Obstacles to Pay Equity: Employers and Employees Speak Up

Of all compensation issues organizations have to confront today, and for the foreseeable future, pay equity is increasingly becoming the most defining. Key stakeholders, including employers and employees, agree on the need to have pay equity, but there are varying perspectives on the topic and various obstacles to achieving equitable compensation.

What is Pay Equity?

About 92% of HR executives agree that pay equity is when compensation is internally equitable and competitive externally, and there’s sufficient HR transparency around the pay structure and philosophy. The majority of employers have made progress toward achieving this in their organization. About 61% have set processes in motion to address internal pay equity, while 23% are considering doing it in the near future. Nearly 50% of organizations have set aside resources to close known pay gaps, and 23% intend on beginning the process soon.

Pressure on HR to Achieve Pay Equity

Human resources (HR) professionals are facing increasing pressure to solve the issue of pay equity at their organizations. About 64% say they’re experiencing a much stronger push to address it than a few months ago. Various stakeholders are behind the rising wave of demands to get compensation right for all. Pressure is coming from these quarters:

• Current employees
• Job candidates
• Company leadership
• Society

Due to the pressure from employees, 95% of HR teams recognize pay equity as a differentiator in the competition for talent. However, more than a third of them acknowledge challenges affecting pay equity in their organization.

Employees’ Perspectives

There’s no doubt that compensation matters to all employees–it’s their most important factor when evaluating a potential employer. However, when asked whether they think their salary is fair and equitable, 40% agree, while another 40% disagree. About half (46%) of workers don’t believe their compensation is fair compared to employees in the same position in other organizations. Over a third (37%) of them don’t believe there’s internal pay equity where they work.

Such negative views about their compensation may partly drive the “Great Resignation.” If employees believe that they can get fair pay at another company, they’re more likely to leave their current employer.

Lack of Transparency a Major Obstacle to Pay Equity

When asked by an employee about the formula used to determine their pay, only 34% of HR professionals could provide an accurate and honest response. This shows a glaring lack of transparency among employers. The root cause of this problem is that only 35% incorporate transparency in their compensation philosophy. A similar percentage don’t disclose wage ranges in job postings, indicating that the lack of transparency begins during recruitment. More HR officials indicate a willingness to become more transparent, however.

There’s a need to have a more open dialogue about how companies determine their pay philosophies and compensation structure. Not only can it potentially ensure that employees don’t feel undervalued, but it can also ease the tension between them and their employers.

For assistance with crafting a progressive compensation strategy for your company, contact the experts at McKnight Associates, Inc.  We are ready to offer you hands-on human resources consulting for colleges, universities, medical centers, and organizations of all sizes.