Pay Equity Mini Series: What you need to know
This mini-series is designed to shed light on the concept of pay equity in organisations (with a focus on gender), offering insight into why it exists, what benefits it can offer businesses and how to go about implementing it in your business.1. What is pay equity and why does it matter?
2. Does pay equity improve organisational performance?
3. How can we affect pay equity change in our organisations?
In this first episode, we’ll be defining pay equity and determining the historical (and contemporary) significance of it in today’s business sphere.
According to 2017 research from Stats NZ, women in New Zealand are paid (on average) 9.4% less than men for the same role. The year before, the pay gap was 12%. When you consider the fact that it was legal for businesses in New Zealand to set separate rates of pay for men and women in the same job (as well as exclude women from certain job functions) until the Equal Pay Act 1972, we seem to be doing pretty well. However, there is still work to be done before we reach the point where every member of a business is compensated fairly for the work they do.
In the words of the U.S. National Committee on Pay Equity, pay equity is ‘a means of eliminating sex and race discrimination in the wage-setting system.’ This definition is often misconstrued – it doesn’t imply that everyone across a business should be paid the same, but rather that people who are doing the same job with the same qualifications should be compensated equally, regardless of gender, race or other social identifiers. Pay equity is closely intertwined with other issues, such as the marginalisation of minorities in the workplace and the absence of women from many senior management teams.
Once upon a time, New Zealand was among the top 10 countries in terms of the percentage of women in upper management – in 2004, management teams were comprised on average of 31% female members. In 2018, that number has nearly halved, sitting at 18%. Those women who are in stakeholder roles are still affected by pay inequality – according to EY research, female executives in New Zealand receive less incentive pay or stock overall than men, and their earnings are more exposed to a decline in a company’s market value than men’s.
So why does pay equity matter?
For starters, society has progressed to the point where it is only fair that pay equity become a staple in New Zealand organisations. The stereotypical roles that men and women used to play in the home and at the office no longer apply across the board, and business’ payroll practices are the next area that need to change to keep up with this social progression.
Beyond that, having a pay equity strategy has been proven to actually have a number of hugely beneficial effects on organisations, such as a healthy company culture – organisations that implement transparent and fair pay systems send a positive message about their values. Employees are not only looking for the right job, but also for a company that displays a good foundation of values toward social issues. This kind of Corporate Social Responsibility (CSR) is also increasingly important in the eyes of stakeholders and potential clients.
Pay equity can also improve the profitability of your organisation. According to research from the Australian Bureau of Statistics, a 10% reduction in gender pay inequality could boost labour productivity by up to 3%. This is due in part to the idea that employees who know they have an equal playing field are more likely to maximise their productivity and effort in order to excel. It’s also due to reduced turnover from dissatisfied or undervalued employees, as well as increased commitment and diversity. In companies with such policies in place, employees become brand advocates and promote your business for free – easy marketing!
Pay equity benefits not only your business, but also the economy as a whole – people are incentivised to enter and remain in paid work. Women in particular will therefore have greater financial independence and increased personal capital.
Pay equity is ‘a means of eliminating sex and race discrimination in the wage-setting system’ – it means people with the same qualifications delivering the same job should be paid the same. New Zealand used to be a model country for pay equity, but its position has been sliding in recent years.
Not only is pay equity fair and just, it’s been proven to boost morale, productivity and overall business success.
There are a number of other ways in which pay equity can be hugely beneficial for organisations – continue to episode two of this mini-series to read more.
In this second episode, we’ll be looking at the research that proves the organisational benefits of pay equity, both from New Zealand and around the globe.
Pay equity can seem like a costly expense for a business – management is being asked to shell out significantly more compensation to many of its employees, and what for? What tangible benefits will the organisation actually see?
According to 2017 research from Westpac and Deloitte, New Zealand has the opportunity to grow its economy by NZ$881 million by having better gender parity in business. That’s equivalent to a 0.33% increase in GDP, or a 1.5% profitability boost for business. That parity, meaning businesses have a more even spread of genders, is directly correlated with pay equity – only 29% of managers in NZ are women, but we can encourage more women to take management roles by offering them the same salary as their male counterparts.
Westpac NZ Chief Executive David McLean claims that the research clearly shows the benefits of having women in decision-making business roles. “I’d argue gender parity is a common-sense priority for businesses wanting to boost the diversity of thought, experience and skills in their organisation. All these things lead to better business performance.”
Australia: Productivity and pay equity go hand-in-hand
As you might imagine, history has shown that an individual’s work effort is closely related to their wage. Therefore, in theory, the gender pay gap discourages women from exerting maximum effort in their job – this is because they’re undervalued and there is less opportunity for them to reach their full potential in a higher-level role. Pay inequity has also historically resulted in a decline in female labour participation (there is understandably less incentive to remain at a company when pay systems aren’t set up in your favour), which consequently lowers real GDP per capita.
Research from the University of Canberra, Australia, finds that eliminating the gender wage gap would boost long-term labour productivity by 5.7% and contribute an additional AU$93 billion to the economy. This is due in large part to two things:
- Companies have an easier time attracting and retaining talent when they have pay equity policies in place because employees are attracted by an employer’s commitment to progressive societal causes.
- Having an equal playing field incentivises women to maximise their effort in the workplace because they’re being fairly rewarded for their work, thereby boosting productivity
Many organisations acknowledge the need for equity but aren’t sure what measures to take in order to implement it. The first step is by determining what your business’ current pay equity and HR policies and practices are through a comprehensive pay equity analysis – this is an analytics solution that involves evaluating remuneration data and other variables to determine whether or not a business is practising pay equity.
Want to learn more about pay equity analysis? Either continue to the final episode of this mini-series, or fill out the following business challenge form to chat with one of our consultants about your specific needs.
There are a number of tangible benefits (both on an individual business basis and for the economy as a whole) to improving pay equity throughout Australia and New Zealand. These include:
- An increase in overall GDP
- Boosted productivity
- Less resource spent on attracting/retaining talent
Luckily, there are ways to mitigate your organisation’s pay inequity. Stay tuned for the final episode of this pay equity mini-series to learn in-depth about pay equity analyses and how one could change your business.
In this third and final episode, we’ll take a look at how businesses can implement pay equity strategies – beginning with an analysis of their internal HR data.
Now that you know what pay equity is and why it’s beneficial for businesses, it’s time to look at how your organisation can affect pay equity change. In theory, the steps to doing so are fairly straightforward:
- Determine whether your employees are doing equal work and have equal qualifications
- Compare the pay between men and women who are doing equal work with equal qualifications
- Determine whether or not there is any pay inequity, and if there is, remedy it in conjunction with management and HR
In reality though, especially for larger organisations, this is easier said than done. In order to truly understand your organisation’s salary data beyond the surface level, you’ll need to do a pay equity analysis.
What is pay equity analysis?
Falling under the category of HR Analytics, pay equity analyses are recommended when remuneration data doesn’t have the depth or number of variables necessary to give a rounded picture of the gendered salary ratio. The first step to a pay equity analysis is to determine how your business records, reports and uses HR data – this will determine the exact level of analysis needed and the approach you’ll want to take.
Once the goals of the analysis have been outlined, you’ll be able to determine what data you have and what extra data you need. In most cases, salary information from HR will not be enough to give the full picture. For example, remuneration data will often suggest that men are paid more than women overall, but this can sometimes be explained by men and women occupying different roles within the business (men tending to have higher paying job functions than women).
Pay equity analysis involves regression modelling, a technique that adds multiple variables into the analysis in order to offer the most rounded picture of the situation. Using the insights from the analysis, you’ll have a much clearer idea of what your pay equity practices are – from there, it will be easier to determine:
- What the drivers are (if any) behind inequity
- What kind of HR information you’ll need to collect going forward
- Where you’ll need to focus improvement efforts
- Whether your organisation would benefit from a gender parity policy
In order to determine whether or not your business is compensating men and women fairly for equal work, you’ll need to dive into your HR data. Pay equity analysis is a type of analytics that uses multiple variables to give organisations a clearer view of the drivers behind gender inequality.
Doing a pay equity analysis will allow you to determine any pay inequity, what kind of HR information you’ll need to collect and where you’ll need to focus improvement efforts going forward. The world is moving closer to a future in which pay equity is the norm – download our free HR & People Analytics whitepaper to learn how to start that movement in your organisation.
ABOUT THE AUTHOR: SALLY CAREY
Sally’s 30 years of experience in strategy and quantitative decision-making ensures she can always be relied on to deliver extraordinary results. Sally is a co-owner and director of Datamine. Originally from the UK, she is a fellow of the UK Institute of Direct and Digital Marketing and holds a BA in Systems Analysis and MBA from Bradford University.