On Aon Podcast: Understanding Pay Transparency Regulations

Intro:
Hi everyone, and welcome to the award-winning “On Aon” podcast, where we dive into some of the most pressing topics that businesses and organizations around the world are facing. Today we hear from Kelly Voss on pay equity. Now, please welcome this episode’s host, Brooke Green.

Brooke Green:
Hi everyone. My name is Brooke Green and I lead Aon's Talent Solutions business in North America. In today's On Aon episode, we are talking about pay transparency. So, I've invited Kelly Voss, who heads up our rewards and career advisory practice, to help us all think through this complex topic. In today's discussion, we're going to talk about pay transparency, what it means, why it's a challenge, and how companies can make it happen. Kelly, thank you for being here today.

Kelly Voss:
Thanks so much, Brooke. I'm so glad to be here.

Brooke Green:
And coincidentally, we've been talking about this. We both had a very touching experience with our sons in the last few weeks. When we mentioned, I mentioned on Sunday at the dinner table what I was doing this week, I was excited about the podcast on pay transparency, and of course my son said, "Could you describe what that means?" And when I explained it to him and why companies need to do it, he said, "Mom, that's really a thing?" And I thought that was kind of cute. Kelly, your son also had a similar reaction.

Kelly Voss:
Yeah, literally almost identical. He is always intellectually curious, and I was actually meeting with a client, and he was just asking me what we're meeting about, and he said, "Really? You mean men and women are not paid the same?" And he said, "Is that a thing," and I said, "Yes, that is actually a thing." He's like, "We're going to fix that, right?" And I'm like, "Well, we're trying."

Brooke Green:
That's right, buddy. We're going to fix that. So yeah, it's lovely and it's touching and it's just sort of eye-opening at the same time. So I think most of the people in our audience probably know more about pay transparency than our sons do, but just to be safe, and I think this is always a good idea, why don't we start by doing some level setting around the terms and concepts because we hear “pay equity, pay transparency,” and I think that would be great, Kelly, if you could just level set around the terms.

Kelly Voss:
Yeah. And you're absolutely right because they get used interchangeably and it can be confusing because people throw all these different terminologies around and they don't necessarily mean the same thing. So, when I define these, I think of them discreetly in different ways. So, pay gap. So, pay gap I think of as the average pay difference between men and women, so men and women outside the U.S. If we're talking about the U.S., it could be other groups, but outside the U.S. it would be men and women.

Then if we think of pay equity, that could compares the pay between men and women, and that could also be other groups doing substantially similar work. And that's usually when we think of a pay equity analysis that would be pay equity. Pay transparency is the practice of openly disclosing compensation for both current and prospective employees in the pursuit of pay equity. And then when we get all of these things, that's when we're achieving pay parity. So that's when we practice paying employees fairly without discrimination, regardless of gender or other characteristics. So, we get pay equity rate, we have closed our pay gap, and we are achieving full pay transparency. Then we have achieved pay parity.

Brooke Green:
So that's why I said there's a lot of work to be done to understand where we are, to close gaps, to reconcile inequities before we would be proud to be transparent about our pay. So, I think that's where the increase in activity is coming from. But actually, we were also talking about this week, fair pay isn't a new topic. I mean it has been around a long time, but it does seem like over the past five years there's been an acceleration in terms of what regulators and actually what employees are expecting from companies. And so, can you talk a little bit about that? Maybe give us a little bit of a history lesson before we get to what's going on today?

Kelly Voss:
Yeah, sure. So, 60 years after the Equal Pay Act, women are still paid 83 cents on the dollar on average in the U.S and 87 cents on the dollar in the EU. So needless to say, we still have our work cut out for us, and we've seen a lot of movement around pay equity and pay transparency in the US in the last few years. And of course we've seen regulations like this in Canada, and even if we go back a couple dozen years in the Scandinavian countries for some time now, but a lot of movement in the last maybe half dozen years in the US and in particular over the last couple of years, state by state. So, there was a lot of flurry of activity around updating salary structures, making sure that they were market competitive so that we felt really comfortable about the salary information that we were sharing not only to respective employees, but also to current employees. So, fast-forward to the EU directive, so everything that's required for California is also in the EU directive, but also it's a bit more stringent because we have new clauses around equal work for equal pay or work of equal value. We also have disclosure of pay information to not only the employee, but anyone who's in a job that's considered to be of equal value. So, if they're in the same range. If we think about that current pay gap of 13 percent in the EU, closing that from 13 percent to 5 percent.

So, we're seeing a lot more regulation in the EU. We're expecting that the regulation, which right now is a directive, so it's a directive for the 27 countries in the EU. These will be passed into law by July of 2026. So, for U.S. headquartered organizations who have a presence in the EU, they will need to comply with all of those regulations for their employees that may be in those EU countries. It's a lot to undertake in a short period of time if you’re in a scenario where you may not be doing job evaluation or you may have a pay gap in any one of those countries, it's a big undertaking for any of our global organizations.

Brooke Green:
Well, there's a lot of work to be done, but the other thing that's always on my mind, and specifically when California came online, which is where I live and work, is the managers and thinking about managers whose employees will be able, and this is true in New York as well, in New York City I think, but to be able to see the range of pay for the job. My thought is, and this has happened to me as a manager, people get the range of pay for their job, and the next extension is going to be, “why am I paid where I am paid within this range?” Or, “how do I get to a higher range of pay if this is the range of pay? I wonder how I could get more and get higher in the range.” So, I'm just thinking of the managers, but everything you just said around job evaluation, around identifying and closing gaps, and then what I just said about managers, it seems like a lot of work.

So, I guess the question is, what do we do? How can companies address these challenges if the goal is a truly transparent and equitable pay model? There seems like a lot to be done. By the way, I talked to a head of total rewards yesterday in a major insurance company, and I loved what she said. I said, "What are you doing about pay transparency?" And she said, "We are shifting from compliance. We're already compliant. We're shifting to making this a culture of transparency. And if we want a true culture of transparency that differentiates us, that kind makes us who we are. How do we do that? And that's a little different. So anyway, Kelly, how do they do that? How do we start?

Kelly Voss:
Oh, I just love that. I just love that. And I think about this journey, and particularly for you and I, because we've been working with clients to help them on this journey over the last couple of years. And if we think two years ago, so much of this was how do I comply and how do I comply? What is it that I need to do to make sure that I'm dotting my I's and crossing my T's so that I meet the regulations? But then we think about our son's reactions, and that's not about compliance, that's about the workforce and who our workforce is in the future. And that's about talent, and that's about what our talent expects. That's table stakes, right? That's-

Brooke Green:
It's values too. It's values, which I love.

Kelly Voss:
Yeah, it's a culture of transparency, which is a whole different thing. Whole different thing. All right, so how do we get there? So, I think of this as a three-leg stool, and I'm going to put... I always think of the design aspect is so critical, but hearing what you're saying around the change management aspect, so that three-leg stool being job architecture, the foundational piece, so the job evaluation has to lie on top of the job architecture. So, getting that piece right first so that you can then do job evaluation on top of a job architecture that is foundationally strong pay equity and pay equity analysis. If you're not doing pay equity now, starting to bite into that from a baseline perspective so that you could start to close that gap over time and then change management and communications. Boy, if there was ever a critical time that we need to be helping our managers to really embrace this change, I mean, I think of concepts like standard deviation or looking at the concept that you were just explaining.

And let's say you and I are, I don't know, $3,000 difference in pay, and our manager needs to explain why I'm $3,000 less than you. And we have to tell them that my manager has to say to me that it's not statistically significant. Well, the manager needs to be able to explain that concept. So, there's so much that we're going to be asking of our managers, and that's only going to continue to be the case. This is here to stay, right? It's embracing that concept of transparency. So really if we think of it from that three legs stool concept, that's where I think we could start and just starting to go down that path of transparency and thinking of it from that perspective.

Brooke Green:
I was thinking of when we hire people into a range as compensation professionals, we know that there's a range of pay, but we're going to hire people into a certain percentile of the range or a proportion of the range, and then we manage to a certain comp ratio as they perform over time and pay moves. Those are foreign concepts to a lot of managers. Maybe not in some companies. Some companies are great at training up managers on compensation, but even just the fundamentals really of having a conversation about the rationale behind pay and pay for performance or pay for other things, whatever the case may be. Sometimes companies accidentally pay for tenure. So, there's a whole lot of education that needs to go on. Completely agree with you there. And by the way, I forgot to mention that same head of total rewards I talked to yesterday who was talking about the culture of transparency.

I said, "Well, what have you done? What are you doing around pay transparency to achieve that?" And she said, "Well, we're already compliant, but we're starting with manager training," which I've not heard a company say before. It's usually the last thing they do. We get everything ship shape, we do our pay equity, we've got our jobs valued, we do our close our pay gaps, and then we train managers to have these conversations. And she was flipping that, and I thought, "Well, you may have a better chance of creating a culture of transparency than any company because you've got the right priorities," but all of it has to happen. So I'm little being a little silly here, but all of it has to happen. But Kelly, sometimes what I like to think about when something feels overwhelming because there's so much, what would be the one thing before we wrap up, if there's one thing you could advise our audience to do right now, one foot in the direction, what would that be?

Kelly Voss:But you're right, Brooke, right? All of it does have to happen, and I fully appreciate, fully appreciate that it can be a bit overwhelming. It's going to be a different answer depending on where an organization is, they may already be doing job evaluation, which is great news. So, they can check that box. They may be an organization that feels that embracing change from the manager perspective is the right thing for them to do from a cultural perspective. There are lots of other things that need to be done beyond job architecture, job evaluation, pay equity, and change management. But in my mind, they're the foundational pieces. You need to decide as an organization which one of those foundational pieces you should start with because I don't think there's one right answer for every organization, but if you start with one of those and then start to be planful... I mean, the good news is we do have two years, and if you start to think about it and plan accordingly, I think we'll all be in good shape. It's just a matter of taking that first step.

Brooke Green:
Yep, totally agree. It's a big meaty topic. We tried to boil it down here in just a few minutes, and by the way, you and I could talk about this all day, and we probably will. Well, Kelly, thank you for joining me. This has been fun. Obviously nobody I'd rather talk with than you about pay transparency.

Kelly Voss:
Thanks so much Brooke. It's been a pleasure. I've really enjoyed it.

Brooke Green:
And to our audience, thank you all for listening. In the next month, we're going to have discussions about construction and resilient economies, affordable health plans – huge topic – cyber and AI. So stay tuned for more. Until next time, thank you for coming.

Outro:
Thanks for tuning in to the latest episode of “On Aon” with our episode host, Brooke Green, and today’s expert, Kelly Voss, for a discussion on pay equity. If you enjoyed this episode, don’t forget to subscribe wherever you get your podcasts, and stay tuned for our next conversation featuring industry experts bringing you the latest on topics including climate risk, workforce wellbeing, ESG trends, and much more. Be sure to check out our show notes and visit our website at Aon dot com to learn more about Aon.