Compliance

Equal Pay Poses Proxy Challenge

The focus on equal pay is facing new regulations, shareholder scrutiny and employee awareness across all industries. Is your organization prepared to meet pending requirements?

Equal Pay is taking center stage supported by a global cast of economists, corporate leaders, demographers, regulators, the media, employees and now shareholders. Once limited to the realm of a few vanguard companies and CSR activists, the focus on equal pay in 2017 is facing new regulations, shareholder scrutiny and employee awareness across all industries. Demands to disclose pay gaps present a problem for companies that are unprepared to measure, diagnose or shrink the gap.

As the 2017 proxy season proceeds, CSR investors and watchdog groups will become increasingly active. At least 21 publicly traded companies face shareholder requests this year for annual meeting votes on whether to study and disclose their pay gaps by gender and race. Proxy advisory services are pushing for disclosure requirements of efforts to reduce pay gaps. Increased media attention draws more interest, as companies in many industries explore answers for this proxy season.

The 18 publicly traded companies that disclosed their pay gaps in 2016 had a variety of reasons and approaches to disclosure:

  • 37% of disclosure were voluntary; 67% received shareholder proposals (some volunteers also received proposals)
  • All companies published equal pay results based on gender; 28% also evaluated race / ethnicity
  • 78% conduct annual pay gap analyses; 22% analyzed on a one-time basis
  • 56% did not indicate what component of compensation was used for their analyses; 22% use base salary compensation; 22% use total direct compensation.

The rash of recent shareholder requests increases company need for an annual methodology to measure pay gaps, and to diagnose and manage the source of problems. The most effective advanced analytics and advisors should be able to:

  • Analyze HR data;
  • Adjust for legitimate pay differentiators (e.g., geography, role, performance, etc.);
  • Identify unexplained pay gaps (e.g., attributable to gender, race, or other protected characteristics) that may warrant additional scrutiny;
  • Pinpoint employee-specific salary adjustments to fix pay gaps;
  • Help prevent future pay gaps by conducting an HR root cause analysis.

Though employees are being joined by shareholders in seeking transparency and efforts to reach pay parity, most of these stakeholders do not demand an even balance in every workforce immediately. They do expect organizations to measure, diagnose and develop techniques to fix pay gap issues now and if they develop, particularly after significant growth or transactions. To do so, and to meet pending regulatory requirements, companies need to incorporate more advanced analytics into their systems such as EY’s Equal Pay-3.