WorldatWork Total Rewards 2019 Conference Roundup

Equity Methods attended the WorldatWork Total Rewards 2019 Conference in Orlando from May 6-8. We participated in three different panel discussions, including one on broad-based long-term incentives (with Takis Makridis, Jennifer Mackin (Ferro Corp), and Eric Hosken) and one on tax reform’s impact on executive compensation (with David Outlaw, Sven Skillrud (TransUnion), Shaun Bisman, and Sinead Kelly). But the dominant theme of the conference was pay equity, with panels covering the topic from different angles during almost every single breakout session. Here are some of the lessons we took away.

The Role of the Compensation Committee

Takis joined Martha Steinman and Kelly Malafis to talk about handling pay equity and diversity with the compensation committee. At the board level, pay equity is less about the numbers and details. Instead, it’s about bigger-picture diversity and inclusion, legal and shareholder pressures, and compensation structures.

Diversity and inclusion is often the strategic issue underlying pay equity concerns. Although few—if any—large organizations have intentional and significant discrimination in pay, women and people of color are commonly underrepresented at the highest levels of the company. The compensation committee’s role must adapt to address these sorts of issues, and not just as a response to activist threats to vote against board members when diversity outcomes are poor. More importantly, it’s consistent with a larger movement toward stewardship that encompasses culture and leadership development.

Compensation and HR structures are beginning to emerge in response to these pressures. For instance, there’s already a trend against demanding pay history from job candidates (whether voluntary or as a result of local laws.) Even in incentive compensation design, diversity goals are making inroads. For example, plans at Prudential, Textron, and Citigroup incorporate diversity goals, which may be an indication of trends to come.

Legal and Regulatory Updates

A recurring theme at the conference was the legal and regulatory environment (domestic as well as international) for pay equity issues. Much ink has been spilled on this topic already. What’s interesting, however, is how the regulatory framework has grown in the US.

Following the 2016 elections, statehouses—those sympathetic to legislative solutions to pay gaps—sprang into action on the assumption that the federal government would be unlikely to act. This led to the patchwork of laws in place today, where locales like California, Oregon, and New York have implemented rules that only apply within their borders. Counterintuitively, this may drive across-the-board action as companies with a multi-state presence cope with the growing administrative burden of complying with different rules. It can be more economical to simply adopt the highest standard as the standard operating procedure.

One somewhat surprising regulatory development is the EEO-1 Component 2 reporting rule. This rule exponentially increases the filing burden for companies subject to it. The rule was expected to go away after the Trump administration appointed a new chair of the Equal Employment Opportunity Commission. Nonetheless, the EEOC does not appear to be rescinding the rule. The reporting window is set to open July 15 and the deadline of September 30 is fast approaching.

Analysis Patterns & Best Practices

The conference featured a great deal of discussion on performing a pay equity study, how the statistics work, and what to do with the results. Many of the issues have to do with unintended consequences: good statistics masking bad realities, and good intentions driving bad outcomes.

For instance, grade and level in the organization explain a vast majority of pay variance. This means that a statistical analysis would show no problem when controlling for those factors. However, this could hide a potential problem of representation—for instance, if women are underrepresented in certain grades or levels. Similarly, performance ratings are highly correlated with compensation, but can also be prone to subconscious bias.

After identifying the outliers, the question of what to actually do remains a thorny one. The best practice is to perform individual research whenever possible (and in cases where the volume is just too high, start with the biggest outliers to see if patterns emerge that can be controlled or investigated further.) For outliers that remain unexplained, there’s still a question of:

• What part of the population to adjust (all minorities, or just the most underpaid?)
• How much to adjust it (by the full amount of the gap or just the minimum for statistical significance?)
• When to adjust it (immediately or phased in over multiple adjustment cycles?)

In light of budget constraints, an emerging practice is to prioritize based on a combination of outlier magnitude and performance rating—essentially, giving the biggest raises to underpaid high performers.

Statistics aside, bias is a tricky matter. Even the best of intentions can go awry. One presenter shared the story of a manager who had budget to give only one raise, but had two equally deserving employees. The male employee had a stay-at-home wife and three kids, while the female employee had a husband who made good money. The manager gave the raise to the male. This underscores the need for training and development to help managers shift their framework around inclusion.

(For more on pay equity issues, see our publications on the topic or contact us.)

Overcoming Bias

A highlight of the conference was the talk by Bryan Briscoe, VP of Total Rewards at Interface. Bryan often speaks about data analysis and visualization. This year, he turned his gaze to the issue of subconscious bias.

Bryan cited recent studies quantifying the effect of gender or racial bias, including the Harvard Business Review on humor helping men but hurting women and The Atlantic on the cost of racial bias on public transportation in Australia.

Making the concept of privilege more tangible, he shared a story of making a good impression with a new executive by having a pen handy in his pocket when the executive needed it…while women were scrambling through their purses since their pants don’t have pockets. Another data-backed anecdote is that 27% of men can see over typical cubicle walls in an office, whereas only 1% of women can. This gives men a marginal opportunity to be more visibly present, see who comes and goes, and build social networks that benefit their career development. While pockets and cubicle walls aren’t intentional tools of discrimination, it illustrates the point that it’s easy to overlook small advantages and disadvantages, which can impact decision-making.

But it’s not all bad news. All of Bryan’s immediate bosses had been women until his recent move to a new company. The fact that his boss was male confused his young children—based on their experience, they thought that you had to be female to be a boss! There’s power in perspective, and it’s the job of human resources teams to harness the right perspective to drive positive business outcomes.