The pay-off for taking action on pay equity

Drivers of the gender pay gap are complex and challenging. With new legislative requirements highlighting the importance and benefits of taking action on pay equity, organisations can look to their broader strategy and their internal data to guide them on tackling this issue.

With a raft of new federal pay transparency legislation introduced here in Australia, our government is showing their commitment to swifter progress on closing the gender pay gap. This article explores what’s been happening in the legislative landscape and how these changes align with the global trend in mandating pay transparency. We also introduce steps organisations can take to tackle the complex issue of pay equity and transparency in an effective and positive way.

What’s changing for employers
In December 2022, parliament passed the Secure Jobs, Better Pay Bill, including a ban on pay secrecy policies. From 7 December 2022, pay secrecy terms or clauses in a new employment contract cannot be enforced. If employers enter into a new contract including pay secrecy terms after 7 June 2023, they could be liable for penalties[1].

The Workplace Gender Equality Amendment (Closing the Gender Pay Gap) Bill is currently before Parliament[2]. The draft legislation includes a requirement for organisations with 100 or more employees to share their wage data. If passed, reporting based on the new legislative requirements is expected to start from 2024.

These legislative changes here in Australia are part of a global trend in stricter salary disclosure laws. In the UK, for example, gender pay gap reporting requirements have been in place since 2017. There has also been a strong drive towards pay transparency in Canada as part of their longstanding and evolving labour equity framework. Across much of Asia there is more of a focus on broader diversity, equity and inclusion (DE&I) initiatives rather than pay equity specifically.

Compliance with new regulations on pay transparency is a key trigger for a review of remuneration policies and practices, in particular those that are driving gender pay inequity and the overall gender pay gap within organisations. Beyond compliance, some organisations are also motivated to take action as a clear step towards addressing DE&I. Taking action on pay equity can be expected to have positive outcomes for retention and culture. According to the Aon 2022 Global Diversity, Equity and Inclusion Survey Report, 82% of global companies with a high level of engagement have a clear internal DE&I definition.

Three steps to help prepare for pay transparency

While there are benefits for organisations taking positive steps to tackle gender pay equity as part of their policies and action on DE&I, it’s a complex issue to address. At Aon, our Human Capital Solutions team offer expert guidance to a whole range of clients on pay transparency and equity. Based on our experience we share three key steps to help organisations develop a suitable approach to pay equity and make progress towards achievable goals.

1. Establish accountability
   The first step is to ensure senior executives – and board members where appropriate – are aware of new legislative requirements. In developing an approach to pay transparency they need to consider whether compliance is their only goal. Or should stakeholders design a solution with organisational values in mind, as well as other strategic goals such as talent attraction and retention and environmental, social and governance (ESG) considerations?
2. Check for alignment
   If pay transparency is to be tackled as a DE&I or ESG initiative, the approach will need to align with a broader DE&I or ESG strategy. It’s also important to develop a plan based on where an organisation sits on the DE&I maturity curve. Targeting pay equity is a journey and organisations can develop a roadmap with progress checkpoints that should be measured.In considering how to communicate the next steps to the workforce, think about how gender pay equity goals align with vision and purpose. Helping employees connect progress on gender pay equity with organisational values can make it more tangible and secure their support. Transparency on an action plan and progress will also be important to both internal and external stakeholders.
3. Develop a data-driven action plan
   Using internal and external data and insights should be an integral part of a pay equity action plan. Closing the pay gap within an organisation starts with knowing what that gap actually is and what are the drivers behind it. Based on detailed people analytics – organisations can understand which levers they can use to take effective action on pay equity.For example, the number of women in senior roles is one factor to explore. When women are underrepresented in higher pay grades this can be a driver of pay inequality. Figures below from the Aon Remuneration Survey for Australia in November 2022 shows how the proportion of women employed drops according to seniority. The causes for this can vary across industries and organisations. It may be due to women not being hired into senior roles or not being considered for promotions.

   

This is just one example of how a pay equity plan informed by internal data can lead to progress. Typically, we see organisations looking at the external market as a key driver of their remuneration so they can pay competitively for a role. Using people as a source of data will shed light on the specific action an organisation should take, which may be different to what will be effective for their peers or competitors.

Identifying initial steps to take as part of a longer term roadmap to pay equity also comes from a data-driven approach. By starting with a baseline on what the gap is, setting targets and a timeline for reaching them, organisations can keep measuring their impact. They can also use their data to adjust policies and practices to maintain progress as the talent landscape continues to evolve.

For further insights on how organisations are adapting their policies to support better DE&I outcomes download the Aon 2022 Global Diversity, Equity and Inclusion Survey Report.

[1] https://www.fairwork.gov.au/pay-and-wages/pay-secrecy

[2] https://www.financeminister.gov.au/media-release/2023/02/08/albanese-government-delivers-legislation-help-close-gender-pay