In April 2017, new regulations came into effect in the UK requiring all organizations with 250 or more employees to publish their gender pay gaps. One year later, the first round of mandatory reports showed that the median pay gap among those reporting stood at 9.7 percent, with 78 percent of firms paying men more than women. On a more granular level, the reports illustrated the great degree to which women’s underrepresentation in senior roles, especially those with high bonus potential, contributes to the pay gap in professional fields.
Now, a committee of MPs is urging the government to expand the reporting mandate to smaller firms, as well as to require companies to publish their plans for closing these gaps, the Guardian reported last week:
All companies with more than 50 employees should have to report their gender pay gap from 2020, said the business, energy and industrial strategy committee (BEIS). Currently only firms with more than 250 employees have to report their gender pay gap, leaving half of the UK workforce without knowledge of their workplace’s gap. The committee said the government had to take fresh action to close the gap, and should force companies to publish action plans and narrative reports about what they were doing to narrow it.
It also criticised the government for “failing to clarify the legal sanctions available to the EHRC [Equalities and Human Rights Commission] to pursue those failing to comply and we recommend that the government rectifies this error at the next opportunity”.
The committee called out those companies that excluded partner pay from their pay gap reports, including many of London’s major law firms, which its chair Rachel Reeves said “made a mockery of the system.”
Laura Hinton, chief people officer at PwC, told the committee that it was time for British businesses to start thinking about gender pay equity as more than just a compliance concern and couple their pay gap reporting with concrete action plans and accountability. The committee is proposing that boards of directors introduce key performance indicators for reducing pay gaps and that remuneration committees be required to explain how their pay policy decisions reflect their commitment to pay equity, according to Personnel Today.
Following an internal review of its pay practices, Nike is raising wages for more than 7,000 of its employees worldwide, the New York Times reported on Monday, in order to equalize compensation among employees in the same roles:
Nike cast the pay changes as part of its effort to maintain a corporate culture “in which employees feel included and empowered,” according to an internal memo sent to staff on Monday. The New York Times reviewed a copy. The company, which is based in Beaverton, Ore., said the changes would affect about 10 percent of its 74,000 employees worldwide. … Nike also announced changes in how it will calculate employee bonuses, which were based on a combination of corporate, team and individual performance. They will now be determined mainly by the company’s results.
Nike reviews pay every year, the memo noted, but conducted what it called a “deeper analysis” this year as part of its investigation into alleged problems that were driving many women to quit. Addressing the discrepancies found in this audit will be expensive for Nike, but one thing most companies don’t realize about pay equity is that this cost of closing pay gaps increases each year, so it will never be cheaper for Nike (or any company) to correct this problem than it is today. Pay gaps don’t have a “one-and-done” solution, however, so it’s important for organizations to continue scrutinizing pay practices from year to year to spot the re-emergence of these gaps and take proactive steps to ensure that their pay practices remain equitable. (CEB Total Rewards Leadership Council members can read our entire landmark 2017 study on pay equity here.)
The change Nike is making to its bonus calculations is also notable, as it reflects the growing understanding of how variable compensation such as bonuses contributes to pay gaps. This “bonus gap” occurs when more men than women (or more white than non-white employees) are promoted to the high-level positions that make them eligible for bonuses, or when unconscious bias affects the performance judgments managers make in awarding them. The significance of the bonus gap was illustrated in the gender pay gap reports UK employers were required to publish earlier this year: Financial firms in particular found that their bonus gaps, in some cases amounting to over 60 percent, were bigger factors in their overall gender pay gaps than differences in base pay.
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.”
US Labor Secretary Alexander Acosta (Shawn T Moore/Department of Labor/Flickr
Last month, Bloomberg BNA’s Ben Penn and Porter Wells reported that the US Department of Labor was planning to relax a policy put in place by the Obama administration to vigorously enforce regulations prohibiting gender pay discrimination by organizations that contract with the federal government. The department was said to be issuing new guidance to supplant a 2013 directive that had given the Office of Federal Contract Compliance a mandate to audit federal contractors for salary bias and make its own determinations as to whether workers were employed in identical or comparable roles for that purpose.
The OFCCP had used that directive to force substantial settlements from several large employers over alleged pay discrimination, and it has been at the center of the ongoing dispute between the Labor Department and Google over pay discrepancies the office has said indicate widespread discrimination (Google vigorously denies this and claims to have no statistically significant gender pay gap at all).
The new guidance, Penn and Wells explained, would “allow businesses to shape the random Labor Department audits by determining which workers investigators should be comparing for possible pay bias” instead. This change would be in keeping with Labor Secretary Alexander Acosta’s approach of assuming good faith on the part of businesses and allowing them to admit and correct compliance issues without fault rather than pursuing investigations and lawsuits. After these plans came to light, however, the department may be backtracking, Allen Smith reports at SHRM. Mickey Silberman, an attorney with Fortney & Scott in Denver, tells Smith that the OFCCP, Labor Department, and various stakeholders are now discussing the proposed changes.
Vermont Governor Phil Scott signed legislation on May 11 that will bar employers from asking job candidates about their salary histories during the recruiting process, Littler Mendelson attorney Joseph A. Lazazzero reports at Lexology:
The new law, H. 294, effective July 1, 2018, prohibits asking a prospective, current, or former employee about or seeking information regarding his or her compensation history. For these purposes, compensation includes base compensation, bonuses, benefits, fringe benefits, and equity-based compensation. Under the new law, employers are also prohibited from requiring that a prospective employee’s current or past compensation satisfy minimum or maximum criteria for employment. If an employer discovers a prospective employee’s salary history, the employer may not determine whether to interview the prospective employee based on this information.
Like similar prohibitions in other states, Vermont’s new law still allows employers to confirm a candidate’s past pay if the candidate discloses it voluntarily, as well as to ask about candidates’ salary expectations. When the bill was introduced in the state legislature in January, its sponsors told Vermont Public Radio that it would help close the state’s gender pay gap, which stands at around 16 percent for full-time workers. The original bill also instructed the Vermont Department of Labor to collect new data on gender pay disparities in the state, VPR reported at the time, but this provision does not appear in the final bill signed by Scott last week.
Downtown Philadelphia (OAnderson/Shutterstock)
A federal judge has partly struck down the ban on salary history inquiries passed by the city of Philadelphia last year, ruling that a prohibition against asking candidates about their past earnings infringes employers’ First Amendment right to free speech. However, US District Judge Mitchell S. Goldberg concluded in his ruling, issued Monday, that the city did have a right to bar employers from basing salary offers on that information as a means of combating wage discrimination:
I conclude that the City’s Inquiry Provision violates the First Amendment. Although the Ordinance represents a significant positive attempt to address the wage gap, the First Amendment compels me to enjoin implementation of the Inquiry Provision. The Reliance Provision, however, does not offend the First Amendment and remains intact.
Accordingly, Joseph DiStefano reported at the Philadelphia Inquirer, both the Chamber of Commerce for Greater Philadelphia, which pursued the lawsuit, and the city found something to celebrate in Monday’s ruling. DiStefano gets a local attorney’s take on what it means for employers:
Under Goldberg’s ruling, “employers have to be careful. You can ask for their prior salary. But, once you know the salary, it’s very difficult to ‘unring that bell,’” and claim there was no discrimination, if employees later find they were underpaid relative to others in the same job, [Tracey Diamond, an employment lawyer at Pepper Hamilton LLP,] added.
Organizations today are increasingly compelled to pursue pay equity for a variety of ethical, reputational, and business reasons, and HR is the most essential contributor to that effort, though it is not the only one. In a recent article at Talent Economy, Zenefits Chief People Officer Beth Steinberg outlined some key steps HR leaders and professionals can take to commit their organization to closing pay gaps based on gender or race. Her first piece of advice? “Get the leadership team on board”:
Establishing and promoting pay equity starts with leadership. That doesn’t mean that HR is powerless, but HR is handicapped without support from senior leadership. If leadership isn’t already on board, HR needs to make the case for pay equity and show why it’s important to the bottom line. Fairness, especially fair pay, is a huge factor in employee engagement and motivation. When there is a lack of fairness, people become disengaged.
The takeaway? The CEO and leadership team need to understand the importance of paying employees equally. Cultural tenets and values of a company are no longer intangible benefits that reside in a handbook; people want to work for companies that walk the walk, which necessarily includes, but is not limited to, ensuring fair compensation.
Steinberg’s other key action items for HR are to “do the due diligence” and “create a pay structure that employees understand … rooted in research and solid methodology,” and to be prepared for tougher questions about pay equity from more savvy and better-informed employees: “Around compensation, most people can handle a decision that they don’t agree with as long as they understand that the decision was done in a way that’s fair,” she notes. “And the new generation of employees is going to be more vocal in asking about these things.”
Much of her advice here resonates with the actions our Total Rewards team at CEB, now Gartner, recommends that organizations take based on the findings of our major 2017 study of pay equity.