleaning, and food service at its facilities.

One of the observations we have made about the reporting of the median employee pay data is that, by definition, half of employees are paid below average. While some employees realize that they are paid below average, and are accepting of it, for a significant number of employees this certainly comes as alarming news. But now that more companies are reporting this information, we get to see how median employee compensation compares across companies. Deb Lifshey, Managing Director at Pearl Meyer & Partners, LLC, discussed these comparisons in a recent post at the Harvard Law School Forum on Corporate Governance and Financial Regulation:

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5 Things Most Companies Don’t Realize About Pay Equity

5 Things Most Companies Don’t Realize About Pay Equity

Pay equity and pay gaps, especially the gender pay gap, have been drawing greater and greater attention in recent years, both among corporate leaders and in the media. As organizations ramp up their diversity and inclusion strategies, they are feeling a need to close these gaps to demonstrate that the organization is serious about not only hiring for diversity, but also ensuring that compensation is fair for women and minority employees.

However, the coverage of pay gaps in the popular press often misses key details about the problem that compensation leaders need to understand to face this challenge effectively. Here are five things you might not know about pay equity that will make a real difference in your ability to achieve it:

1) Pay Equity Actually Refers to Two Things

Pay equity issues in companies can come from two sources: group-to-group gaps and role-to-role gaps. These terms are often used interchangeably in the media, glossing over an important distinction between gaps among different groups of employees, where pay differences are based on something other than gender or race, and role-to-role gaps, where two employees are paid differently for doing the same job. In the first case, you may have women concentrated in lower-paying roles than men (such as female nurses and male doctors, or male principals and female teachers), which may reflect an unfair distribution of expectations and opportunities, but compensation executives can’t directly and immediately control for those factors (although they can collaborate more broadly to influence them). A role-to-role gender pay gap, on the other hand—male nurses earning more than female nurses—is something compensation leaders can and should address.

Both group-to-group and role-to-role gaps contribute to the pay equity problem as a whole, but it is important to recognize that your compensation strategy alone can’t solve them both.

2) The Problem Is Bigger Than It Looks

In the US, the gender pay gap is often reported at around 20 percent, meaning women earn about 80 cents for every dollar men earn (and women of color earn substantially less). At a large-scale global organization, CEB (now Gartner) research has found, the average gap is even wider: 27 percent. However, that doesn’t all reflect pay discrimination: 9 percent is attributable to choice of occupation; 6 percent to organizational factors like size, industry, or geography; and 5 percent to human capital factors like differences in education and experience.

The gap that remains unexplained is 7.4 percent, and that is the discrepancy that can be ascribed to no other factor than gender. This is the role-to-role gap—and that’s the part that rewards professionals can actually fix. HR owns this gap has an obligation to close it before it becomes a serious problem for the organization.

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Survey: Executives Fear Employees’ Reactions to CEO Pay Ratio Disclosure

Survey: Executives Fear Employees’ Reactions to CEO Pay Ratio Disclosure

The CEO-employee pay ratio disclosure rule adopted by the Securities and Exchange Commission in 2015 will require public companies to publish the ratio between the compensation of the CEO and the median annual compensation of every other employee in their proxy statements, starting with the 2017 fiscal year. In response to employers’ concerns over how to comply with this rule, the SEC issued guidelines late last month that give companies some flexibility in deciding how to calculate the ratio in order to reduce the cost of compliance.

Despite the commission’s efforts to ease the burden, leaders at these companies remain concerned over the impact these disclosures will have on their workforces. A new survey from Willis Towers Watson illustrates some of these anxieties, finding that one half of companies say their biggest challenge in complying with the rule will be in anticipating their employees’ reactions to the disclosure:

The poll also found that almost half of respondents (48%) have yet to think about how or even if they will communicate the pay ratio to employees. About four in 10 (39%), however, are preparing leadership to respond to employees’ questions. Less than two in 10 respondents (16%) are prepping managers to have discussions with employees, while 14% created a detailed communication plan to educate employees. A similar number are not planning to say anything to employees.

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The Ups and Downs of Pay Transparency

The Ups and Downs of Pay Transparency

The topic of pay transparency remains controversial and even divisive in the business world, with proponents arguing that it forces employers to set compensation more fairly and rationally, and can help close pay gaps for women and other historically underpaid cohorts. Critics of pay transparency, on the other hand, doubt that it is an appropriate tool for closing these gaps and warn that it will tend to backfire when employees find out they’re earning less than their peers, and less than they think they should. In a recent article at Fast Company, Pavithra Mohan hears from leaders at several organizations that have adopted pay transparency practices about how the experience has played out. One such company is Crowdfunder, which introduced salary transparency in an effort to close pay gaps:

Still, not all employees responded favorably when Crowdfunder started publicizing salaries. Employees who were underpaid received raises and were “instantly gracious,” according to [company president Steven] McClurg, but “it was the people that were overpaid that were like, ‘Well, why don’t we get raises too?’” Their argument, he says, was essentially, “We’ve been here just as long as these people have; we perform. Just because we negotiated a higher pay coming in and we constantly negotiate our pay doesn’t mean that we should suffer.”

It may come as little surprise that most of these employees were men, McClurg reports, and that most have since left Crowdfunder. This is a common critique—that salary transparency can lead to a lot of employees “lobbying for change,” including where it isn’t warranted. Employees who think they’re underpaid may feel dissatisfied and leave the company as a result.

On the other hand, Mohan notes, “If the cost of offering a fairer shake to women and people of color is employee attrition elsewhere, some employers still see it as a net gain”:

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Pay Transparency Is About Process, Not Outcomes

Pay Transparency Is About Process, Not Outcomes

Numerous tools and websites have emerged in recent years that have given employees increased access to compensation data (such as Glassdoor, Payscale, and Salary.com, to name a few). This increased transparency has fundamentally changed how employees, managers, and employers need to think about compensation conversations. Many employers are now actively debating whether to become more transparent about compensation, and some may feel like they have no good options. Publicizing what everyone in the company earns, after all, can be a blow to morale when employees find out their peers make much more than they do but don’t understand why.

On the other hand, keeping pay information under wraps looks increasingly like a losing battle, and may harm performance in a different way: A recent study highlighted at the Association for Psychological Science found a correlation between pay secrecy and a deterioration in team communication and performance:

In [Cornell University professor Elena] Belogolovsky and colleagues’ new study, 146 business students at a Singaporean university were told they would be solving a series of puzzles for cash prizes. … The students were told they could earn up to 8 Singapore dollars (around $6 US dollars) per round over 6 rounds depending on both their individual performance relative to the other members of their team and whether they were a “team player.”

In the secrecy condition, the students’ score was displayed along with their cash payment for that round. In the transparency condition, their score was shown along with a bar graph displaying their pay relative to that of their team members. Throughout the experiment, confederates followed a pre-scripted schedule of requests for help, and the speed and quality of their helpful responses were also pre-scripted. The results suggest that pay transparency encouraged participants to go to the most skilled individuals for help. When pay was secret, participants had no way to accurately judge their colleagues’ expertise and were less likely to turn to the most qualified “expert” teammate for help.

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