October 1, 2020 Neil Morgan

The Diversity-Compensation Link

If your organization hastily composed or revived a diversity statement in recent months, you’re not alone. In recent months, we’ve observed a proliferation of commitments to fight institutional racism, both within corporate entities and in the world at large.

But one of the best tools to promote diversity, equity and inclusion (DEI) is also one of the most underutilized and underappreciated: compensation strategy. We’re out to change that. 

The business leaders we work with inherently understand that employee morale, retention, and performance can all improve when workers believe their employer cares about and ensures pay equity. But they often don’t recognize that actions to address pay gaps and inconsistencies can elevate broader diversity initiatives and expose barriers at different stages of the employee life cycle.

Common misperceptions 

When it comes to pay equity, it’s all too easy to succumb to a philosophy of ‘what we don’t know can’t hurt us.’ HR and C-suite executives may think: 

  • Exceptions are normal and necessary. After all, we really can’t afford to lose that “perfect” candidate who’s going to blow away our sales targets. 
  • The risks outweigh the rewards. It’s a litigious world out there. If our team uncovers systemic inequities, we’ll be forced into costly remediation or legal exposure—or both. 
  • Issues have to be fixed overnight. We’re struggling to make payroll due to COVID business declines. This is not high priority right now, especially if we can’t afford to finish what we start. 

The good news is, with proper analysis and infrastructure, all of these concerns can be overcome. 

Committing to continuous improvement 

The big connection between diversity and compensation is a carefully-considered strategy, one that we label as being fair, relevant, and right. Let’s take a look at these terms. 

Fair is a loaded term; in fact, one CEO we work with refuses to use that word at all when talking about pay. All too often the best negotiators command the best salaries, but where does that leave the quietly competent employees who don’t want to rock the boat? (Hint: it leaves them more likely to hunt for a new job on their lunch break.) 

Shifting priorities and busy schedules often prevent companies from regularly and consistently evaluating the fairness of their pay structures. However, the cumulative impact of the hundreds of micro-decisions can quickly hit critical mass. Without unbiased monitoring, you may be surprised to realize that one manager in Chicago hasn’t promoted a minority candidate in 15 years and another in Atlanta puts through performance bonuses for women that average 8% less than those for men. 

Relevance depends on the availability and clarity of market data. When setting compensation guidelines, leaders fall into the trap of thinking relevant comparative data comes from firms they are competing with for business. But really, it’s who you’re competing with for talent. Outside the C-suite, local market benchmarks will have more relevance to the talent acquisition team than functional ones. 

Opening lines of communication

Finally, the right compensation strategy is the one that gets you to the close and paves the way for an effective employer-employee relationship. Transparency is key. When companies override direct manager input, they leave those leaders ill equipped to explain to employees why they didn’t get their expected bonus. That raises the specter of playing favorites or outright discrimination. 

It’s hard enough to outpace your competitors, why let unease and infighting about pay inequity take away your external focus? 

Elevating your environment

So how do you make sure your compensation strategy supports your DEI initiatives, rather than undermines them? It takes a powerful combination: 

  • a long-term approach, rather than periodic fire drills intended to be magic bullet fixes
  • a true pay-for-performance environment, with clear and consistent guidelines
  • an unwavering commitment to calling out and eradicating explicit and implicit bias

While there is no one-size-fits-all solution, an outside accountability partner can give you a fresh and neutral perspective on disparities, trends, outliers, and opportunities within your compensation environment. If you have questions, reach out. We love what we do and are happy to brainstorm about DEI-friendly analysis and compensation strategies that might work best for your situation. Now available: MorganHR’s comprehensive benefits report! MorganHR takes a look at how total talent and rewards strategies are evolving in light of unprecedented diversity initiatives, COVID-19, shifting demographics, and more.

Download the report.

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