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How equal pay has evolved into fair pay

Compensation Strategy & Design|Future of Work|Health and Benefits|Inclusion and Diversity|Talent|Total Rewards
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By Mariann Madden | September 25, 2020

Equal pay is no longer only about gender and the importance of understanding fairness.

Throughout the late Supreme Court Justice Ruth Bader Ginsburg’s career, she looked to expand equality and create more inclusion. In her dissent of Ledbetter v. Goodyear Tire & Rubber Co. (2007) she wrote, “that the unlawful practice is the current payment of salaries infected by gender-based (or race-based) discrimination – a practice that occurs whenever a paycheck delivers less to a woman than to a similarly situated man." As foreshadowed in Justice Ginsburg’s statement, the perspective of pay is changing as evidenced by the passage of the Lilly Ledbetter Fair Pay Act of 2009, which was drafted in direct response to Justice Ginsburg’s dissent.

Traditionally, many organizations have been concerned with paying competitively with the market and fairly among employees. However, with the efforts of environmental social and governance (ESG) investors, increased government regulations, the #MeToo and Black Lives Matter movements, pay fairness is also connected to social responsibility.

The connection between fairness and social responsibility includes

  • Understanding what it means to provide employees with a living wage
  • Evaluating the relationships that exist between executive and employee pay
  • Expanding the demographics included in your pay gap analysis, as well as considering how social and culture norms can influence employee’s perception of fairness

Beyond a paycheck

The onset of the COVID-19 pandemic has changed the conversation about the living wage – the minimum income necessary for a worker to meet their basic needs such as food, housing and other basic necessities such as clothing – beyond just pay and now includes elements of the overall employee experience that should be offered to all employees such as:

  • Paid sick leave
  • Health insurance coverage
  • Retirement plan participation
  • Maternity/paternity leave
  • Childcare subsidies
  • Bereavement leave
  • Personal protective equipment
  • Stronger safety measures

Many of our essential workers have limited wages and benefits. Yes, essential workers include doctors and nurses, who typically receive benefits, but most essential workers like grocery workers, warehouse workers, home health aides, orderlies, nursing assistants, farmworkers and delivery drivers do not. Furthermore, most essential workers are predominantly women and under-represented minorities.

Fairness between executives and the average employee began with the CEO pay ratio but is now taking on a different perspective. During the pandemic, many organizations have implemented pay reductions and have included executives. A quarter of S&P 1500 CEOs and 23% of executives have faced reductions in their salaries, according to Compensation Advisory Partners published on August 31, 2020. However, those numbers are dwarfed in comparison to the four million private sector workers who have had pay cuts, according to the University of Chicago’s Becker Friedman Institute.

More than gender

Additionally, pay gaps are no longer only about gender but also the importance of understanding other demographics including race and ethnicity. For example, California and the U.K. legislatures are considering bills that would make pay gap reporting by race and ethnicity mandatory. And the good news is that even without reporting requirements in place, companies and their boards are also taking notice. During 2020 second quarter earnings calls, 40% of S&P 500 companies discussed diversity, equality and inclusion, which was up from 4% in 2020’s first quarter, as well as last year where only 6% of companies covered this topic, according to Royal Bank of Canada.

Finally, the definition of fairness varies across different markets and cultures because many countries have different social mores and laws that impact women. In some parts of the world, it is illegal for women to participate in certain professions. According to the World Bank Group, over 50 countries currently have restrictive laws and regulations affecting a woman's ability to earn equal pay for work, and her ability to work in the same sectors and industries as men. However since 2017, 12 countries have improved legislation affecting women’s pay. Examples include:

  • The United Arab Emirates, which removed all restrictions on women’s employment
  • Thailand, which legally mandated equal pay for equal work
  • Iceland, which has become the first nation in the world to ban pay discrimination entirely

There is a business case for gender equality, diversity and inclusion. McKinsey’s Women in the Workplace 2018 survey found that 21% of gender-diverse and 33% of ethnic-diverse companies are more likely to outperform their industry median. We know the culture of work is important for attracting and retaining talent.

Employees want to feel respected and that they have an equal opportunity to grow and advance. Employees care about opportunity and fairness, not only for themselves but for everyone. Simply put, they want the system to be fair. Organizations who consciously hire and promote more diverse candidates also create a strong organizational culture and these two things reinforce each other. When employees feel that their organization is fair and inclusive, women and underrepresented groups are happier and more likely to thrive. And by fostering this type of culture, organizations are able to make progress on closing pay gaps for woman and minorities.

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