Many organizations see the value in building diverse teams but struggle to develop a candidate pool that includes people from different backgrounds and lived experiences. When creating strategies to attract a diverse group of job seekers, it can be easy to overlook one major factor: compensation. In our team’s experience, with the rise of pay transparency and candidate expectations regarding fair pay, paying below-market salaries will tend to decrease the diversity of your candidate pool. Here’s the research behind our thinking.
The Most Important Factor in Compensation Is Fair Market Value
A 2022 analysis from the Center for American Progress reported that “Hispanic and Latino workers experience persistent and pervasive ethnic wage gaps compared with white, non-Hispanic men.” A 2021 McKinsey report showed that “the median annual wage for Black workers is approximately 30 percent, or $10,000, lower than that of white workers.” According to recent research from the Pew Center, women in every group experience an even wider gap.
And these are just a sample of the disparities in how workers are paid in this country.
Much US research focuses on race and gender, but we can extrapolate that inconsistencies exist for other groups. For example, the White House released a statement noting that “Americans with disabilities … are three times less likely than others to be employed and often earn sub-minimum wages for their work.” And 2021 research from the UK’s Office for National Statistics found that neurodiverse individuals experience a significant gap—workers with autism at a 33.5% gap, followed by 29.7% for people with learning disabilities.
Many people in underrepresented communities have been treated unfairly with respect to pay for decades. Offering below-market pay while expecting to attract workers of all different backgrounds unintentionally perpetuates that cycle. Particularly for early career workers, accepting below-market pay starts a lower compensation trajectory that can translate into a reduced ability to build wealth over a lifetime.
It may be that an organization offers lower pay due to budget constraints or internal equity imbalances. But those factors don’t matter to candidates. To hire great people and intentionally reduce bias in hiring, the most important factor in compensation is fair market value.
How Fair Market Value Pay and Transparency Overlap
Secrecy around pay has been common practice for decades, but things are changing. In 2014, the Institute for Women’s Policy Research reported, “About half of all workers (51 percent of women and 47 percent of men) report that the discussion of wage and salary information is either discouraged or prohibited and/or could lead to punishment.” Less than ten years later, Tomasz Obloj and Todd Zenger reported in a recent Harvard Business Review article that “pay transparency is reducing pay inequities across gender, ethnicity, sexual orientation, and other dimensions,” pointing specifically to the spread of pay transparency in higher education and a narrowing of the gender pay gap in that industry.
According to a 2023 Indeed survey of Black workers who have or are planning to leave their jobs, pay transparency is a top priority for 73% of participants. In our experience at Staffing Advisors, many candidates refuse to engage without a posted salary, citing reasons like, “This practice perpetuates gender pay disparity among other equity issues.”
Pay transparency is working to address inequities in compensation, and candidates are aware of the power of this movement. Organizations that offer fair market pay and are transparent about compensation are at a competitive advantage. This creates a strong appeal to workers from groups who may have been marginalized concerning pay in the past.
Proof of Structural Fairness and Equity
Studies show that candidates are interested in exploring organizations’ diversity, equity, and inclusion commitments. According to Indeed & Glassdoor’s Hiring and Workplace Trends Report 2023, “Nearly two-thirds (62%) of US workers said that they would consider turning down a job offer or leaving a company if they did not think that their manager (or potential manager) supported DEI initiatives.”
Candidates look for cues about DEI in job advertisements, on websites, and, as organizations move toward publicly posting salaries, how employees are paid. If your organization has an intentional strategy to support DEI in the workplace, transparency and fair market value compensation demonstrate a commitment to fairness and equity at a structural level.
Compensation is only one element of inclusive hiring best practices. For a complete view of our approach, from developing skills-based vetting criteria and inclusive job advertising to structured interviews and work sample testing, download SA Perspectives: Inclusive Hiring Practices.