Workforce Development

The Next Move: Rethinking Fair Pay

October 29, 2020  • Business and Society Program

This year, it has been impossible to ignore the inequalities in the American economy. The public has been reminded that “essential” jobs in our economy—grocery storemeat processing, nursing, and frontline healthcare workers among others—are overwhelmingly low-wage, high-risk jobs. They are also often occupied by historically disadvantaged groups—women, Blacks and Latinos in particular. It goes without saying that the high risk of contracting COVID 19 while working a job that pays minimum wage is intuitively unfair. It is doubly so when at the same time, a steadily growing stock market has continued to increase the wealth of executives and investors.   

The question of how to more fairly share the gains in our economy is not new. A recent bombshell study by RAND Corp tracing the last 45 years found that the bottom 90% of workers would take home an additional $2.5 trillion in income a year if economic gains were shared as equitably as they were between the end of WWII and the early 1970s. But the experience of 2020 has added a fierce urgency to resolving the issue of fair pay.  Inequality is devastating lives, fraying America’s social fabric, and undermining our trust in institutions. 

Fairness is a cornerstone of any healthy company culture and pay is a powerful signal to executives, employees, and investors. When a company’s essential workers are paid too little to pay their bills and save for their future, commitments to stakeholder capitalism ring hollow. When boards aim to pay their executives above the market rate for executives at other companies and ignore pay disparities inside their own company, it is harder to expect employees to embrace a shared purpose with their leaders. Some companies are recognizing this: Salesforce has one of the most well-publicized examples, conducting an annual Equal Pay Assessment for the past several years and investing millions of dollars in correcting these inequities. After realizing that the “market rate” pay was still leaving many of their employees struggling to afford decent housing, food, and healthcare, PayPal redesigned their compensation and benefits policies to ensure a real living wage for their customer service employees. Yet these examples so far remain the exceptions. A broader re-think of fairness in pay is needed. 

In a moment that demands courage to break old habits and creativity to innovate new approaches and philosophies to pay, we asked a diverse set of leaders, including over a dozen executives, corporate directors, and HR professionals, What is the next move that business should make to ensure fair pay, from the front line to the executive suite?The responses we received are below.   

 *Unfortunately, none of the business voices we solicited were able to go on the record with a response, which is a testament to the complexity of this topic. We know the business community is thinking deeply about these issues, so we welcome any specific responses on this topic and are open to amending the blog or sharing in a separate follow-up post.

What is the next move that business should make to ensure fair pay, from the front line to the executive suite? 
Ask: What’s Fair? Promoting Worker Financial Health 

In discussions about fair pay, the most critical question to ask is, “Fair relative to what?” While the ratio of CEO to frontline worker compensation is the standard measure, it misses the point. Workers should be able to put in 40 hours a week and make ends meet. As a first step, firms need to be measuring worker compensation relative to their broader financial health and well-being. A broad financial wellness assessment of workers can shed light on the real financial lives of workers and provide firms with an action roadmap. Employers ultimately will need to use all of their levers—pay, benefits, retirement, and health care plans, stock ownership, scheduling and leave policiesto truly make work pay.  

— Jennifer Tescher, Founder and CEO, Financial Health Network 

Empower Workers and Strengthen Democracy with Collective Bargaining 

A healthy democracy is a system in which as many people as possible have the ability and mechanisms in place to govern themselves. While voting, lobbying, and all forms of policy are important forms of democratic participation, collective bargaining—both at work and within other economic relationships like wages, rents, and debts—inserts much-needed democracy into our currently lopsided economic system.  

Unfortunately, the ability to collectively bargain has been undermined by many of America’s biggest employers. The lack of union power left many Black workers totally unprotected from COVID-19, resulting in thousands of cases and many preventable deaths, and with a lack of Black representation in management and the executive suite. Working people, especially Black working people, have disproportionately borne the brunt of this pandemic. And this will happen in the next pandemic, and in every crisis, unless we finally give them a seat at the table. 

— Erica Smiley, Executive Director, Jobs with Justice 

Refocus Executive Compensation Conversations on Internal Fairness 

In recent months, as organizations have grappled with compromised business results due to the impact of COVID-19, they have been forced to rethink various aspects of their executive compensation programs. Compensation committees acted decisively and didn’t wait to see what their peers were doing. As they cut salaries and reduced incentive targets, their CEOs and senior executives often took the earliest and deepest hits.  These decisions were not guided by the external market but were instead based on what was affordable and internally fair.  

Is this just an anomaly or have we encountered an inflection point in executive pay management? Time will tell. But just as COVID-19 has produced lasting changes in how work gets done, and how the workforce is deployed, we may see similar lasting changes in how executive pay decisions are made—including a shift in focus from external competitiveness to a more balanced assessment of internal fairness and affordability.     

— Don Lowman, Global Leader Rewards and Benefits, Korn Ferry 

Fair Pay Should Reflect Fair Opportunity 

Pay is only one, albeit an important, corporate policy, and unfair pay practices are often a reflection of deeper issues within organizations. Business leaders today need to have frank conversations about the nature of opportunity in their companies: are we creating a workplace that provides an equal shot to employees, up and down the hierarchy? This is especially pressing today as Covid19 has been shown not only to be a health shock, but also an inequality shock, disproportionately hurting low wage workers, minorities, and working mothers with school-age children. Business executives can and should take a leading role in mitigating the harm to their own workforce and American workers overall.   

— Claudine Gartenberg, Assistant Professor of Management, Wharton School of Business, University of Pennsylvania 

Create an Integrated, Modernized System of Benefits that Ensures Financial Security and Economic Dignity 

In addition to providing fair and living wages, workplace benefits such as paid sick leave, retirement savings, and health insurance enable millions of workers to be resilient, pursue opportunities, and lead economically dignified lives. Given the discretionary nature of employerprovided benefits in our country, huge inequities exist. To build towards fair compensation in the workplace, we need to recognize that our current system of benefits is not designed to support front-line workers, nor handle more part-time workers, independent contractors, and gig workers, nor manage the uncertainty of work caused by a global pandemic.   

We must recognize that benefits need to be portable, residing with workers and not their employers. It’s time to reimagine our current system of benefits – and what constitutes a benefit in our countryto create a more equitable and inclusive system centered around what workers and households need to be financially secure. This includes core benefits that help workers achieve short-term stability and also enable the pursuit of opportunities and attainment of wealth. Working together with private actors, governments, and non-profits, we envision a future where our system of benefits supports all workers, ensures fairness in total pay, and promotes work as a source of prosperity for all. 

Ida Rademacher, Executive Director, Financial Security Program and Vice President, The Aspen Institute

Moving Beyond the Minimum: Wealth Building Wages for a More Equitable Economy 

A rising minimum wage and the Fight for $15 have reshaped how we think about hourly pay for the better. However, as conversations are anchored to these price floors, individuals working full-time for minimum wage still cannot reasonably afford to rent a two-bedroom apartment anywhere in the United States. 

Income equality is important, but when low-wealth individuals are asked to build wealth only through the money earned from their hourly pay, they will continue to lag behind higher-wealth individuals that rely on their returns on investments and diversified assets.  

To move towards a more just society, fair pay and compensation should center ways for low-wealth individuals and households to build wealth, rather than assume incremental improvements to a minimum will transform endemic inequality. 

Eric HorvathDirector of Capital StrategiesCommon Future 

The Conversation on Fairness Starts in the Boardroom 

Our recent release, the Modern Principles for Sensible and Effective Executive Pay, asks boards to consider fairness—when it comes to executive pay—across three dimensions: the relationship between the CEO’s pay and the rest of the executive team; the pay for the C-suite against pay for the rest of the employee population; and the proportion of the firm’s profits paid out to shareholders through dividends and share buybacks vs. retention of profits to invest in workers.  

The board bears ultimate accountability for making decisions about executive pay—and for aligning pay with the health of the enterprise. The conversation that began when the CEO members of the Business Roundtable signaled their intentions to rebalance rewards to shareholders with the need to create value for employees, host communities, and customers in the context of good outcomes for the planet needs to focus on the internal rewards and incentivesthe signals sent from the boardroom. Boards need to account for the decisions that flow from the design of executive pay; to assure that all of the contributors to the firm’s success are paid fairly is a critically important and immediate first step.   

 — Judy SamuelsonExecutive DirectorBusiness & Society Program and Vice President, The Aspen Institute 

Special ThanksThis edition of The Next Move was developed as part of the Global Inclusive Growth Partnership, a collaboration between the Aspen Institute and the Mastercard Center for Inclusive Growth. Be on the lookout for a follow-on Next Move webinar that further unpacks how business leaders can establish fair pay across the enterprise.

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