Companies are spending too much on underused benefits instead of addressing pay equity gap

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U.S. companies spend around 32% of their payroll on vacation, insurance, and other non-cash benefits.U.S. companies spend around 32% of their payroll on vacation, insurance, and other non-cash benefits.
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Good morning!

Many companies are still failing their employees on pay equity. 

Despite 71% of CHROs and C-suite executives expressing that pay equity is a crucial component of their HR and business strategies, just 14% say they’ve dedicated sufficient budgets to tackling pay gap issues, according to research from the human capital advisory firm The Josh Bersin Company. 

The reason: Many employers are over-investing in underutilized benefits rather than addressing outdated pay structures and practices. Companies have put so much time into beefing up benefits that they aren’t thinking about where they can further adjust compensation, says Josh Bersin, founder and CEO role at the eponymous company. He adds that piling on new benefits of little demand is more of a recruiting tool than anything else.

According to the firm’s research, U.S. companies spend around 32% of their payroll on vacation, insurance, perks, well-being, and other non-cash benefits. Meanwhile, how companies issue pay raises has yet to evolve. It’s commonplace for companies to attach pay increases to annual performance evaluations, which are often biased against women and people of color, leading to a perpetual cycle of salary inequity, says Bersin. 

“We institutionalize these disparate inconsistencies because of how we pay people,” he tells Fortune. “Not only do we have to statistically analyze why there are these pay disparities and what’s causing them, but we also have to rethink the way we pay people because if we pay them based on performance appraisals, those get grandfathered in and could cascade over for years.”

Such a structure leaves many employees subject to the whims of managers making decisions about performance ratings. Instead, Bersin believes more employers would benefit from investing in technologies and resources to better alert leaders of pay inequities. Only 14% of the companies that Bersin’s firm studies are actively using data and pay equity platforms to alert their team of potential compensation issues.

For CHROs, simply conversing with leaders about how they define high performance could go a long way to creating more equitable pay, shares Bersin. “I don’t think anybody deliberately tries to create inequities, but sometimes their definition of performance creates behavior that reinforces them.”

Amber Burton

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