However, pay transparency is not an issue limited to companies in the EU. Over the past 10 years, there have been continual adjustments to legislation globally. While UK legislation is not moving as swiftly, the consultation for the Equality Act 2010 amendments is underway, and there is every likelihood it will continue to evolve, requiring companies to be more open with employees about what they pay and why.
Combine that with recent high-profile equal pay claims in the retail sector – which will likely expand into other sectors where there are historical gender pay disparities that can’t be justified – and companies need to get their act together now, to get ahead of future legislative requirements, avoid potential equal pay claims and significant reputational damage.
Read more: How can HR prepare for the EU pay transparency directive?
Internal paralysis
The biggest issue for many businesses is that they are currently sat in a state of internal paralysis when it comes to pay transparency. There is a real nervousness about lifting the lid and being more open because questions will be asked about why pay is set as it is. Most companies will have instances of pay discrepancies that, if challenged, they would struggle to justify.
This might be due to merger and acquisition (M&A) activity, where companies with different pay approaches have come together, or it may be due to a decentralised approach to pay that has had little oversight. The risk, however, isn’t always easily quantified, so boards are currently sitting in blissful ignorance. We believe this should be on every company’s risk register. Actions to review the current state should be undertaken now, to understand the size of the risk, and plan to mitigate it.
Pay budgets are always tight, and there are few organisations who have the luxury of magicking up additional funds to make the adjustments required straight away. But planned and made over two or three years, unexplained gaps can be closed and risks can be managed, through consistent policy application.
Read more: Pay transparency: seven lessons
Analytical job evaluation frameworks
One of the pain points in undertaking this type of analysis is that not every organisation has a framework in place that describes the differences in job level across the organisation. While they should ideally be underpinned by an analytical job evaluation framework, the objective assessment of the different components of each role is key.
Even having indicative level descriptors can help to support initial comparable role analysis. Once you have an idea of how roles compare, you can explore if you have justifiable differences in pay. This could be based, for example, on performance or differences in market data. But, just because you did a benchmarking exercise three years ago, you can’t assume that you can use that data now. Markets change, data changes and if, as in the recent case at Next, historical segregation of roles has influenced the data itself, you can’t rely on data as your only defence.
The other aspect of pay transparency that the UK will most likely adopt, if the government decides to align with the latest EU measures, will be around sharing of pay ranges at recruitment. There is a great advert I’ve seen recently for the recruitment firm Indeed, where a candidate asks about the pay for the role and the recruiter does everything possible to deflect the question. In an age where everything is shared on Glassdoor, sharing pay ranges is the next logical step and the right one.
The challenge for organisations, however, is for existing employees who will undoubtedly compare their salary to the new one advertised. In the absence of context as to how and why that salary was derived, they will potentially feel undervalued and confused. Conducting benchmarking to determine a salary is key, but so is explaining to employees how you benchmark roles, how you use the data and how you aim to ensure there is consistency in pay decisions.
Read more: Preparing employees for greater transparency on pay
In summary, the key steps business and HR leaders can take now to start futureproofing themselves are:
- Review your structures and reward processes
Do you have the ability to compare roles in job levels? Do you undertake pay benchmarking to know how pay compares to the market? How are pay decisions made at recruitment/promotion/pay review, and what measures are put in place to ensure consistency and fairness? If your structures are absent or not working effectively, invest the time now to get them in order.
- Know your current pay gaps
Go beyond basic gender pay gap reporting and look at roles on an individual and level basis. If you have gaps, how big are they? Can you explain them, and are they justifiable? If not, what would it cost to make adjustments? And what are the risks of not making those changes?
- Engage leadership
Raise awareness of the external context and the internal picture. How big are the risks? What actions need to be taken now, and how can the business plan to rectify any unjustified pay discrepancies? Make a conscious decision to get on the front foot, and take pay transparency seriously.
By Justine Woolf, director of consulting at Innecto
