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Leveling the Paying Field for 99.7 Percent of American Businesses

When it comes to the fight for Equal Pay, knowledge is power. Make sure you're doing what you can do to promote transparency around pay philosophies.

Larry Washburn/ Getty Images
Larry Washburn/ Getty Images

Equal Pay Day, now in its 23rd year, is a much-needed reminder to gauge businesses’ —sadly incomplete— progress in closing the gender pay gap.

This year, there are more dis-spiriting pay statistics as well as some hopeful points of light in the Small and Mid-Sized Business (SMB) market. This segment, defined as organizations with less than 500 employees, has a huge potential to impact the world of work: SMBs represent 99.7% of all US businesses and employ 48% of American workers. Therefore, the unique set of challenges they face cannot be ignored when it comes to making radical and called-for changes to close the pay gap.

Where to start? To correct pay equity issues, all business owners must be able to make pay policy decisions that are based on reliable, actionable data. Small businesses have been at an unfair disadvantage on this front.

What can be done about fair pay, for SMBs

The key to creating an equal and consistent system for pay is transparent access to how the company pays. Only 13 percent of small and midsize businesses are transparent with their employees about pay policies and rates. This needs to change. Research shows that if left to individuals to ask for more pay, the system skews naturally toward those that are used to getting that compensation: men. And generally white men. So, companies should build a consistent compensation framework and then make that information accessible to their people. But transparency can’t work without a reliable, easy-to-access source of benchmark data that employers can compare with their own payroll and experience and adjust according to their market, geography, and roles.

While compensation benchmarks and software tools exist in the market, both are priced and scoped out of range for small businesses and typically targeted at large enterprises. Last year, only 20-25 percent of small businesses were using third party data to inform their pay practices, which shows there’s room for improvement. As a result, small companies are left to make their best guesses either based on their own experience or on employee-reported salary ranges collected from free “crowdsourced” sites such as LinkedIn or Monster.com, both of which have inherent data inaccuracies.

We’ll never close the pay gap by guessing. This is precisely why Zenefits recently launched a Compensation Management tool specifically for SMBs, leveraging (anonymized) pay data from across hundreds of thousands of SMB employees, nationwide. This allows small business leaders to pinpoint competitive and fair pay for their people by industry, role, level, and geography. No more guessing.

So what does the state of SMB pay look like this Equal Pay Day? A mix.

The bad news: women do worse as/if they advance in their careers. A March analysis of data from our customer base (more than 11,000 small and midsize businesses throughout the country) shows that female employees account for nearly 41% of the small and midsize workforce and are paid, on average, 28.7 percent less than their male counterparts.

A deeper analysis showed a trend by level: the more senior the role, the fewer women are represented and the larger their pay gap.

  • Entry level: women are 53% of this level at SMBs and are paid 3.5% less than their male counterparts.
  • Intermediate level: women hold 48% of these roles, but they’re paid 20.8% less than men
  • Senior level: 42% of these roles are held by women, and they earn 19.6% less than men
  • Department leaders: 34% of these roles are held by women, and they earn 21.9% less

The hopeful news: The data shows a slightly different outcome at the C-Suite level within small businesses. On average, 20% of small businesses are run or owned by women compared to a national average of Fortune 500 businesses with 4.8% female CEOs According to Pew Research’s 2018 Data on Women Leaders. And the wage gap between women and men in C-level positions in SMB companies ranges from 6% less for Chief Technology Officers, to 7% for Chief Marketing Officers to the largest gap of 15% for Chief Operating or Finance Officers.  Not perfect, but definitely trending in a much better direction — both for the individuals in those roles and for their collective power to put in place more fair practices for the rest of their organizations.

We can work together to level the playing field, but the first step is arming employers with the data they need to implement —and share—their fair pay policies.

At Zenefits, we regularly audit our own hiring and pay practices to ensure we aren’t just talking the talk, but also walking the walk. And staying true to our mission to help 99.7 percent of businesses streamline operations without the resources of a Fortune 500 company: we provide tools for them to walk the walk, too.

Using market data and comparative analysis is one way to ensure that employers and employees are on the same page regarding pay practices, but there are more ways to bring transparency to the fight for pay equity. Employers can take proactive measures to regularly communicate with their employees. Regular surveys, feedback sessions, and one-on-one meetings that engage employees in the discussion all help employers stay current on how employees feel about their compensation.

Implementing these philosophies is about building a culture of fairness, equality and transparency. In fact, research shows that pay fairness and transparency is 5 times more impactful on employee happiness than how they’re paid relative to others in their field. Today’s workplace demands that employers create an environment where people — regardless of gender, race or sexual orientation — feel they can be treated fairly and do their best work.

When it comes to the fight for pay equality, knowledge is power. A transparent system where pay data is readily available can help small businesses with fewer resources be better–and we’re here to help.

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