Organizational Trust is the Main Driver of Employee Perceptions of Pay Equity

By Heather Nezich, courtesy SBAM Approved Partner ASE

Less than one-third of employees feel they are paid fairly, while just 34% of employees believe their pay is equitable, according to a survey by Gartner, Inc.                                   

The Gartner survey of 3,523 employees in late 2022 also found that that employees who perceive their pay as unequitable have a 15% lower intent to stay with their employer and are 13% less engaged at work than employees who perceive their pay as equitable.

“Employees’ sensitivity to perceived pay gaps is being exacerbated by today’s economic conditions, including rising inflation, and the hot labor market, which is causing a shift in compensation between tenured employees and new hires,” said Tony Guadagni, senior principal in the Gartner HR practice.

Most organizations are actively taking steps to close pay gaps; a July 2022 Gartner survey of 104 total rewards leaders found that 84% are conducting pay equity audits at least annually. While technical approaches are necessary, they don’t address employee perceptions.

“Employee perceptions of pay equity aren’t rooted in compensation,” said Guadagni. “Instead, the main driver of perception is organizational trust – when employees don’t trust their employers, they don’t believe their pay is fair or equitable.”

Most employees’ perceptions around pay are attributable to general trust in the organization. Factors that erode organizational trust include poor culture and inclusivity, poor work-life harmonization, and unfair experiences.

To increase employee perceptions of pay, HR must rebuild employees’ trust in the organization.

More Communication

Employees receive little pay information directly from their organization. A Gartner survey of more than 3,200 employees in May 2022 found that nearly 43% of employees discuss their pay with colleagues in the same role, while 45% of employees consult third-party pay sites at least once a year. In fact, the same survey found that less than one-third of employees are aware that their organization is prioritizing pay equity.

Communicating about pay equity builds organizational trust and improves employee perceptions, as does education about pay processes.

“Only 38% of the employees we surveyed report that they understand how their pay is determined,” said Guadagni. “When organizations educate employees about how pay is determined, employee trust in the organization increases by 10% and pay equity perceptions increase by 11%.”

Broader Accountability

Most actions that create pay equity issues occur outside of the HR function and are the result of manager decisions. Most pay gaps arise from decisions surrounding hiring, promotion, and performance assessment. Despite limited influence over these factors, pay equity processes are siloed within the HR function at most organizations. In order to effectively address and sustain pay equity across the organization, HR leaders must broaden the scope of accountability for pay equity and ensure that managers consider pay equity implications when making critical staffing and compensation decisions.

Develop Pay Equity Team

In a July 2022 Gartner survey, 72% of total rewards leaders reported that their organization’s senior leadership believes that pay equity is a high or very high priority. Yet, decision-makers deprioritize pay equity in practice, particularly when hiring critical talent.

While total rewards leaders own pay equity, HR can construct a pay equity team that has broad insight into the factors that cause pay equity gaps and the authority to correct them.