As 'Quits' Rise, Fair Pay Practices Become More Important

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Call it a perfect storm: As employee "quits" reach high levels in a strong economy while gender pay equity issues come to the forefront, employers are finally getting serious about their fair pay practices. Here's how these factors are converging and what that convergence means for employee compensation and total rewards:

The "Quits" Factor

As unemployment drops while job openings rise, workers enjoy options and opportunities. During the summer of 2018, for example, according to a CBS article, "the proportion of workers quitting their jobs, known as the quit rate, reached the highest level since April 2001. Quits are seen as a positive sign that workers are confident they can find another job. Most people who quit do so for higher-paying positions."

In fact, the article notes that "for only the second time in two decades, open jobs outnumber people seeking work." What's more, another CBS article notes that "the decision to quit and look for better paying or more satisfying employment can be rewarding, as employees tend to get their largest pay increases when they job hop."

This puts pressure on employers to offer competitive compensation and total rewards or continue to have unfilled jobs amid an employee exodus.

The Gender Pay Gap Factor

As I noted in a previous article, gender pay equality remains elusive more than 50 years since passage of the Equal Pay Act, and a decade since the Lily Ledbetter Fair Pay Act became law.

How bad is the gender pay gap? The average woman’s unadjusted annual salary may be 78 percent to 82 percent of the amount earned by the average man in an otherwise equivalent job. Indeed, the gender pay gap is widespread and pervasive. And while gains may be accelerating and the gap shrinking, progress has, historically, been painfully slow.

The "Me Too" Factor

Another factor perhaps impacting a renewed focus on fair pay practices has been the emergence of the #MeToo and #TimesUp movements. As I discuss in a prior article, being found guilty of - or even being perceived as guilty of - workplace harassment can damage your company’s brand and culture. What's more, it can put employee compensation at risk as funds must be diverted to defend harassment claims. And if those claims are found to be true, monetary damages may be awarded to the victim or victims, further impacting corporate funds and compensation.

Perhaps even more serious in the long term is the fact that if your workplace is seen as discriminatory or toxic, your company may have a tougher time recruiting talent within market rates.

What Employers Are Doing About Their Fair Pay Practices

So, with these factors converging in a perfect storm, what are employers doing now to address their fair pay practices? According to Sandra McLellan, North America practice leader for rewards at consultancy Willis Towers Watson, "Getting compensation right is becoming increasingly important as employers look to drive higher levels of performance, attract and retain talent, and make fair pay decisions." This statement reflects results of the Willis Towers Watson 2018 Getting Compensation Right Survey conducted in April 2018. Some 374 U.S. employers participated. Together, those companies employ more than 5 million workers.

According to McLellan, "Decisions around pay... are becoming more complex, and... not surprisingly, changes to these and other related programs are on the horizon." Changes the survey respondents plan to make (at varying levels) include revisions to their base pay, incentive compensation, and recognition plans, along with better pay transparency.

The survey results also showed that while "most U.S. employers give themselves high marks when it comes to having formal processes in place to prevent bias or inconsistency in their hiring and pay decisions," 6 in 10 employers plan further action. These actions include re-evaluating recruiting and promotion processes, conducting gender pay inequity studies, and improving communication of policies and benefits that promote an inclusive culture.

The Bottom Line:

So, with these factors converging, the tide may be turning, and companies might finally be addressing inequities in their fair pay practices. What can your company do to reduce risk and enhance your market position with employees? Start with a gender-focused pay audit, comparing within job titles and looking for similar skills, effort, and responsibilities. Document previous related experience as well as length of time in the current job. Examine the last two to three years of performance ratings, too. Then look for large pay gaps and design and implement a plan to close those pay gaps.

Cassandra Faurote is president of Total Reward Solutions.

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