Compliance

Use Pay Equity to Attract Top Talent

By Ahu Yildirmaz

Dec. 19, 2018

With unemployment at a near 50-year low and job switching on the rise, employers are struggling to attract and retain the skilled talent they need. From increasing wages, to offering better benefits and workplace perks, employers are pulling out all the stops to lure talent. With that in mind, reviewing pay practices for gender pay equity — an issue that is very important to today’s workers — could also offer a potential competitive advantage in attracting and retaining top talent.

We recently issued a new report at the ADP Research Institute, or ADPRI, titled “Rethinking Gender Pay Inequity in a More Transparent World,” to give more insight into what key factors contribute to the gender wage gap in the United States today. The study analyzed data over a six-year period, tracking 11,000 employees between 2010 and 2016, and looked at fluctuations in annual salary and incentive pay during that time. One key finding was that lower negotiated incentive pay — such as annual bonuses — at time of hire might become a limiting factor that prevents career advancement down the road. This new data tells us that the gender pay gap is actually wider than we thought because women are not receiving the same bonus-to-base ratio as their male counterparts.

Also read: 3 Steps for HR to Achieve Pay Equity

HR managers can use findings from this study as a benchmark to compare where their company stands in order to determine where changes may need to be made. Some of the report’s key findings include:

  • Women, on average, earn a 17 percent ($15,000) lower salary than men. However, when factoring in the gender pay gap for bonus pay (69 percent), the total earnings pay gap widens to 19 percent ($18,500).
  • Women ages 20 to 30 with a low starting salary had near equal base salary of men; however, the gap worsened for females after six years. Additionally, when a bonus is factored in, young women fared the worst with a 21 percent less bonus-to-base ratio compared to their male counterparts.
  • Women ages 40 to 50 started their careers with almost no base salary gap for all categorized income groups. The discrepancy was with incentive pay, especially with the lower income group. In the $40,000 to $60,000 income range, female workers received an average bonus of 8.5 percent, whereas men received 11.4 percent — a gap of 74 percent.
  • Women in the information industry make 7 percent more in bonus-to-base ratio than men, which reduced their overall gap in total earnings. In contrast, women in the finance and real estate industries are earning 21 percent less in their bonus-to-base ratio compared to men. These industries have the largest pay gap for women with and without incentive pay.
  • The average bonus amount for women was less than two-thirds the amount paid to men who had equivalent base pay, age and time with the company. This incentive pay disparity was observed across all age, salary and industry groups from the moment of hire and persisted throughout the six-year study window.

Consider Candidates Across All Age Groups

Finding skilled talent today is very challenging, which makes it critical for employers to look across all demographics to secure the talent they need.

pay equity attract talent
The gender pay gap is actually wider than we thought because women are not receiving the same bonus-to-base ratio as their male counterparts, according to new ADP data.

In fact, when categorizing workers by age and gender, the study revealed something very important about men, women and new-hire attrition. From time to time, pundits have suggested that women are paid less than men because they are more likely to leave work to serve as the primary caregivers to children. Across the entire data sample, however, there is minimal evidence that women were more likely than men across any age group to quit work. After six years, only 11 percent of both men and women who were hired into exempt positions were still with their same employers — an overall average attrition rate of 15 percent annually.

It is clear that quit rates by gender are not an explanation for why men are more likely to be hired into higher-paying roles. In fact, a better predictor of attrition was not gender, but age. For the younger age group, females are more likely to quit than males. This trend is reversed for the older age group — at 50-plus, women have a greater likelihood of staying with the same job at a rate which is 42 percent higher than their counterparts.

Also read: 5 Ways to Fix the Gender Pay Gap

Be Fair and Inclusive

Fair pay practices are not merely an important “corporate value,” or a tool for managing compliance risk. Rather, creating and communicating about fair pay practices is also a core strategy to develop a vibrant, high-performing, engaged workforce, which can potentially help to stave off the competition in this current labor market. To accomplish this, HR leaders can:

  • Take a close look at employee total compensation, including both base and incentive pay, to identify any gender pay gaps.
  • Utilize industry benchmarks as a point of comparison to determine how best to address any issues.
  • Examine recruiting practices and guidelines given to those in hiring positions to negotiate salary and incentives for new hires.
  • Properly train managers who are responsible for performance reviews and associated pay increases on equitable pay practices.
  • Update HR technology to better monitor and analyze total compensation and track against organizational goals for gender pay equity.
  • Broadly communicate to managers and associates company policies on equitable pay practices to ensure transparency.

In today’s tight labor market, employers are finding it increasingly difficult to attract and retain skilled talent. While wage increases and robust benefits can play a key role in staving off the competition, as the market continues to tighten additional tactics may be necessary.

Also watch: Equal Pay Day Highlights Gender Inequality at Work

Gender pay equity is an issue that many workers today care deeply about. By effectively evaluating pay practices and communicating broadly about organizational goals to shrink the gap, employers can foster deeper engagement with employees and help win in the war for talent.

 

 

Ahu Yildirmaz is co-head at the ADP Research Institute®.

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