How to utilise workforce data to inform pay fairness in your reward strategy.
Fairness is referenced by many organisations in their pay principles, and whilst none of us set out to pay unfairly, the reality is most reward frameworks are seen as unfair by employees.
Fairness can mean different things to people – it can relate to direct comparison to others either inside or outside the organisation, it can be about how processes are managed or rewards are allocated, and it can also relate to the interactions with others such as line managers, or messages that are communicated or are perhaps left unsaid around pay.
Those who get it right do well – there is evidence that companies who are seen to pay fairly perform better, and organisations that treat their workforces with fairness, integrity and sensitivity are more likely to find increased levels of commitment and productivity. For example, we know that companies that pay above the living wage are more likely to be rated highly in terms of perception of being a good employer.
But when you are not seen to pay fairly, it can be detrimental – a Payscale study showed employees who don’t understand their company’s pay process are 60% more likely to leave their organisation. It is also likely to lead to a loss of productivity and reputation, but more fundamentally, to trust levels.
So what can we do to ensure that pay practice is fair and help to build trust with our employees that we take pay fairness seriously? We need to utilise the information already available to us in the form of our workforce data, drawing insights that demonstrate the fairness of the application of pay.
That is something we have been emphasising at Innecto for a long time. It is all well and good conducting pay benchmarking or running gender pay numbers but for data to be meaningful, we need to go beyond the headlines and initial view to understand if pay practice is fair. For example, companies required to publish gender pay numbers are not bound to say what is driving any pay gap and many do no more than simply produce the numbers. Tick, job done. However, going beyond the headlines to interrogate the data, understanding what is driving the gap by level or department, how that gap has changed over time with leavers and joiners, how gender pay correlates with ethnicity pay etc, can help to uncover any risks and clarify if the pay is truly fair.
Likewise, we work with many clients to understand if the pay is fair in practice - using employee data, we can determine if recruitment practices, policy application and pay review decisions result in fair outcomes. This can include looking through different lenses to determine if, for example, part-timers have the same access to overtime opportunities, or if females on average are being hired with comparable pay rates when compared to males, or if out of cycle pay increases are being fairly applied. We have seen from our analysis over the years that whilst an equal proportion of males and females receive out of cycle pay increases, the amount males receive is on average higher than females.
Without digging into your data, all you have is a perception of pay and how fair it is. In one CIPD Reward report, it was suggested that whilst 75% of HR professionals think all or most people in their organisation are paid fairly, only 33% of employees would agree. Doing the data analysis is only one part, how you use that information to build trust around pay fairness is another. The Institute for Public Policy Research has recommended that we should all look at the idea of producing a fair pay report, the idea being that we build on some of the legislative requirements around gender pay reporting and CEO ratios, but look to extend that by including aspects such as the proportion of their workforce earning below the living wage, and ethnicity and disability gaps, but more importantly, a fair pay narrative that sets out your understanding of your pay gaps, and your plans to ensure fair pay.
Whilst a fair pay report might feel daunting for many, why not evolve well-reported HR metrics that highlight turnover or absence and include a Fair Pay dashboard that uses employee data to provide reassurance that pay has been applied fairly. This can be a critical tool to build trust in your organisation that you are adhering to your fair pay principles.
If you are just starting on this journey, our top tips would include:
- Keep your data clean – the biggest challenge in trying to draw conclusions is that often the data we use is not as clean as it could be (missing data fields, incorrect job titles, hours incorrectly captured etc).
- Encourage employees to share their information – it is very hard to conduct ethnicity pay reporting if you only have half of the organisation who have shared their personal classification. If you can demonstrate to employees how you want to use the information for positive purposes, you will get more employees willing to share.
- Do not conduct data analysis as a one-off – it will only show a point in time and will quickly become out of date and be used as folklore to reinforce positive or negative stories. Repeat analysis to show improvement in your journey to fairness.
- Use tech to help you tell the story – there are many tools on the market like PayLab or Advance that can help visually explain the fairness in the application of pay.
- Communicate - ultimately if employees cannot see the picture, they will not trust pay is fair. Using a fair Pay Dashboard is a great way to illustrate pay insights at a high-level to reassure fairness in the approach.
At Innecto, we can work with you to help utilise workforce data for pay fairness throughout your organisation and make the most impact with your reward strategy. Our levels of service can be tailored to your current strategy and challenges. To find out more, email me (email@example.com) or call our consultancy team on +44 (0)20 3457 0894.