May 18, 2024
Equity

Insurance pros on pay equity in the US

Bridging the gap as the world celebrates International Women’s Day

Today marks International Women’s Day, a day which celebrates the achievements and strides made by women across the globe, while also casting a spotlight on the ongoing struggles for gender equality and the eradication of gender-based discrimination – one that is especially apparent in pay structures.

In the United States, the momentum toward pay transparency and equity has significantly increased, driven by new legislation, regulatory requirements, and societal demands aiming to close gender and racial pay gaps. WTW North America pay equity co-leads Mariann Madden and Lindsay Wiggins delve into how this shift is advancing in the country, and how organizations can adjust for a more equitable world.

This shift in pay equity is pushing organizations to a critical juncture, necessitating proactive measures to adapt to forthcoming changes. To navigate this landscape effectively, companies are encouraged to define their objectives, develop supportive frameworks, and engage in transparent communication with their workforce.

A significant step toward addressing wage disparities has been the introduction of salary history bans. Starting with Massachusetts in 2018, these bans prevent employers from using an applicant’s past salary to determine starting pay, a practice that has contributed to perpetuating wage gaps. As of now, 29 states have enacted some form of prohibition against using previous salaries to justify pay disparities.

“On January 29, 2024, the US Office of Personnel Management (OPM), the federal government’s human resources agency and personnel policy manager, finalized a rule that bars federal agencies from using salary history to set new hire pay,” Madden and Wiggins said.

“While not a federal requirement – nor even a law in all states – many US employers recognized the potential for bias and adopted a salary history ban in all US-based hiring. Instead, they set starting pay based on an assessment of the applicant’s skills and experience without factoring in prior salary history with their employment offers,” they said.

Transparency as a means

Furthermore, pay range transparency has emerged as a strategy to mitigate the pay gap by offering job applicants clear visibility into potential earnings. This approach not only aids in fairer negotiation processes but also meets the increasing expectations for pay transparency among job seekers and employees.

Surveys, such as Adobe’s Future Workforce Study, indicate a strong preference among potential employees for salary range disclosures in job postings.

“As companies struggle to attract workers in a highly competitive labor market, there is increased pressure on employers to share pay ranges with employees. WTW’s global database of millions of employee opinions confirms that fair pay is fundamental to employee engagement. It also is an essential component for high-performing companies,” Madden and Wiggins said.

Pay equity’s regulatory landscape

The regulatory landscape continues to evolve with several federal actions on the horizon, including the Salary Transparency Act and proposed rules by the Federal Acquisition Regulatory Council. These measures are part of a broader move towards national pay transparency standards.

“Another indicator of change is the potential reintroduction of EEO-1 Component 2, requiring employers to report employee compensation data and demographics to the U.S. Equal Employment Opportunity Commission (EEOC),” they said. “California already requires pay data reporting, while Illinois requires equal pay certification – another step closer to achieving pay equity.”

Internationally, efforts to close the pay gap are also accelerating, with the EU Pay Transparency Directive setting forth comprehensive requirements for pay equity. This directive mandates that employers provide transparent and gender-neutral pay criteria, setting a precedent that may influence US employers.

“Member states have until June 7, 2026, to transpose the directive into their own national law, and then employers will have a year to comply,” Madden and Wiggins said. “The directive has enforcement teeth, including providing employees with full recovery plus costs (subject to time limitations). The burden of proof is on the employer to show that no pay discrimination occurred, or they will be ordered to disclose and possibly subject to fines.”

Pay equity – how should investors and employers respond?

Investor demand for transparency extends beyond national borders, with a significant portion of S&P 500 companies incorporating ESG metrics into their executive incentive plans. This trend reflects a growing expectation for companies to disclose pay gap information and other talent metrics, underscoring the importance of DEI initiatives.

“69% of companies in the S&P 500 have at least one ESG metric in their incentive plans – 67% in the annual incentive plan and 8% in their long-term incentive plan,” they explain. “These metrics lean toward environmental goals (40%); however, of the 10% of companies that added an ESG metric to their annual incentive plan, the most common metric was tied to diversity, equity and inclusion (DEI) (8%), followed by environmental (5%).”

For employers, responding to these developments involves more than mere compliance; it requires a foundational approach to compensation design that aligns with the organization’s philosophy and strategic goals.

WTW encourages companies to develop fair pay strategies that articulate their commitment to pay equity and transparency, addressing key priorities and impact on organizational culture. This approach should integrate into the broader talent strategy, providing clear metrics for monitoring and disclosure, and setting a timeline for achieving objectives.

Navigating the path to pay transparency and equity is complex and necessitates a structured roadmap for implementation. Organizations must engage in continuous assessment and adaptation of their strategies, ensuring they are prepared to meet changing regulations and societal expectations.

Through comprehensive planning and stakeholder engagement, companies can successfully transition to a more transparent and equitable compensation framework, contributing to broader societal goals of fairness and equality in the workplace.

“Achieving your ambitions often is a multi-year journey,” Madden and Wiggins said. “A roadmap ensures you are assessing, evolving and changing your tactics and anticipating changes rather than reacting to them. Your roadmap also should include a change management and stakeholder readiness plan to support your journey to pay transparency and the changes taken place.”

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