Morten Brøkner
25. sep. 2023
How to get there?
How to get ahead of the Fair Pay curve to ensure both legal compliances, but more importantly to gain a lead competitive advantage over your competitors?
In this article on Fair Pay, I am providing my perspectives on how to elevate the Equal Pay and Transparency debate to another level than just being compliant and competitive in your local labor markets. Not because you have to - but because it is what you wish to do. We have already seen on the US labor market*, that applicants are beginning to deselect employers that do not demonstrate a fair and transparent pay practice, and this trend is moving faster than any EU or country legislation. So, time might be limited to get things in order if you want to stay (or get) ahead of the curve.
But how do you become the preferred employer of choice when applicants are looking for their next career opportunity? Not just because of the attractiveness of the job alone or the size of the paycheck - but because your company show the integrity of being the fair and transparent employer you truly wish to be. Offering the right pay for the job, not because you must, but because you want to. Taking pay transparency to the highest denominator of fairness with the practice that draws headlines – what some would call ‘an employer with an attitude’.
Read more below on how to take the double leap on both the legal compliance of the EU Pay Transparency Directive AND harvest the advantages of being the preferred fair employer of choice.
Part II: How to get there?
How do you get to a point in your Talent and Reward practice where males and females are mostly offered the same pay for the same job with all other non-gender factors being equal – when you are hiring, promoting, or just offering a lateral move in the organization?
Public scrutiny is going to be your biggest headache or opportunity – depending on how you approach this. Especially your younger generations (Gen-Z) values ethical standards higher than their back pocket. A recent study shows* (Monster Poll: Workers Want Pay Transparency) that job seekers in the US are starting to select transparent employers with public and honest pay ranges over those still hiding their pay policy. In other words, if you don’t have a public pay range (externally and internally) you are trying to cheat me for fair pay. So, lack of transparency equals no trust!
Likewise, your current employees are now more likely to debate top management decisions internally on the intranet (hello Viva Engage here we come again…), not fearing for their job security or future career if they feel that their top management are lacking integrity or making wrong decisions.
So just imagine a situation where a company’s top management decided to NOT disclose their pay levels (or decide to hide these again if initial disclosure caused unintended debate and pushback from employees) and it caused an internal riot on Viva Engage for pay transparency and insights into top managements own pay. Or how decisions and compliance is being made on current pay-setting practice within the company. Then you just add that this goes viral on public news and debate forums – exposing the company to be in reality an unfair and un-transparent employer when push comes to show. Would you like to lead HR or the Reward practice through such a crisis?
So how do you engage in defining a solid strategy for getting your Pay Philosophy implemented? Well, here is an easy 4 step approach which has proven its strengths.
The road towards a Fair and Transparent Reward practice
Maturity Assessment: Conduct a 360dgr. assessment of existing HR & Reward processes and practices.
Reward Philosophy: A binding promise to deliver a fair, competitive, and sustainable pay proposition to People, Leaders, and Owners.
Embed into People Processes. Implement the transparent Reward model across all relevant HR & reward tools and processes.
Communicate and Govern: Communicate & guard the new reward value proposition to all existing and future employees
Conduct a systematic maturity assessment of your current talent and reward practices.
This provides a deep and valuable insight into the current ‘state of the nation’ in your company. But it also gives the opportunity to engage your HR colleagues in the process of making your company a better place to work.
Do your company have the needed tools and systems in place to guide and facilitate leaders making the right decisions on staffing and pay distribution?
You are only half the way when being able to prove equal pay at a given point in time, you also need to be able to prove that you are managing your people and reward actions in a fair and transparent way all the time – i.e. if you are not fully where you want to be, you can at least show that you are working purposefully to improve fairness and pay equity in your company.
And what about equal representation of genders in jobs and levels – have you thought about that?
How much of the pay difference is caused by in-equity, and how much is caused by unequal representation of genders doing the same job of comparable worth to the company?
If you fix the un-equal representation and at the same time, ensure to set pay the right way (i.e., based on the same fair and objective principles and in a transparent and fair way) => problem solved in one go!
Do your current HR & reward processes work as intended?
Have people leaders learned and accepted how to make the best use of their annual salary budgets to ensure the right and unbiased distribution of pay across their teams, setting salaries right in the company pay ranges when conducting promotion or external hiring – and not least following a structured and unbiased approach to staffing so that a healthy representation of genders and fair chance to be considered for a promotion are ensured?
Getting the Pay Philosophy on the go?
Based on a thorough maturity assessment you are ready to engage with your Top Management (and potentially the Board of Directors) in formulating a binding pledge to your key stakeholders – the Owners, the Leaders and, not least your People. It’s about understanding the value drivers of your Pay Philosophy, that will build a long-term sustainable reward model.
The Company: A sustainable, ethical, and cost-effective reward model that attracts, engage, and retains the right people and at the same time drives increased performance.
The Leader: An agile and compelling leadership tool that enables the right decision to drive individual performance and attract & retain the right people.
The Employee: A clear understanding of how their job fits into the organisation and that compensation is directly linked to this, as well as the broader job market – and not least their individual contribution. It is not so much about the money, as it is about communication, perceived fairness, and trust.
And your Top Management must walk the talk in setting pay the right way. A strong, clear, and well communicated Pay Philosophy underpinned by well-designed reward processes will be worth nothing, if your Top Management are not on board on this and living the change through their actions. Make sure your CxO’s know the consequence of having a trust building Pay Philosophy. They need to live the change through their decisions from the first hiring or promotion they do, and for the next hundred following this. Exceptions, explainable or not, to your pay pledge to your people are a toxic pill to the trust into the validity of your pay strategy.
Leadership capabilities, communication and training of people leaders?
What is the current level of skills and knowledge on how to handle pay setting in your organization – among HR partners and People leaders?
Communication, communication and communication is what it takes. Plan for thorough ‘train the trainer’ skill-building of your HR colleagues so they are ready and well equipped to deliver ‘just in time’ training to their people leaders on the ‘new thing’ happening in Reward. As reward is a sensitive area to deal with challenges, it’s all about taking a factual and honest position from where the change begins. If things are looking bad from the beginning of the journey towards pay equity, then be clear about this and show the path towards better times ahead. This will help leaders to tackle difficult conversations with their employees, and the HR partners to support these.
And remember, many ‘wrong’ reward decisions are made in best faith because it’s based on current practice and understanding among leaders and HR colleagues of what is the right thing to do. I.e., why offer a coming female leader more than she is asking for or the usual 8-10% pay increase that ‘I got back in the day’. Well, the reality is that the typic midpoint differential from current to new job level (the ordinary progression of a promotion) is a 20 to 30% pay increase depending on how and where your salary ranges are set. So, the first step towards pay fairness is to stop the systematic underpayment of those people deciding to stay with your company instead of leaving for better (and market level) pay elsewhere.
So, all change starts with somebody breaking the patterns and making the first bold move to do something in a new and better way – and then the rest will follow…
References:
* Monster Poll: Workers Want Pay Transparency. Nearly all (US) workers (98%) believe companies should put salary ranges in job postings, and more than half (53%) would decide not to apply for a job that doesn’t.
** Based on own experience across a number of global Danish organizations. A 2023 study by PayScale also shows that when comparing equal pay for equal jobs in North America, they found a gender difference of 1% (0,99$/1,00$ from males to females), when looking at the Controlled Gender Pay Gap adjusting for all measured compensable factors on salaries for 758,000 people in the U.S
*** Joint pay assessment: Employers must, in collaboration with employee representatives, carry out a joint pay assessment if these three conditions are met:
The reported pay gap between men and women is greater than 5%
The pay gap cannot be justified by objective, gender-neutral factors.
The employer has not corrected such an unjustified difference within six months of the date of submission of the reporting.
Background Readings:
DIRECTIVE (EU) 2023/970 OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL of 10 May 2023 “to strengthen the application of the principle of equal pay for equal work or work of equal value between men and women through pay transparency and enforcement mechanisms”
https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:32023L0970
Eurostat: Gender pay gap in the EU
WHAT IS THE GENDER PAY GAP?:
https://commission.europa.eu/system/files/2022-11/equal_pay_day_factsheet_2022_en_1_0.pdf
Boomers hate to talk about pay, but 81% of Gen Z welcomes full Candor:
Here’s how pay transparency is going in 2024: