With U.S. unemployment at just 5 percent – down from a peak of 10 percent in 2009, the Great Recession is firmly in the rearview mirror. But wages have been mostly stagnant. Why aren’t employees seeing their paychecks improve? As I’ve helped roll out an update of PayScale’s Salary Negotiation Guide, I’ve been thinking a lot about what employees and employers could do to address the compensation issues in 2016. It’s a long list, but here are some of the most important takeaways.
There is a ‘wage hangover’
During the recession, employers chose to lay off workers, rather than cut wages, and push their remaining workers for higher productivity. As the recession ended, employers let things settle back into business as normal, but were left with a “wage hangover.” According to The Economist, “‘pent-up’ wage cuts have been achieved simply by not granting raises.”
Many employers have moved toward “variable” compensation in recent years, such as bonuses, for more employees rather than increasing annual salaries. For companies, it better ties pay to performance and reduces fixed costs. Employers are not on the hook unless goals are being hit and presumably the company is doing well. For employees, it’s a bit more complicated. Compensation is less reliable if a large chunk is tied to company or personal performance.
What employees can do: If you can negotiate an increase in your base pay, that’s always going to be better in terms of wage security. However, if you’re not happy with your annual salary increase (or lack thereof), your employer may be more open to negotiating a bonus tied to specific performance metrics. Additionally, there are certain jobs that are in high-demand, especially in STEM fields, where a skills gap has led to a hiring shortage for certain roles. If you’re in one of those roles, you may have some additional negotiating power.
What employers can do: First, take care of your employees, and it will pay off. As President Obama said in his final State of the Union address, many businesses have figured out that “doing right by their workers ends up being good for their shareholders, their customers, and their communities.” The most forward-thinking companies also understand how powerful proactive communication around pay can be, especially when it comes to retaining your best people. And, if large salary increases aren’t in the cards for this year, talk to your employees about how that decision was made. Ultimately, everyone wants to be treated fairly, and when employers ensure their employees understand the organization’s compensation philosophy and practices, everyone benefits.
The push for salary transparency
In the last year, we saw far more employees willing to openly discuss their own salary than ever before. One Google employee went so far as to create a spreadsheet for fellow Googlers to share pay information and posted it to the company’s intranet. More than 1,300 people shared pay data on Twitter on International Workers’ Day using the hashtag #talkpay. The potential benefits to being more transparent about salary information are pretty obvious. Not only could you personally get a sense of how you’re being paid comparatively to peers, but being more open could help bring any unfair pay inequities to light. The drawbacks, however, aren’t always as clear. Beyond the awkwardness that can result in discussing pay with co-workers, there are many ways in which bad conclusions can be drawn from incomplete data. If you’re only talking to co-workers at your own company, you’re not getting a complete picture of current market pay for your position in your labor market, which consists of factors like location, industry and company size. Additionally, unless all of your peers have identical qualifications, skills and years of experience, it’s difficult to evaluate how your pay truly compares.
What employees can do: Know your worth in the market. There are multiple sources out there. PayScale is one, but there are others. Discussing pay with your co-workers can be a place to start, but it shouldn’t be your only data point.
What employers can do: Pay transparency is coming. It doesn’t have to mean posting everyone’s salary up on the wall, but workers are asking for more dialogue around compensation. Be part of the conversation. Whether you’re talking with your employees about pay or not, they’re talking to each other. (And, that’s okay, too.) Figure out where your organization falls on the pay transparency spectrum, and then communicate that as well.
The gender pay gap isn’t going away
Some of the biggest drivers of the gap – fewer women in leadership roles and fewer women in STEM jobs – have seen little improvement in the last decade. However, a handful of companies (e.g. Salesforce, GoDaddy) have taken concrete steps recently to identify and correct gender pay gaps within their own organizations. This is a step beyond diversity committees and mentorship programs. It’s using data to correct pay inequalities that shouldn’t exist. And, in some cases, companies are even publicly publishing numbers around diversity – in essence, asking to be held accountable. Whether those numbers will actually improve remains to be seen.
What employees can do: If you’re a woman negotiating your pay, just know that men, on average, initiate negotiations four times as often and ask for 30 percent more than their female colleagues, according to Linda Babcock and Sara Laschever, authors of Women Don’t Ask. So, be proactive about evaluating your pay against current market rates and ask for increases when it makes sense. If you’re a man, be like Bradley Cooper, and speak up when you see unfair treatment of your female peers.
What employers can do: Evaluate pay for your employees regularly and don’t wait to correct inequities. Also, think about implementing unconscious bias training to ensure employees throughout your organization are being proactive about considering a diverse set of candidates when hiring or promoting from within.
Lydia Frank is Sr. Director, Editorial & Marketing for PayScale.com, a cloud compensation software company and creator of the world’s largest database of real-time salary profiles. She and her team work closely with PayScale’s data scientists to identify wage trends and insights around topics like the gender pay gap, underemployment, and economic mobility through education.