How To Fulfill The Dream Of Equal Pay For Equal Work

by joshbersin · Published March 14, 2023 · Updated March 22, 2023

On March 14, 2023 the United States will celebrate Equal Pay Day, the symbolic day dedicated to raising awareness of the gender pay gap, which is the difference between the average earnings of men and women for the same work. And according to most studies, this “pay gap” has a way to go.

In 1982, women earned just 65 cents to each dollar earned by men. The differential narrowed, but since 2002, the numbers have barely budged. In 2022, U.S. women typically earned 82 cents for every dollar earned by men, and The Economist believes the gap has now gotten wider.

And this gap is not simply due to the fact that women have lower level jobs. According to the US Department of Labor, “the majority of the gap between men and women’s wages cannot be explained through measurable differences between workers, such as age, education, industry or work hours. It is highly likely that at least some of this unmeasured portion is the result of discrimination, but it is impossible to capture exactly in a statistical model.”

Well I don’t want to shock you but this week we’re launching a groundbreaking study of Pay Equity and we found this problem is deeper and wider than you thought. If you measure “pay equity” as equal pay for equal work (and that, of course, means that you can decide what “equal work” means), only 5% of companies have a comprehensive pay equity program yet 71% believe pay equity is core to their brand.

Definitive Guide to Pay Equity Info Graphic and Research Overview

Why this enormous gap? This is a new and complex business process and frankly most companies just don’t understand it yet. In order to effectively fix pay equity companies have to do a comprehensive statistical analysis of all factors that correlate with pay, examine these factors against each other, and then review them with business managers. And once this happens the company has to make adjustments, communicate the adjustments, and put in place policies to continuously evaluate and prevent the problem.

Consider how easy it is to create inequities in pay. Despite the enormous growth in pay transparency laws (42 states now have pay transparency or equal pay laws), this problem is endemic to the way we run companies. Every time you go into the market to hire a new person you deal with inflation, cost of living adjustments, and particular talent shortages at that point in time. I remember, for example, when data scientists were considered rarified wizards and they commanded $700,000 or more per year. Today you can hire a contract data scientist and often pay $100 an hour or less.

This means incumbents in your company often fall behind new hires, or possibly the opposite. And right now, as inflation rages in the middle of layoffs, software engineers and sales people are seeing their salaries drop in some cities and rapidly rise in others. So your company, which may have employees around the world, is always filled with “unequal” pay situations. (It is perfectly fair and common to pay for cost of living differences, but then the question is what to do when people move? Most companies make adjustments, regardless of level.)

And then, of course, there’s the issue of bias. I won’t repeat all the stories about why men negotiate higher salaries than women (they do), and the experiments with “blind interviews” and “resume masking” to hide gender, race, and age in recruiting. And it gets worse: bias affects who gets new assignments, who gets great projects, and who gets promoted – which in turn results in long-term pay inequities. And even with a solid performance process the actual allocation of pay, even if performance ratings are fair, is subjective. And much of this judgment falls on the hiring manager, with only some guidance from HR.

“Promotion bias” is significant. In the paper, “’Potential’ and the Gender Promotion Gap,” MIT professor Danielle Li found that on average, women received higher performance ratings than male employees, but received 8.3% lower ratings for potential than men. As a result female employees are 14% less likely to be promoted than their male colleagues, resulting in a whole pipeline of pay inequity.

It’s Time To Institutionalize Pay Equity As A Core Business Process

We have now studied this new business practice in detail, and what we found will astound you. Not only is Pay Equity a critical business practice to operationalize, it has enormous benefits for your company. Consider this staggering statistic:

Pay Equity is thirteen-times (13X) more important in employee retention and satisfaction than “level of pay.”

In other words, by not dealing with this issue you create hundreds of pockets of “dissatisfaction” and “unfairness” in your company, which in turn manifests itself in low engagement, turnover, and general malaise. As we analyzed this data we realized that pay inequities are not really about pay: it’s a statement to your employees that “our company is a political place and you, as an underpaid person, are just out of luck.” In other words, once people figure out that they’re not fairly paid, they question everything else around them – including the leadership team, the company’s brand, and of course their teammates.

I remember my time at Deloitte when I figured out how much money some of my peer partners were making. To be honest I almost fell off my chair. Now I’m not saying Deloitte is “not” a pay equity company (I don’t know the answer to this), but just the realization that pay disparities were so massive made me sit back in my seat and wonder if I should be working so hard. I have witnessed employees at certain Big Tech companies making millions of dollars just because they joined early and are “well liked.” Imagine how new engineers feel once they figure this out.

This is not just a problem for highly paid people. Every Starbucks, Chipotle, McDonald’s, or Target employee wonders the same thing. And people who work in the stores wonder why their pay is lower than people working in warehouses, HR, or IT. So we, as responsible leaders, have to bend over backwards to prevent these inequities from happening. And once we figure out how to fix them, we have to communicate, communicate, and communicate what we’re doing.

In our company we have a very clear set of guidelines and we do not “overpay” for top talent. Why do we do this? We know that the teamwork, comradery, and partnership of our team is far more important than finding a “killer hire” who may upset the applecart and cause inequities to happen.

So does this mean you should not pay for performance? Absolutely not: pay for performance is essential to growth and success. In fact later this Spring we are going to launch another important study on Systemic Pay and Rewards and what you’ll see is that companies really should differentiate pay, reward high performers well, and clearly articulate why some people make more than others. But that has to be done in a fair, transparent, and “systemic” way, so we don’t have individual performers going rogue to work against the team.

I want to celebrate Equal Pay Day for several reasons. First, it’s important that we consider this issue real, and one that we, as managers and HR professionals, can address. Second, I want you to see this as not just a bunch of new laws, but a valuable new initiative in business that makes our companies perform better. And third, and perhaps most importantly of all, this effort can help every employee feel better about their life. Nothing feels worse than finding out you’ve been left behind or passed by for some secret or unknown reason.

I encourage you to read our new research and listen to my interview with Kathi Enderes, the author of the study. (Corporate Members can get the in-depth Definitive Guide and an in-depth discussion of Pay Equity Vendors)