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.”
Coming at a time when Silicon Valley is struggling with sexual harassment scandals, allegations of gender pay discrimination, and a spotty track record overall at creating a welcoming work environment for women, a new analysis of US tech companies by Redfin and PayScale points to one obvious step tech companies can take that might go a long way toward solving those problems: namely, promoting more women into leadership positions.
For the study, Redfin examined executive teams at 31 of the largest tech companies in the US and compared those with a high rate of women on their executive teams (over 25 percent) to those with a low rate (under 20 percent), while PayScale looked at the salary profiled of over 6,500 current and former employees of these companies. Their combined analysis found that pay gaps between men and women were significantly lower at companies with high rates of female leadership: 91 cents to the dollar among all employees versus 77 cents on the dollar at companies with low rates. Correcting for job level and experience, the gap narrowed considerably but was still smaller at companies with more women executives (98 cents to the dollar versus 96)
This analysis is not the first to draw a link between women in leadership and narrower gender pay gaps. A study of bank branch employees published in the Academy of Management Journal earlier this year also found that women working as tellers under female managers were paid about the same as their male counterparts, while those managed by men were paid about 7.5 percent less.
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.
PayScale’s 2017 Compensation Best Practices Report suggests that managers’ skills at communicating with employees about pay are a blind spot for many organizations, Mykkah Herner, PayScale’s modern compensation evangelist, writes at TLNT:
The research revealed a number of interesting insights when it comes to managers, including:
- Only 11% of respondents strongly agree that employees have a great relationship with their direct managers.
- A mere 17% strongly agree that there is frequent, two-way communication between managers and employees.
- Just 19% were very confident in managers’ abilities to have tough conversations about pay.
- And yet, 38% of managers are communicating compensation information to employees; that number jumps to 53% among enterprise organizations.
Even with low confidence in manager’s abilities to talk effectively about pay, only 30% of respondents said their company offered managers training about conducting compensation conversations. And, of those 30% who do offer training, most organizations still lack confidence in their managers’ ability to talk about pay successfully.
“Talking about pay is important,” Herner adds, “because it establishes the groundwork for a trusting relationship,” but there is a bit of a chicken-and-egg problem with that statement: The best managers are those who maintain frequent performance conversations with their direct reports, which both builds trust between manager and employees and better situates each party for the pay conversation. However, for most employees and managers, the first formal meeting of the year is the performance and pay conversation, which is the best opportunity to establish that foundation of trust. So while it makes sense intuitively that effective pay conversations lead to more trusting relationships or merely coincide with them is harder to prove.
However there is a far more important reason for managers to be good at pay conversations, which is that effective pay conversations improve employee pay perceptions and strengthen the link between performance and pay.
Few business decisions come in for quite as much public scrutiny as how much money the CEO makes. In an era of widening income inequality, and considering that CEO pay has grown faster in recent decades than that of the average employee, executive compensation is more than ever a political issue, engendering considerable debate over whether this particular line item in the budget should be subject to government regulation or perhaps a staff vote. Into this mix comes a new US survey from PayScale and Equilar that compares CEO compensation to that of their employees and seeks to find out what employees think about that gap. Most employees, they find, don’t know how much money their CEO makes, and among those who do, most don’t have a problem with it:
Overall, we found more than half of employees don’t know what their CEO is paid, which makes sense considering that of the roughly 27 million businesses in the U.S., less than 1 percent are publicly traded. Private companies don’t have to follow the same disclosure laws as public companies, and executive pay is therefore generally not public knowledge. But unexpectedly, among employees who did have knowledge of their CEO’s salary, only 21 percent thought it was excessive, leaving 79 percent who didn’t see a problem. Even among employees who disapproved of their CEO’s salary, 43 percent said the information didn’t negatively impact their opinion of their company.
In an era of increasing demands for transparency and fairness in pay, many employers are retooling their salary structures to make them more rational and less mysterious, the Wall Street Journal’s Lauren Weber discovers:
A look at how one company, web-services firm GoDaddy Inc., overhauled its pay structure illustrates how and why employers are trying to bring greater transparency and logic to compensation. Until recently, GoDaddy, which has headquarters in Scottsdale, Ariz., and offices in Kirkland, Wash., Silicon Valley and several other U.S. locations, was like many companies when it came to pay decisions. “The process was, ‘what did we pay the last person? Let’s pay the new person what the last person was making,’ ” said Matt Toeller, who arrived at the company in July 2015 to set policies to steer pay decisions for GoDaddy’s 5,000 employees. Some employees were paid too little, while others earned too much based on their location or experience. …
The company now pegs pay at the 70th percentile of the market rate for engineering roles, he said. To better match GoDaddy’s workforce to the broader benchmarking data, his team spent nearly four months mapping out job descriptions, which they used to create levels for each title—such as software development engineer—to reflect the range of workers’ skills and responsibilities. Each level has a pay grade with a wide salary range.