Beyond base pay: Study finds companies miss equity in pay analysis
Only 13% of organizations said they considered long-term incentives as an important part of their compensation strategy when conducting pay equity analysis.
As pay equity increases in importance, many organizations have become more diligent about monitoring the fairness of base pay. Yet, a new study by Trusaic and Empsight found that many companies have a blind spot when it comes to monitoring equity awards.
Data from the survey revealed that while many industries use long-term incentives, such as restricted stock and stock options, as an important part of their compensation strategy, only 13% of the organizations studied said they consider these incentives when conducting pay equity analysis.
When it comes to forms of short-term compensation, such as an annual bonus, only 24% of organizations studied said they consider short-term incentives in their pay equity analysis.
The failure to identify and correct pay inequities can open organizations to various harm, including exposure to legal risk, damage to the brand and difficulty attracting and retaining top talent, according to the study. Additionally disadvantageous, these inequities can accumulate over time making it more difficult to correct in the long-term.
Despite these risks, 44% of companies said they conduct a pay equity analysis only once every two or three years, on an ad hoc basis or not at all. According to the study, the greatest barrier to achieving pay equity cited by companies was the cost of correcting the inequalities once they are identified.
Trusaic suggests this fear is misplaced as even with limited resources there are ways to make progress on addressing pay inequities.
Read more: Half of businesses admit pay bias hurts hiring, but many lack strategy
Another oversight noted in the study is the simplified approach that many organizations take to evaluating pay equity. The study found that 45% of respondents use an unsophisticated method that looks only at average or median pay, thus overlooking factors that drive pay differences potentially leading to inaccuracies.
In order to avoid putting organizations at risk, the study recommends, “the best approach to achieving pay equity is to proactively avoid inequalities by running a pay equity analysis on proposed merit pay changes before those pay changes are finalized.”