Leveling the Playing Field: Pay Equity and Transparency: Why and How to Pay Attention

Transcription

1 Leveling the Playing Field: Pay Equity and Transparency: Why and How to Pay Attention Thursday September 20, 2018 Presented By: Rena Somersan, Managing Principal

2 Why to Pay Attention to Pay Equity 2

3 Why Worry About Pay Equity? Systemic Risk Finding cases of alleged, broad discrimination by gender, race or ethnicity across compensation programs Allows consideration on all employment practices that may lead to compensation disparities including:» Job assignment» New-hire pay practices Proactive Analysis Reduces compliance risk and talent risk Helps ensure an employer s value proposition is optimized to attract, retain and motivate a diverse group To appeal to untapped talent, companies must be aggressive in offering engaging, equitable packages. Pay equity is a critical requirement to improve diversity.» Promotion opportunities 3 3

4 Who Are These People? Satya Nadella CEO of Microsoft Maria Klawe President of Harvey Mudd College On stage at the Grace Hopper Celebration of Women in Computing 4

5 5 Microsoft Today?

6 6 Microsoft Today?

7 Pay Gap Facts The pay gap has barely budged in a decade From , among full-time, year-round workers, women were paid 78% of what men were paid articles from SHRM and World at Work are citing 80%. Women in every state experience the pay gap, but some states are worse than others Women face a pay gap in nearly every occupation Women are paid less than men in female-dominated, gender-balanced, and maledominated occupations The pay gap grows with age Women typically earn about 90% of what men are paid until they hit 35. After that median earnings for women are typically 75 80% of what men are paid. While more education is an effective tool for increasing earnings, it is not an effective tool against the gender pay gap The pay gap also exists among women without children The pay gap is worse for women of color 7

8 Discrimination vs. Wage Discrimination Discrimination is hard to prove Differences in pay Differences in job titles Differences are due to the fact that women, even without kids, have more responsibilities or take more responsibilities in their OWN families Don t have tons of evidence that it s true discrimination so it is referenced as wage discrimination 8

9 Pay Gap Timeline Both men and women wages are similar right when they get out of college, law school, M.B.A., etc years out Differences in pay Differences in job titles» A lot of it occurs 1-2 years after a child is born for women not men Men and women hold different priority values: Men: value income growth Women: value temporal flexibility 9

10 10 Pay Gap Timeline

11 Temporal Flexibility Is the variation in the numbers of hours worked and the timing of the work Outright discrimination or differences in competitive drive or bargaining ability can account for much of the difference It is the pursuit for flexibility in the workplace leads to a split Women often take jobs with different characteristics and amenities Amenities meaning the ability to work flexible hours, work from home, complete projects out of typical corporate schedule Women who seek this work environment quickly become perceived as less committed to their career and therefore receive lower pay or are over-looked when promotional opportunities arise 11

12 Sector Differences Biggest Wage Gaps Jobs with a High Fraction of Ownership Lowest Wage Gaps Jobs with a Small Fraction of Ownership Corporate/Financial Law Architectural/Engineering Professional & Relates Occupations Health Occupations Podiatrist Technology Science Health Occupations Pharmacists Chiropractor 12

13 Gap Based on Occupation Median Weekly Earnings Based on Occupation $2,500 $2,266 $2,000 $1,811 $1,898 $1,802 $2,092 $1,986 $1,549 $1,566 $1,500 $1,412 $1,295 $1,000 $1,049 $944 $500 $0 Management, Business, and Financial Operations Chief Executives and Computer/Information Systems Managers Chief Executives and Architectural/Engineering Managers Professional and Related Occupations Pharmacists Women Men Lawyers 13

14 What about Pay Transparency? 14

15 What is the link to Pay Transparency? With more attention on gender and racial wage gaps in the workplace Companies wonder whether pay transparency will help them achieve pay equality or cause more divides in the workplace 15 15

16 Pay Transparency Facts What are the facts? About 17% of private companies practice pay transparency 41% discourage 25% explicitly prohibit discussion of salary information according to a December 2017 report from the Institute for Women s Policy Research. 16

17 What are the pros and cons of pay transparency? Pros Employees might be happier» Whole Foods, Costco, SumAll, and Buffer» Employees more productive, satisfied and collaborative Companies can close pay gaps» Pay gap at U.S. government agencies, 81% whereas it s 79% in the private sector Companies can control the narrative» With public pressure mounting, firms like Uber, BBC and Google got ensnared in controversies» California, Delaware and Colorado have recently passed laws banning employers from penalizing workers for discussing their salary or inquiring about colleagues compensation Cons Companies may hire or retain fewer people» Budgets are tight and if everyone knows all pay levels, the company can t take advantage of someone who is willing to work at a lower rate» There is a worry that with all salaries published, competitors could poach people by just paying $10-$20k more Transparency could pit employees against each other Pay differences could be taken out of context 17 17

18 How to Pay Attention to Pay Equity 18

19 Legitimate Factors Influencing Pay Time in company Time in grade Time in position Performance Ratings Highest level of education Field of expertise or study Starting salary Years of relevant experience Certifications Market data Promotion history Geographic location 19 19

20 Sample Size Small samples inhibit the ability to identify areas of risk proactively and identify employees in areas for whom pay adjustments are warranted It makes more sense to combine comparably paid employees into statistical models Factor-driving differences can be accounted for in analysis:» Experience» Education» Performance Larger models do a better job of mirroring an organization s legitimate pay practices and can be more effectively leveraged to asses risk by gender, race or ethnicity in narrow groups (see figure on following page) 20

21 Sample Size (continued) Figure 1 Regression Analysis Reveals Impact of Legitimate Factors on Pay Recently Promoted 10% Below average rating (vs. average rating) 8% Five years more tenure Five years older 6% 5.5% Above-average rating (vs. average rating) 4% Five more years in grade 3% Part-time (vs. full-time) 0.5% Has graduate degree (vs. bachelor s degree) -3% Is a supervisor (vs. individual contributor) -4% 0% Percentage difference in base pay Note: Analysis also accounts for job and location (results not shown) Source: Mercer 21

22 Project Plan Make your business case Collect data Conduct pay equity analyses Correct unexplained disparities Plan for the future 22

23 Pay Equity Analysis Preliminary Analysis Cohort Analysis Multiple Regression Analysis Statistical Cohort Analysis 23

24 Preliminary Analysis A high level statistical analysis of the differences in mean or median compensation between protected and non-protected comparator groups t-test Large groups (30/5/5) Applied to mean Significant at 2.0 or greater Fisher s Exact Test Small groups (< 30/3/3) Applied to median Significant at.025 or less Variation is expected with any dataset Use significance testing to determine if variance is within an acceptable range 95% confidence level 95% attributable to chance 5% not attributable to chance 24

25 25 Preliminary Analysis

26 Cohort Analysis A visual comparison of salaries for employees in the same group (i.e. job title) to help determine if there are pay equity issues, and if so, the reasons for variance in pay Non-statistical review of non-discriminatory factors that are likely to explain differences in pay 26

27 Multiple Regression Analysis A statistical analysis to identify the percentage of pay variance explained by, and significance of, merit variables Analyzes the impact of a combination of multiple factors, as well as the protected predictor, on pay 27

28 The Regression Equation a (b * Education) (c * Time in Company) (d * Female) Actual Salary Constant (intercept) Coefficient (impact) Independent Variable (predicator) Dependent Variable 28

29 Statistical Cohort Analysis A statistical analysis that applies a multiple regression analysis to provide an estimate of what an employee should be earning based on the independent predictors included in the regression model Compares the predicted salary to the employee s actual salary to determine if the employee is significantly under- or overpaid compared to similarly situated comparators 29

30 30 The Regression Equation

31 Correcting Unexplained Disparities Lump sum increase Stand alone or In conjunction with merit increases Distributed over time With normal pay increase or Outside normal pay schedule Differentiate equity increase from merit increase 31

32 Limiting Inequity in the Future Review Salaries regularly to mitigate future inequities Analyze decisions related to compensation: Performance ratings Merit increases Promotions Starting salary Begin tracking data that is not in HRIS Prior years relevant experience Field of study Develop process for avoiding red-circles Before someone is 1.5 compa-ratio 32

33 Limiting Inequity in the Future (continued) Maintain accurate, well-written job descriptions Research relevant salary survey information Maintain and enforce consistent compensation policies Starting pay rates paid according to qualifications at time of hire Raises consistent with evaluations Few, if any exceptions to pay grade minimum and maximum Maintain appropriate records Even if statistical disparities still exist, do the research and be able to explain them 33

34 Ultimate Responsibility The risk of pay equity has never been more significant Regulators are focused Organizations strive to acquire more diverse talent Compensation practitioners are critical to effective pay equity processes Safeguard that such processes achieve objectives without undermining integrity of rewards programs Guarantee that dollars spent on remediation are most effectively directed- as organizations move from small samples based on similarity of work to right samples based on how employees are paid 34

35 35 Questions?

36 Thank You! Rena Somersan Managing Principal Compensation Consulting (414) LinkedIn: Zeynep Rena Somersan 36

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