Published: May 14, 2020Time to read: 6mins Category: Compensation
The Real Cost of Pay Inequality: More Than Just $160 Trillion
In order to remain compliant and fair, organizations must take a proactive and aggressive approach to eradicating pay inequality. Tom Sykes, Director of Product Management for PeopleFluent, explains how organizations can leverage compensation management software to avoid putting their company’s reputation at risk and losing millions of dollars.
The loss in human capital wealth due to gender inequality is estimated to be twice the value of GDP globally, roughly $160.2 trillion. This is based on research done by World Bank Group which asserts that a 21.7% global increase in human capital wealth could be attained and total wealth could increase by 14% with gender equality in earnings. Statistics aside, paying individuals equally—regardless of race or gender—for performing the same job should be a given for corporations who believe in doing what is right. The unfortunate reality is that biases still exist within organizations and it will take a collective effort to overcome these critical issues to achieve pay equality.
Legislation like the Equal Pay Act of 1963 and the Ledbetter Fair Pay Act of 2009 are just two protections that have taken aim at closing the gender wage gap. In 2018, the U.S. Equal Employment Opportunity Commission (EEOC) and the Department of Justice entered into an agreement with the specific goal of identifying and penalizing employers who engage in pay discrimination. Yet, corporations still struggle with providing fair, equitable pay for all employees—even with the 2019 federal ruling which requires the EEOC to collect employee pay data for 2017 and 2018. To be compliant with the EEOC’s demands, pay data provided by employers must be broken down by race, gender, and ethnicity.
Since and before the aforementioned ruling, pay transparency has revealed vast disparities in pay for women and non-white employees. This begs a few critical questions: Do business leaders understand the real cost of pay inequality? And if so, what efforts should be taken to narrow the gap and continue on a path of fairness and pay equality for all employees, regardless of gender or race?
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The Gap is Closing, But Not Fast Enough
Women in full-time roles, especially women of non-white ethnic groups, continue to earn less than men in the same position—according to research from the U.S. Census Bureau, a median of $9,909 less annually. If the pace of change in annual earnings ratio remains the same as it has since 1960, pay parity between men and women won’t be reached until 2059. Even more staggering is the World Economic Forum’s recent estimations that it will be another 257 years before the global gender pay gap closes.
While it’s difficult to accept that pay disparities still exist in an era of heightened progressivism, closing the pay gap isn’t just the responsibility of lawmakers. There are many factors keeping it alive and hindering further change. Some of the main factors resulting in the gender pay gap include:
- biases against working mothers
- racial and ethnic biases
- occupational segregation
- direct pay discrimination
This is by no means an exhaustive list of factors, especially as different groups of women experience different pay gaps. Making pay equality a reality will require further action from policymakers, HR and business leaders, as well as employees. For starters, we must all understand how to identify disparities in our organizations and how to take action against discriminatory practices. Otherwise, the consequential impact of pay inequality will continue to affect us all.
By self-advocating, women have seen an incremental narrowing in wage gaps. Based on data from a report by Hired.com, women have started asking for salaries that align with their worth. These efforts have elicited an 8% decrease—between 2017 and 2019—in the frequency of women asking for lower salaries than their male counterparts. Unfortunately, this is simply not enough. The onus of change must be placed upon decision makers rather than solely resting on the shoulders of marginalized individuals themselves.
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A Call to Action for Business Leaders
On the corporate level, business leaders should have very stringent guidelines for developing and managing compensation planning. An audit of the company’s existing compensation structure can ensure it meets regulations and/or allows decision makers to identify and correct any practices that may be deemed non-compliant. The pay data can then be used for internal analysis to remain compliant while staying in step with the company’s culture. This review can—and should—facilitate a top-down adoption of ‘zero tolerance’ for discriminatory pay practices.
Companies need to take a deeper look at why pay gaps are occurring within their organizations. Aside from the usual factors which result in gender pay gaps, there is one that is not directly linked to compensation planning: biased placement into high-level positions. When senior roles are filled based on a gender or race bias—such as promoting predominantly male candidates—it has a direct impact on pay equity. This is typically unintentional, yet it presents a great case for HR leaders to audit and review their existing practices to ensure change can occur.
Finally, pay transparency should be a company-wide practice ingrained in an organization’s overall philosophy—rather than an annual task required by law. Managers should be empowered to have open and detailed conversations about compensation with their employees. In order to be successful in these multiple efforts, companies need the right tools at their disposal.
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It Takes a Village… And a Plan
The old adage, “it takes a village,” typically refers to raising children but the deeper meaning stands true in any arena. Ensuring a fair and equitable compensation strategy will take time and consistent effort from employees, business leaders, and legislators. If you find yourself asking, “what more can I do to narrow the wage gap?” consider your individual role and the potential impact it can have on doing away with pay inequality.
Narrowing these wage gaps and developing a fair compensation strategy requires continual analysis and reporting to avoid pay inequity. Companies can avoid negative press and hefty penalties by leveraging the right compensation planning software that aligns with your compensation strategy. Along with the right tools, having a top-down philosophy that fosters transparent communication can make your organization a competitive employer with a legally defensible compensation structure.