When it comes to pay equity, less than one-third of employees feel they are paid fairly and only 34% of employees believe their pay is equitable, said Gartner recently when releasing results of a survey.
The Gartner survey of 3,523 employees in Q2 this year also found that that employees who perceive their pay as unequitable have a 15% lower intent to stay with their employer and are 13% less engaged at work than employees who perceive their pay as equitable.
“Employees’ sensitivity to perceived pay gaps is being exacerbated by today’s economic conditions, including rising inflation, and the hot labor market, which is causing a shift in compensation between tenured employees and new hires,” said Tony Guadagni, senior principal in the Gartner HR practice.
Whether or not employees believe they are paid fairly isn’t rooted in compensation, he noted.
“The main driver of perception is organsational trust – when employees don’t trust their employers, they don’t believe their pay is fair or equitable,” he said.
Factors that erode organisational trust include poor culture and inclusivity, poor work-life harmonisation, and unfair experiences, Gartner pointed out.
To increase employee perceptions of pay, companies must rebuild employees’ trust in the organisation, the advisory firm said.
Gartner recommends the following three actions to improve pay fairness perception.
More communication
A Gartner survey of more than 3,200 employees in May 2022 found that nearly 43% of employees discuss their pay with colleagues in the same role, while 45% of employees consult third-party pay sites at least once a year.
In fact, the same survey found that less than one-third of employees are aware that their organization is prioritising pay fairness.
Communicating about pay fairness builds organisational trust and improves employee perceptions, as does education about pay processes.
“Only 38% of the employees we surveyed report that they understand how their pay is determined,” said Guadagni. “When organisations educate employees about how pay is determined, employee trust in the organisation increases by 10% and pay fairness perceptions increase by 11%.”
Broader accountability
Most actions that create pay equity issues occur outside of the HR function and are the result of manager decisions.
Most pay gaps arise from decisions surrounding hiring, promotion and performance assessment.
Despite limited influence over these factors, pay fairness
processes are siloed within the HR function at most organizations.
In order to effectively address and sustain pay fairness across the organization, HR leaders must broaden the scope of accountability for pay fairness and ensure that managers consider pay fairness implications when making critical staffing and compensation decisions.
“HR leaders need to equip managers with tools that will enable them to make equitable pay decisions while remaining responsive to the other demands on the business,” said Guadagni. “Managers should have access to dashboards that compare pay across their teams and be trained on the critical factors that should differentiate employees’ pay.”
Develop pay equity team
According to Gartner’s July 2022 survey, 72% of total rewards leaders report that their organisation’s senior leadership believes that pay equity is a high or very high priority.
Yet, decision-makers de-prioritise pay fairness in practice, particularly when hiring critical talent.
While total rewards leaders own pay fairness, HR can construct a pay equity team that has broad insight into the factors that cause the issue and the authority to correct it.
“An ideal pay equity team consists of leaders and employees across levels, business units and functions with insight into the practices and processes that create pay gaps and a visible commitment to the issue within the organisation,” Guadagni advised.
