Unlocking Value through Pay Equity

 

Globally, we see that there are multiple factors driving organisations to invest in and embrace ESG policies and practices. For example, the fast evolving regulatory and compliance requirements, heightened interest from investor relations and board focus, increase in social movements, activism and changing expectations of employees.

The mandate around ESG used to be largely managed by the Human Resources teams. As regulators and governments are showing keen interests in pay equity and introducing legislative requirements, ESG has got the attention of boards, business leaders and HR alike. As we see it, DEI is a key part of ESG agenda and Pay Equity is at the center of it.

The Connection between ESG, DEI and Pay Equity

Pay Gap, Pay Equity and Pay Transparency – What Are They?

Pay gap is a simple calculation of variations in average pay between men and women (and other groups, such as race / ethnicity).

Pay equity is one step further where we consider legitimate factors that may impact pay and compare the pay between men and women (and other groups) who are doing substantially similar work.

Pay Transparency is the practice of openly disclosing compensation policies, practices, and levels for both current and prospective employees. Appropriate policy and practices disclosures ensure not only regulatory compliance but if done well, also improve employer brand and employee experience.

Let us look at some of the recent developments in Asia Pacific (APAC).

Pay Equity Development in APAC

Pay Equity Landscape in Australia
The pay equity landscape in Australia has been largely driven by regulatory reform. Two recent legislative developments are shaping the social agenda in Australian workplaces. The removal of pay secrecy clauses from employment (starting contracts entered into or after 7 December 2022) enable the employees to have the right to share information as well as ask other employees about individual pay or employment terms. This is compelling organisations to ensure that the fundamentals are in place to support pay equity, including but not limited to the design of well-defined pay structures, effective pay management and communication.

In March 2023, WGEA (Workplace Gender Equality Agency) announced that they will publish gender pay gaps at an organisational level by early 2024, including the raw gender pay gap for Base Salary, Total Remuneration and gender pay gap by remuneration quartile, along with gender ratios. In addition to these, WGEA requires larger organisations (of 500+ employees) to have a policy and strategy in place to address gender equality indicators.

The key challenge for organisations in Australia is that they are grappling with pay equity, gender pay gap and pay transparency simultaneously. The gender composition of the workforce is a key driver of the pay gap due to the under-representation of women in senior, higher paying roles. However, gender composition can be hard to shift quickly, and it requires sustained focus and commitment from organisational leaders.

Pay Equity Landscape in Japan
The pay equity landscape in Japan is also driven by regulatory reform. In 2022, the Japanese government amended the Information Disclosure System on the Act on Promotion of Woman’s Participation and Career Advancement in Workplaceto obligate organisations with 301 or more full-time employees to disclose gender pay gap as a mandatory.

Disclosure requirements around pay is also urging organisations to look at systemic issues that are causing the pay gap. To further this cause, the Financial Services Agency’s “Disclosure Working Group” requires all listed companies to disclose Human Capital and Diversity related items in the Annual Securities Report.

Further, to encourage more women to remain in the workforce, amendments have been made in the Act of Childcare and Family Care Leave. It requires firms with more than 1,000 employees to disclose the status of employees taking childcare leave.

Beyond regulatory requirements, pay equity is becoming an important KPI to attract excellent talents in an era of declining worker population, particularly for companies with global operations. As a result, organisations today are actively promoting women to more senior positions and making focused efforts on increasing the percentage of women in the overall workforce.

Pay Equity Landscape in India
The key drivers for accelerating the pay equity movement in India are leadership action, heightened interest from boards and social activism around the need for DEI. Another contributing factor is that many global giants, who have a footprint in India, are proactively tackling ESG and pay equity as part of their global Employee Value Proposition (EVP).

The Securities and Exchange Board of India (SEBI) requires the top 1000 listed entities in India by market capitalisation to make filings as per the Business Responsibility and Sustainability Report from financial year 2023. The requirement mandates the filing of remuneration paid to males and females across Board of Directors, Key Management Personnel, other employees, and workers. The objective is to encourage companies to integrate sustainable and responsible business practices into their operations. A lag measure of success in this case is considered as improved gender ratio leading to better pay equity.

Gender pay gap issues in India are complex, comprising of socio-economic, cultural and structural factors. While addressing pay equity, organisations are gearing up to address the root causes that contribute to the gap.

Starting Your Pay Equity Journey

Whether it is prompted by regulations, or increased focus on ESG and DEI, Pay Equity is an important element for organisations to focus on. We have articulated three key stages that an organisation will go through along their pay equity journey and the steps they need to take under each stage.

Stage 1: Reactive – Report gender pay gap	Stage 2: Proactive – Achieve pay equity	Stage 3: Advanced – Deliver pay transparency
Understand regulatory and compliance requirements. Deploy data analytics to understand pay gaps across genders (and other target groups). Understand structural issues causing pay gap that is a result of systemic and interrelated barriers.	Deploy data analytics to help your organisation better understand your workforce. Create a dashboard that enables the firms to cross-analyse gender, level, age, expertise and geographical location with business function and organisation level. Identify opportunities for improvement, set short-term and long-term goals, and monitor progress.	Build an integrated human capital and total rewards strategy that is aligned with the DEI strategy. Deploy advanced workforce analytics and cloud technology to provide disciplined and rigorous quantitative analyses to aid decision-making and track progress. Build engagement and communication strategy that clearly underpins the who, what, and how of transparency.

 

About Aon’s Pay Equity Practice

Aon has one of the largest pay equity practices across the globe, conducting over 100 pay equity studies annually. We can support you with delivering your ESG and related data disclosures and certifying the results of the pay equity analysis; measuring external sentiment and ROIs of your pay equity initiatives using public sentiment analysis technology; communicating pay equity effort to managers, employees, and the broader investment community.

As Asian companies go global, they require support in staying compliant with Pay Gap and Pay Disclosure requirements in the US and Europe. Aon partners with such organisations to make better decisions around Pay Equity along their global journey. We also support large global organisations with footprint in Asia to proactively manage their Pay Equity initiatives.

Aon’s endeavor is to go beyond the data and look for root causes of pay inequities to ensure problems – once fixed – do not return.