Why are employers failing to prevent bias in pay?

Rising employee expectations couples with formal legislation is leading to growing concern over internal pay equity among New Zealand and Australian employers, according to new research by Willis Towers Watson.

Despite most organisations giving themselves a tick when it comes to having formal processes in place to prevent bias or inconsistency in hiring and pay decisions, results are far from universal, according to Australasian findings from The 2018 Getting Compensation Right Survey.

Indeed, 27% of companies do not have formal processes to avoid bias in base pay.

Adam Hall, head of talent and reward at Willis Towers Watson, said that as the “reward component includes more variable and discretionary elements, this proportion rises”, said Hall.

“Alarmingly, 58% of companies do not have a formal process for ensuring no bias in long-term incentive eligibility and receivership and 76% do not have processes for ad hoc monetary recognition.”

The gender pay gap was 9.2% in the June 2018 quarter, the second smallest gap since the research began 20 years ago, according to figures published by Stats NZ.

Meanwhile, Workplace Gender Equality Agency figures in Australia show that from February 2018 Australia’s gender pay gap is 15.3%, which is also based on the full-time average weekly earnings.

Hall added that the labour market is tightening and this is “exacerbated in New Zealand which has more acute skill shortages” than many other Asia Pacific countries because of its population size and closeness to hubs.

Market competitiveness will continue to be a critical factor in making pay decisions, cited by 84% of Australasian employers. And over the next three years, 60% indicate that this factor will become even more important.

Moreover, almost one fifth (18%) of companies pay incentives to employees who do not meet expectations.

Companies intend to pay top performers about 21% above target when funding levels are normal/on target, and in those situations, they are generally doing so.

However, the findings suggest that when actual funding differs from target funding, incentive payout differences are compressed at the top end.

Hall said that New Zealand companies might want to look at how Australia’s Hayne Royal Commission influences the way they approach risk, culture and remuneration.

“Not addressing external changes on the rapidly-evolving work ecosystem can affect the ability of companies to attract and retain critical employees.”

There are five factors for organisations to consider in getting their remuneration right - and fair pay is just one of them.

• Identify the factors that determine base pay Base pay is not effectively driving performance.
• Improve differentiation of short-term incentives Employers miss opportunities to differentiate incentive payouts to top performers.
• Make effective use of technology to improve decision making Complex pay decisions can become all the more challenging due to inadequate technology.
• Prioritise fair pay Despite having formal processes in place to prevent bias or inconsistency in hiring and pay decisions, many employers fall short when it comes to fair pay.
• Build a culture of pay transparency Many employers are unprepared to meet growing expectations of pay transparency.