Unlocking organizational success through pay equity
By Niek Klaver & Henrieke van Bommel
At a time of increasing demands for laws and regulations, growing social pressure, and much emphasis on employee satisfaction, gaining insight into equal pay is a must. Nevertheless, companies are sometimes reluctant to investigate if a potential pay gap exists. There are two reasons for this: (1) organizations believe there is no pay inequality in their organization, and (2) organizations seem to be afraid of the consequences if there are any differences. But, beyond social responsibility, many advantages come with transparency about pay equity.
- Companies are sometimes reluctant to investigate whether their organization has a pay gap. However, in order to take alternative steps, it is important to gain insight first.
- Equal pay can give you a competitive advantage by making attracting and retaining talent easier and increasing employee engagement.
- Clear and transparent communication about pay (in)equity is essential to build employee trust and appreciation.
- Legislation on pay transparency is pushing companies to get insight into their level of pay equality. Highberg believes it is better to start early.
The Benefits of Equal Pay
Equal pay helps retain employees and strengthens the labor market position
In today's job market, where companies are struggling due to labor shortages, attracting and retaining talent is essential to gaining a competitive advantage. Equal pay can play an important role in this. Indeed, one consequence that can arise from the pursuit of pay equity is employee retention. Employees who find out they are not being paid equally for the same work as their colleagues can feel undervalued. This dissatisfaction increases the likelihood that employees will look for other work. By making employees feel that they are being paid fairly for their work, employees are more likely to stay with the organization.
In addition, equal pay plays an essential role in attracting high-quality talent. A company that prioritizes pay equity positions itself as an employer that believes in equal opportunity and the potential of every employee. This increases its appeal to top talent that is not only competent but is also more likely to be diverse.
Equal pay contributes to a company’s reputation
Equal pay fosters the organization’s reputation as an employer and relates to how customers, businesses, and investors perceive the organization. Consumers trust companies that care about pay equity significantly more than companies that don't treat their employees equally. By getting this right, a company ensures a fair working environment and builds up a good reputation. This positive image can lead to increased interest from customers and investors who value ethical and socially responsible business practices. The pursuit of equal pay contributes to a good working atmosphere and can be a valuable investment for the company's future in society. But it can also be seen as a worthwhile investment in the sustainability and social impact of the brand.
The effect of equal pay on your team performance
Pay equity goes beyond justice; it positively impacts the level of engagement among employees. Fair and equal pay creates a positive dynamic in the workplace. When employees feel valued, this contributes to individual satisfaction and promotes a healthy work environment where all employees feel valued and connected to the company's purpose. This leads to high levels of engagement, job satisfaction, and performance, which benefits overall business performance.
In addition, equal pay not only has positive effects on individual employees but also strengthens relationships and collaboration within teams. It fosters a sense of equality and mutual solidarity, contributing to a shared commitment to achieving common goals. Fostering a culture of equal pay lays the foundation for an inclusive work environment that embraces diversity and encourages every team member to reach their full potential.
Communication is key
To realize these benefits, it is not enough to introduce equal pay; it is also crucial to communicate clearly to employees about the commitment to equal pay and the reasons behind it. By clearly communicating the steps taken for equal pay, employees better understand the company's policies and shared values. This contributes to building trust and appreciation in the organization and promotes employee engagement in achieving equal pay.
Recently, there has been a scandal that is a good example of how an unwillingness to work towards equal pay can lead to negative consequences. An employee discovered that she earned €1,000 per month less than her male colleague in the same position and raised this issue internally. The organization was unwilling to discuss this, so the employee took legal action as compensation. To avoid an official ruling by the Court of Appeal, she received damages of €113,000 from the organization. In addition to the significant compensation costs, this also put the company in a negative light as an organization, which was detrimental to its competitive position and reputation in the labor market.
Equal pay in compliance
European legislation is also increasingly striving for equal pay in organizations. In 2024, the EU Corporate Social Responsibility Directive came into effect, pushing companies to focus more on equal pay within the organization. But even more relevant is the EU Pay Transparency Directive, introduced in 2023, and EU member states now have three years to implement the directive. This legislation requires companies to be transparent about possible pay differences, whereby companies with 100 or more employees must report on this externally. To avoid being surprised by any differences, Highberg argues that organizations should start gaining insights now.
Want to know more about this legislation? See here the article that explains more about the EU Pay Transparency Directive.
Join us on February 29th, 2024 for the webinar on Pay Equity.
Check the website or register for the webinar on February 29th, 2024. In this webinar, you will be informed about the benefits of equal pay, the upcoming EU legislation that requires companies to work towards equal pay, and what to do if there is pay inequality in your organization.
Retaining and attracting talent:
Nguyen, J., Esq. (2023). What is pay equity and why is it important? Forbes. https://www.forbes.com/advisor...
Shuster, L. (2022). It’s time to talk compensation: How to get employee pay right in 2022. Forbes. https://www.forbes.com/sites/f...
Schlager, T. (2021). Research: Customers will reward companies for smaller gender pay gaps. Harvard Business Review. https://hbr.org/2021/11/resear...
Performance & Engagement:
Chyko, K.L (2023). Examining the relationship between perceived pay equity and job performance - ProQuest. https://www.proquest.com/openv...
Han, X. (2019). Research on the Relationship Among Pay Equity, Employee Engagement and Job Performance. Atlantis Press. https://doi.org/10.2991/sohe-1...