Leveraging Pay Equity to Elevate Diversity & Inclusion Goals
Written by Garry Straker
June 18, 2021
Diversity and inclusion initiatives have become a strategic priority among business sectors in virtually every developed labor market across the globe. Here in the U.S., there is a heightened focus on workplace fairness and social justice issues that intensified as movements like Black Lives Matter and MeToo gained national prominence prior to the global pandemic. Organizations of all sizes were quick to issue declarations in support of social justice causes, and many pledged publicly to tackle issues of workplace fairness head-on. In 2020, business priorities and objectives quickly pivoted as the pandemic took hold of the global economy, slowing the pace of Diversity & Inclusion (D&I) progress. While there is still uncertainty as economic activity begins to open up with hopeful optimism, it is clear that stakeholder expectations and scrutiny regarding D&I have not diminished. Organizations and their leaders will need to make further progress in their journey in order to recruit and retain the talent that will drive success in the post-pandemic economy. Addressing pay equity as a key component of a D&I strategy will reinforce the cultural transformation process, strengthen the gains from efforts focused on eliminating workplace bias, and improve recruitment and hiring practices.
Private Industry Leads the Way
Despite the fact that many states have passed new pay equity legislation over the last several years, including most recently Colorado and California, the future of further Federal legislation is unclear. In April, the Paycheck Fairness Act which strengthens and amends the Equal Pay Act, passed the House for the fourth time in 15 years. Previous legislative efforts have never passed the Senate and the same is expected on this occasion, unless a number of moderate Republicans vote in favor. Like just about everything else in the current political climate, pay equity, however it is defined, tends to be a partisan issue.
Private industry on the other hand, has shown a willingness, and in some cases urgency, to take meaningful steps when it comes to pay equity, diversity and inclusion. The business case for greater diversity has been well-studied and documented. If that isn’t enough, organizations are most certainly spurred on by the increasingly intense focus on environmental, social and governance practices (ESG). While ESG ratings have yet to be standardized, institutional investors and credit-rating firms have ramped up efforts to better understand any regulatory and/or reputational risk. It is no coincidence that over 2,000 CEOs are now signatories to the CEO Action for Diversity & Inclusion. Hundreds more have committed to addressing pay equity by making pledges to regional and national initiatives that have cropped up around the country, including the 100% Talent Compact (Boston), Columbus Commitment (Ohio) and Employers for Pay Equity (national). Some are seeking certification from independent third parties (EDGE Certified) to validate and document their progress. In the most recent World at Work/Korn Ferry Workplace Equity Study, 60% of organizations say they are already taking action on pay equity. Notably, there is an increase in pay equity compensation analysis, with 73% conducting analyses once or more per year. The same study found that 70% are taking action on Diversity, Equity & Inclusion (DE&I) with publicly-held and non-profit entities the most likely to do so. Employers recognize that doing the right thing is important, and understand the potential positive impact it can have on organizational culture, employee recruitment, and retention goals.
Industry specific initiatives are also increasingly prevalent. The advertising industry, a longtime harbinger of popular culture, has been particularly vocal and honest about the industry’s shortcomings and the need for change. Consider the number of initiatives in place within this industry sector alone, including:
- Pledge IN for 131 - a pledge to increase the number of black people in advertising agency leadership roles to reflect the US black population of 13% by 2023.
- The 3% Movement2 – An effort to increase the percentage of creative directors that are women and people of color (currently only 3%)
- Six Hundred & Rising3 – and advocacy group for black talent and wage equity in advertising and public relations.
Not only is the advertising industry working hard to get their house in order, industry leaders know that their clients must create a “brand experience” that is appropriately aligned with customer expectations regarding diversity, inclusiveness and tolerance. It is just good business. Judging by the increased level of diverse representation across all advertising mediums in the past year, marketers and their customers are moving in the right direction.
Responding to Employee Expectations
Oh yes, then there is the “employee experience” which is no less important. Despite the good intentions and commitments from employers across all sectors, it is clear there is still much work to be done, even among those firms viewed as progressive and most visible in their proclamations. A recent study by Salary.com1 revealed there are still significant gaps between what employees see as their employer’s intentions, and the actions that have been taken. These findings are consistent with another study by Beqom (2021 Compensation and Culture Report) that states “Most employers have not kept pace with the changing needs of their workforce.” This study further revealed:
- 33% of employees would be willing to take a pay cut to create equal pay within their company
- Perceptions of a pay gap has a negative effect on employee retention, resulting in a 16% decrease in intent to stay
- 58% of employees said they would consider switching jobs for more pay transparency
- 48% of employees would consider switching jobs if another company had a built-out DE&I strategy
- 51% of employees said their company implemented a new DE&I plan this year, yet less than half (48%) said it included an equal compensation strategy
This last finding is most poignant. Pay equity and diversity & inclusion are two sides of the same coin. Doing one without a significant commitment to the other signals to employees that you are not “walking the walk.” Pay practices say a lot about your organizational values and commitment to Diversity & Inclusion. A robust and credible D&I plan must include a commitment to addressing and monitoring pay equity on an ongoing basis. All pay practices and policies should be reviewed, particularly in a remote/in-person hybrid environment, to ensure remote workers do not fall behind on pay and promotions.
There must be alignment and clarity about pay practices in support of D&I goals. If not, the void created by ambiguity around pay practices will be filled by employee perceptions and misinformation, regardless of the reality. This exposes the employer to significant risk, given the high level of scrutiny from all corners.
HR and Total Rewards practitioners should engage in difficult but important conversations about a holistic approach to D&I and pay equity to ensure strategic goals are aligned with organizational values. These conversations must include key leaders to identify and evaluate the risk, and create a pathway for making substantive and sustainable changes that are acceptable to all stakeholders.
1 https://www.pledgeinfor13.com/
2 https://www.3percentmovement.com/movement
3 https://www.600andrising.com/
4 Source: Salary.com December, 2020 DE&I Survey: Intentions and Actions
5 Source: Beqom’s 2021 Compensation and Culture Report
Download our white paper to further understand how organizations across the country are using market data, internal analytics, and strategic communication to establish an equitable pay structure.
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