HR's plight

Why it's so hard for your company to close the pay gap

How understaffed HR, dispersed data, and job titles contribute to the pay gap
Why it's so hard for your company to close the pay gap
Photo: Ground Picture (Shutterstock)
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Amy Spurling is the Founder and CEO of Compt, an HR software enabling employee perks. Amy’s experience as a former three-time CFO and two-time COO managing HR and Finance drives her belief that companies and employees can achieve much more together when employees are fully supported.

Interested in solutions? Check out Spurling’s piece, 6 strategies to help HR and companies close the pay gap

The simple truth about inequitable compensation is that we are not doing nearly enough as we should. While there’s been a lot of talk of narrowing the pay gap, it continues to be a nuanced and stubborn problem. Pay disparity spans gender, ethnicity, disability, location, age, and access to education—and it is amplified for those who represent multiple demographics. So while we think we’re making progress, the gap holds steady.

Solving an existing pay gap in a company requires strong sponsorship and ownership from senior leadership, support from the finance team, and a heavy project list from human resources (HR). They need to partner with senior leadership to determine an appropriate benchmarking data set, conduct their own benchmarking study, and validate the results across titles and tenure. The magnitude of that work is daunting when considering the number of resources needed, competing priorities, and the normal day-to-day. Underpaid, overworked, and generally seen as the enemy, human resources (HR) teams can’t seem to catch a break.

Human resources’ current state

It’s no wonder the unrelenting labor shortage—with job resignations up 23% above pre-pandemic levels—is reflected in HR departments. While trying to remedy employee burnout, HR faces an intensified time crunch coupled with the responsibility of developing and implementing new and improved employee engagement strategies like return-to-office policies, wellness programs, safety guidelines, employee perks programs, etc.

Paychex’s 2022 Pulse of HR survey found that 60% percent of HR leaders are concerned about employee burnout, an increase of 18% from before the COVID-19 pandemic. When Lattice surveyed, they found that 42% of teams felt burned out (pdf) and exhausted, struggling with too many responsibilities and insufficient help. Russell Lobsenz, Lattice advisory lead, said he didn’t expect things to get better for his field, despite the worst of the pandemic being behind them. And one look at the #HRcommunity tag on Twitter will clue you into how HR practitioners currently feel (hint: still not optimistic).

Though seemingly pulling off a balancing act, employee perception of HR is still largely unfavorable. 30% to 80% of survey respondents say they don’t trust HR. Employees, especially junior employees, demand transparency from HR and their employers. Some things must remain behind the curtain, like confidential employee matters, but HR can play a crucial role in rebuilding trust when tackling the pay gap.

6 common constraints that make it hard to close the pay gap

No single source of data from which to pull. HR tech has seen a mass of improvements in recent years and the data provided by these tools is key to building programming and addressing employee concerns like burnout and pay inequality. In addition, the data can help determine which tactics are working and which aren’t. Unfortunately, given the newness of HR tech, most companies still don’t have a single source of data and are operating out of multiple systems. The groundwork has been laid, but there is still a lot of cleanup and cross-platform integration to do.

To get and analyze current market salary data, HR has to pull from multiple sites, both internal and external. The appeal of it fades when you’re faced with open internet tabs for Glassdoor, BLS.gov, Payscale, and Salary.com. And the work is just beginning.

Internal titles and roles rarely match up neatly against each other or external roles. For instance, a director of product in a 100-person organization is a very different role, and likely different compensation, from a director of product in a 1000-person organization. And that’s assuming those two organizations are making the same type of product.

Bias can also come to play when reviewing titles and roles. Entire departments may be paid under the market if, for example, at one point in time, their value was deemed less than other areas in the company. Perhaps they were led by a leader who was salary ignorant. Or maybe a department is composed of more women than men or has more persons of color, like human resources teams, that has left them below others.

Even something like long tenure can impact pay as that employee may have stayed in the same place too long and not commanded or demanded different pay over the years. Additionally, individuals in the same department may be underpaid compared to their peers for similar reasons.

Let’s not forget all the title add-ons. In a study by Earnest analyzing the relationship between job title and salary, they found that seniority-related titles play a significant role in pay increases. For example, professionals with the word “lead” in their job title earn a median of $23,000 over others in the same function. Is that fair? Perhaps not if their tasks are not drastically different from those without “lead” in their title. This makes it especially challenging for smaller companies where awarding a seniority-related title doesn’t make sense for teammates doing similar tasks, regardless of tenure.

They asked, and they received (sometimes). Enter the power of negotiation—at the time of hire, promotion, or job change. Employees may be offered different benefits and pay depending on when they were hired, what they were hired for, who hired them, and who they got advice from in HR when it happened. Perhaps an employee asked for a lower salary but wanted increased benefits like more paid time off. When comparing total compensation, they seem similar, but their pay gap is more significant than it appears.

Total compensation calculations aren’t readily available. There is no reporting requirement, so you don’t have a data set that is being consistently updated. Plus, job titles aren’t necessarily consistent across companies, so it’s hard to compare roles directly. Everything combined it’s difficult for HR to perform an analysis.

The other challenge is that most organizations don’t have a total compensation calculation. Therefore, it becomes a needle-in-a-haystack exercise to first look at salary gaps between every single employee and then evaluate the other components of total compensation - bonuses, commission, benefits like paid time off and employee perks, and any other non-monetary compensation.

Moving targets. This process can take over six months in larger organizations which is just long enough for the market to move on compensation. This lag between the current market rates and a company’s pay structure may continue, but there are actions you can take to close the gap.

Equal pay counts beyond legal responsibilities. Building a company without a commitment to diversity, equity, inclusion, and belonging (DEIB) will ultimately cost companies their best talent and hurt their bottom line and reputation. In both the federal and public opinion courts, ignoring the wage gap isn’t just risky. It’s corporate self-destruction.

🎧 For more, listen to the Work Reconsidered podcast episode on pay transparency. Or subscribe via: Apple Podcasts | Spotify | Google | Stitcher.