Video: Why Employees’ Perceptions of Pay Equity Matter

In our recent pay equity research at CEB, now Gartner, one of our key findings was that employees tend to perceive pay inequities based on gender or race as larger than they really are. These perceptions have a direct and significant negative effect on retention and morale, creating a bottom-line reason for organizations to communicate more openly with their employees about pay gaps that exist within their workforce, what they mean, and what the organization is doing to address them. Our Total Rewards team has produced the above video to help employers better understand the importance of pay equity perceptions.

Our own Ania Krasniewska also highlighted this subject in her recent overview of the five things most companies don’t realize about pay equity:

[T]he gender pay gap and pay inequality are often conflated in the public consciousness, and most employees don’t have the same nuanced understanding of group-to-group and role-to-role gaps as compensation leaders do. That means they often think pay gaps are larger than they really are or that they exist in places they don’t. In our research, we’ve found that employees tend to overestimate these role-to-role gaps and that women tend to overestimate them more than men.

When employees perceive a pay gap, regardless of whether their perceptions are correct, this has a direct, negative effect on employee retention resulting in a 16 percent decrease in intent to stay. That’s 50 percent worse than the typical impact of a pay freeze. Because pay equity perceptions have such a strong influence on retention and employee morale, it’s incumbent upon organizations to be more transparent and communicative with employees about their pay gaps and what they are doing to close them. Fewer than 20 percent of organizations we surveyed said they communicate this information externally or to employees.

Even as more organizations take on the challenge of closing their pay gaps, and as governments like the UK begin to mandate public disclosure of these gaps, most organizations don’t feel confident that they’re succeeding at addressing pay equity. No matter what, understanding the problem is an important first step toward solving it.

Our research has looked at how several organizations are taking innovative and proactive approaches to addressing their pay gaps, and CEB Total Rewards Leadership Council members can read all about them and more findings from our pay equity study here.