The Gartner survey of 3,523 employees in 2Q22 also found that employees who perceive their pay as inequitable have a 15% lower intent to stay with their employer and are 13% less engaged at work than employees who perceive their pay as equitable.
The survey also reveals that less than one-third of employees feel they are paid fairly, while just 34% of employees believe their pay is equitable.
“Employees’ sensitivity to perceived pay gaps is being exacerbated by today’s economic conditions, including rising inflation, and the hot labour market, which is causing a shift in compensation between tenured employees and new hires,” said Tony Guadagni, senior principal in the Gartner HR practice.
Most organisations are actively taking steps to close pay gaps; a July 2022 Gartner survey of 104 total rewards leaders found that 84% are conducting pay equity audits at least annually. While technical approaches are necessary, they don’t address employee perceptions.
Guadagni opines that employee perceptions of pay equity aren’t rooted in compensation but rather the main driver of perception is organisational trust – when employees don’t trust their employers, they don’t believe their pay is fair or equitable.
Most employees’ perceptions around pay are attributable to general trust in the organisation. Factors that erode organisational trust include poor culture and inclusivity, poor work-life harmonisation and unfair experiences.
What needs to happen
To increase employee perceptions of pay, HR must rebuild employees’ trust in the organisation. These include more communication, broader accountability, and developing pay equity teams.
More communication
Employees receive little pay information directly from their organisation. A Gartner survey of more than 3,200 employees in May 2022 found that nearly 43% of employees discuss their pay with colleagues in the same role, while 45% of employees consult third-party pay sites at least once a year. In fact, the same survey found that less than one-third of employees are aware that their organisation is prioritising pay equity.
Communicating about pay equity builds organisational trust and improves employee perceptions, as does education about pay processes.
“Only 38% of the employees we surveyed report that they understand how their pay is determined,” said Guadagni. He observes that when organisations educate employees about how pay is determined, employee trust in the organisation increases by 10% and pay equity perceptions to increase by 11%.
Broader accountability
Most actions that create pay equity issues occur outside of the HR function and are the result of manager decisions. Most pay gaps arise from decisions surrounding hiring, promotion and performance assessment.
Despite limited influence over these factors, pay equity processes are siloed within the HR function at most organisations. To effectively address and sustain pay equity across the organisation, HR leaders must broaden the scope of accountability for pay equity and ensure that managers consider pay equity implications when making critical staffing and compensation decisions.
“HR leaders need to equip managers with tools that will enable them to make equitable pay decisions while remaining responsive to the other demands on the business. Managers should have access to dashboards that compare pay across their teams and be trained on the critical factors that should differentiate employees’ pay.”
Tony Guadagni
Develop a pay equity team
The same Gartner survey revealed that 72% of total rewards leaders report that their organisation’s senior leadership believes that pay equity is a high or very high priority. Yet, decision-makers deprioritise pay equity in practice, particularly when hiring critical talent.
While total rewards leaders own pay equity, HR can construct a pay equity team that has broad insight into the factors that cause pay equity gaps and the authority to correct them.
“An ideal pay equity team consists of leaders and employees across levels, business units and functions with insight into the practices and processes that create pay equity gaps and a visible commitment to pay equity within the organisation,” concluded Guadagni.
