ECONOMIES OF EQUAL
““All animals are equal, but some animals are more equal than others.””
When George Orwell published Animal Farm in 1945, he satirized the Soviet revolution and how even the best, new intentions can result in the same old problems. However, the observations he made certainly have general applications in our current work environment when it comes to understanding the nature of equality.
Monday, March 31, 2020, marked this year's observance of a specific inequality that the National Committee on Pay Equity hopes to elevate in awareness. The date represents 'how far into the year women must work to earn what men earned in the previous year' according to their website. However, their metrics are taken from a broader diagnostic of the complete US labor market, whereas Small World specializes in the world of logistics and supply chain management.
Within this microcosm, the Association for Supply Chain Management (ASCM) conducted its own survey of their labor population, and the one finding that caught my eye was the relative parity in compensation for the cohort under 30 as compared to older demographics. Initially, this suggests that the marketplace for new entrants offers a relatively level pay scale, while those veterans within the same marketplace reflect a legacy of pay inequality. Put differently, the recent generations' accrued efforts of affording females the same equality of opportunity (education, training) resulted in similar equality of outcomes, i.e. similar starting wages, whereas the historical bias in compensation still resides on the right-hand portion of the graph
Upon a bit of consideration and a simple projection of my own based on these same numbers, I wanted to make an important distinction between relative and absolute comparisons. As a cautionary tale, consider a case where a company hires Alice and Bob at nearly identical salaries--within 1.5% of each other--on the same day. Attribute this $800 pay gap to some non-discriminatory factor, e.g. Bob attended a slightly more prestigious university, but this distinction did not actually improve his performance relative to Alice when it came to productivity within the firm once employment ensued. So then, make the simplifying assumption that Alice and Bob perform identically for the span of ten years and each of those years they received a commensurate merit increase of 4.2%, which was the ASCM's average pay increase reported in 2019.
The chart above supply projects their salary over the intervening decade, and please note that even though the firm applied the same 4.2% increase to both salaries the gap remains at only 1.3% every year. Alternatively, the $800 gap has grown to $1,159 in absolute terms, which is nearly 45% larger than it was when they joined the firm. The aggregated disparity in compensation is nearly $10,000 in real terms. More pointedly, this firm seems to have the best of intentions and might review their practices as being 'equal' when they award equal pay adjustments in terms of percentage growth--an all too common practice in all industries--but it fails to consider that employees live in the real world. When Alice and Bob buy groceries, their eggs and milk are denominated in dollars not percent(s), so these real disparities in pay can sometimes be misrepresented when making relativistic comparisons.
Obviously, this is a simplistic analysis of a complex issue like narrowing--if not eliminating--the gender gap in compensation, but I hope to demonstrate that many firms also take a simplistic approach in determining compensation for its employees year after year.
At Small World, we don't want to make a mountain out of a molehill, but we want to make sure that you don't miss the forest for the trees when it comes to recruiting, paying and retaining the busy beavers that really help you grow your world. Contact us so we can help you ensure that you are paying everyone on your team equally based on his or her contributions - not more equally based on using the wrong equation for compensation.
If you are that individual or agent of a firm who wants to explore ways to take the opportunity to discuss how analytics might offer a healthier tomorrow, please contact me so we can use this short run downturn to position you for a strong resurgence in the long run.
Damien Feiklowicz, Strategic Advisor
www.smallworldrecruiting.com/analytics