Pay Equity and Compensation Benchmarking

A primer for businesses looking to expand their knowledge on JEDI+B, compensation benchmarking, and profitability

Written by researcher at large Joseph Hart & Katherine Day
Edited by Natalie Bair & Ernest Stephens ll

Many businesses have been vocal about their commitment to Justice, Equity, Diversity, Inclusion, and Belonging.¹ However, vast gaps in salaries still exist.² These inequalities disproportionately affect women and people of color – who both fall into the categories of marginalized and minitorized populations, meaning that they are systematically disadvantaged within a given society – thus compounding existing imbalances.³

Pay equity and compensation benchmarking can work together to address these imbalances. Narrowing the gender and racial pay gap is a legal requirement.⁴ But, solving these issues also drives productivity, revenues, and employee engagement and retention.⁵

When approaching the realm of pay equity and compensation benchmarking, we want to examine benchmarking against aggregated data, and make systemic corrections.

What is pay equity?

Pay equity means ensuring workers get equal pay for equal work. It examines roles that require the same or similar duties and seeks to eliminate any unfair disparities. Pay equity also adjusts for other characteristics, such as relative:

• Level of experience
• Job performance
• Credentials
• Length of time with the company

Each similar job should be paid equally once you account for the above factors. Protected characteristics, such as gender or race, should not be causal factors in pay inequity.

Why is pay equity important?

Pay equity is vital for several reasons:

• It’s a legal requirement⁶
• It helps address existing socio-economic disparities between races, ethnicities, and genders
• Commitment to DEIB helps attract better talent
• Pay equity reduces employee turnover
• It protects an organization’s reputation

What is compensation benchmarking?

Compensation benchmarking measures an individual business’s salary levels against the broader market. It uses data about salaries from other companies to get a rough idea about what specific roles pay. Organizations can then use this data to drive pay decisions.

Why is compensation benchmarking important?

Compensation benchmarking is vital because it provides an objective method to measure compensation against the market. The data can help employers quantify how competitive their packages are when compared to similar-sized businesses.

Implementing regular compensation benchmarking helps organizations make more informed and precise decisions about compensation and benefits. Additionally, this data can be used to convince shareholders that staff is providing value for money.

Overall, compensation benchmarking helps employers attract and keep employees. By understanding what salaries and benefits competitors are offering, businesses can make smarter decisions that ensure their staff is motivated. Additionally, a commitment to these practices shows they respect their employees, which builds trust and loyalty.

Furthermore, retaining employees helps reduce recruitment costs and reduce the lowered productivity caused by staff turnover. Both of these activities can help your businesses become more profitable.⁷

What can managers and employees do to correct these imbalances?

Pay equity has become a major topic in recent years. Social movements like #BlackLivesMatter and #MeToo brought the subject of inequality to the forefront of the national conversation. While these issues dealt with broader topics, they also sparked conversations about unequal outcomes based on race and gender.

Some of the things that drive inequity include:⁸

• Lower starting salaries for minoritized populations (wherein society grants less power to certain groups of people)
• Discrimination during appraisals and promotion
• A lack of managerial training on what pay equity is and why it’s important

Identifying the causes of unequal pay is a good start. But, more work needs to be done to effect change.

One positive is that many organizations are being required to perform pay equity audits.⁹ However, having this information won’t close the gap on its own.

Transparency is required to affect change. While employers are being forced to publish salaries, a lot can be done at the management level.

For starters, talking about payment in the workplace is still something of a taboo. Many workplaces still encourage a culture of secrecy around compensation.

Managers have an obligation to advocate for pay equity. And this begins with open and frank conversations about compensation. By addressing these issues, employees will have a better idea about what constitutes fair pay.

There are a lot of factors that go into creating a healthy work culture. Fair pay is a powerful predictor of job satisfaction.<sup”>10 Additionally, more transparency around the factors that drive pay differences is essential. When employees understand policies around pay differences, it increases trust.¹¹

Of course, employees can still access information about salaries even in environments where compensation secrecy is the norm. Several compensation data websites have sprung up in recent years and lifted the lid on pay disparities.

These sites can empower workers by showing them average market salaries for their roles. Additionally, many of these platforms provide reported salaries for specific organizations. In effect, they help employees to know their worth in the market. By understanding these figures, employees can head into negotiations with a fixed idea of what pay their work deserves.

Pay equity and compensation benchmarks are a competitive advantage

Salaries are most organizations’ most significant expenses.¹² As a result, many managers equate keeping control of compensation with responsible budgeting. However, suppressing wages is a type of short-term thinking that actually harms revenue.

If organizations address equal pay, it can give them a competitive advantage. This edge can be used to drive productivity and revenues.

Three in four employers say they struggle to find skilled workers.¹³ Competing for the next generation of talent is essential to ensure company growth. Millennials want to work for employers that share their values.¹⁴ And one of the most consistently highlighted values is a commitment to JEDI+B.

Similarly, businesses that fail to commit to JEDI+B ideologies and practicies will struggle to keep staff. Employee retention is essential for business continuity and productivity. The costs of replacing a staff member are typically far more than their salary.¹⁵ Additionally, further inefficiencies are shown by ELTV calculations that lay bare the cost of high staff turnover.¹⁶

Another dimension to consider is customer perception. Again, Millennials consistently highlight their preference for brands that make a commitment to social issues.¹⁷ These preferences include JEDI+B, sustainability, and environmental responsibility. As this generation becomes the most influential consumer group and ages into management positions, their sensibilities will drive the economy.

Businesses that don’t proactively address inequality risk reputation damage. This can hurt sales and revenue and even lead to a reluctance for other companies to be associated with a brand. For many vendors, this could be catastrophic.

Moving forward

Implementing pay equity is both a legal and a moral imperative. It also affects your bottom line. To stay competitive and attract (and keep) your best employees, it is crucial to understand pay equity and compensation benchmarking. Contact us today to discuss your company’s approach to pay equity.  We’re here to help you reach your goals, design and implement your program, or transform your business to new heights.

Resources:

1. https://leadershipcircle.com/en/products/jedi-b/
2. https://www.pewresearch.org/fact-tank/2021/05/25/gender-pay-gap-facts/#:~:text=Women%20ages%2025%20to%2034,from%2036%20cents%20in%201980.
3. https://www.americanprogress.org/article/women-of-color-and-the-wage-gap/
4. https://www.ncsl.org/research/labor-and-employment/the-current-state-of-equal-pay-laws.aspx#:~:text=Federal%20Action,same%20skill%2C%20effort%20and%20responsibility.
5. https://www.shrm.org/hr-today/news/hr-magazine/spring2020/pages/importance-of-pay-equity.aspx
6. https://www.eeoc.gov/statutes/equal-pay-act-1963
7. https://www.forbes.com/sites/billconerly/2018/04/19/new-evidence-that-low-employee-turnover-correlates-with-high-profits/?sh=481e23f0138e
8. https://www.aauw.org/app/uploads/2021/09/AAUW_SimpleTruth_2021_-fall_update.pdf
9. https://www.dol.gov/newsroom/releases/ofccp/ofccp20220315
10. https://www.shrm.org/resourcesandtools/hr-topics/compensation/pages/pay-benefits-satisfaction.aspx
11. https://www.beqom.com/2021-culture-compensation-report-employee-attitudes-employer-responses-effective-rewards-strategy
12. https://www.paycor.com/resource-center/articles/closer-look-at-labor-costs/
13. https://www.bloomberg.com/opinion/articles/2022-02-04/2022-worker-shortage-u-s-needs-to-boost-top-talent-to-stack-up-to-china#:~:text=More%20than%2050%20million%20Americans,people%20with%20the%20requisite%20skills.
14. https://www.gallup.com/workplace/336275/things-gen-millennials-expect-workplace.aspx
15. https://finance.yahoo.com/news/true-cost-replacing-employee-210002822.html
16. https://www.greenhouse.io/blog/employee-lifetime-value-understand-roi
17. https://www.5wpr.com/new/research/consumer-culture-report/