Most US workers think they are paid unfairly. Can technology help?

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When I was a child, my father owned a coffee shop. For his 10 or so employees, my Dad had a simple pay philosophy: If he liked someone, he paid them more.

Of course, that's not how big companies pay people—in theory, anyway. Most companies have a detailed compensation policy that explains how everyone, from employees to contractors, should be rewarded. But at the level of the individual manager, these policies are often overshadowed by personal opinions. Much of the politics of compensation is difficult to implement at a high level, and as a result, compensation remains a frustrating and deeply emotional issue for employees. And the wage conflict has led to entrenched unfairness, disillusioned workers, and calls for improved wage transparency.

A 2022 study from Gartner found that only 32% of US workers think they are paid fairly. And when my company did an employee survey, eight out of ten said they wanted to work transparently with their employer.

I believe the way we pay people is broken. But I also believe there is a way to fix it. Here's why compensation is a mess — and how companies can make it better.

Why is payment so difficult, and what is at stake?

Payment is always personal. No matter how clear a company's compensation policy is, it is ultimately left up to individual managers to implement it. This is what I call the “last mile” of pay equity.

And that last mile is full of debris. As employers like to think of salary as a science, compensation decisions in organizations large and small are often driven by instinct and mental math, leaving some employees overcompensated and others undercompensated.

Worse, bias—whether unconscious or not—is rampant. We have all seen how choice can count as work and stay. Meanwhile, factors such as gender and race continue to influence compensation. By 2022, Pew Research estimated that, on average, American women workers will earn 82 cents for every dollar men earn—a figure that hasn't budged in two decades.

When managers try to make data-driven decisions—by drawing on internal and external benchmarks—the information they need is often locked away in spreadsheets. The research and calculations required to systematically calculate individual compensation can slow pay decisions to a crawl and add additional burden to already overworked managers.

This leads to frequent interruptions. Managers may base a raise on employees' last few interactions, unfairly reward “squeaky wheels” while overlooking quiet employees, or simply give all team members the same bump to save time.

At the level of the individual worker, failure to make minimum wage decisions can be devastating. Displeasure with compensation leaves people very busy and often drives them to quit. During the so-called Great Resignation due to the pandemic, more than 60% of workers left their jobs due to low wages.

At the company level, the result is a systemic imbalance in compensation that can be difficult to eliminate. That's why there's a growing push for wage transparency across the US and the European Union. States like California and New York now have laws requiring employers to display compensation belts. In the EU, the principle of transparency aims to ensure that all workers receive equal pay for equal work.

As businesses grapple with wage inequality, it puts more pressure on managers, many of whom lack the knowledge and skills to deal with the complexities of compensation.

How can we fix the last mile payment problem?

Fixing the last mile problem in payroll starts with helping managers make simple and fair decisions.

A healthy company culture and ethical leadership can make a big difference here. Leaders need to educate their managers about the importance of making data-driven pay decisions rather than relying on guesswork. To do that, managers must ensure that people understand the company's pay philosophy, as well as the key factors that should determine compensation, from internal guidelines to external benchmarks.

But it's not enough to have your payment policies in place in PowerPoint. Whether we are talking about a dozen workers or a few thousand workers, getting the right to compensation requires not only guidelines but how to apply them, equally and on average. Managers need more than rules; they need tools.

Here, a new type of smart compensation tech shows promise. These productivity tools can integrate many different factors at play and incorporate complex aspects of company policies and industry benchmarks, to provide compensation proposals.

In this way, many new compensation tools are multidimensional in ways that spreadsheets cannot. For example, the spreadsheet doesn't understand if you're making pay decisions based on performance or tenure. But new compensation tools can account for compensation philosophy. They look for the latest information on salary levels and benefits. They adjust for geography and market demand.

But the best of these tools goes beyond that. They also aggregate rich data on individual job performance and engagement to make payment recommendations. Is a team member exceeding sales targets? Do you work after hours? Are you leading new programs? New tools can combine these demographic data points into a paid image.

Immediately, employee performance is measured against job standards. The salary is compared to the average salary for a similar position inside or outside the company. Pay gaps created due to race, gender or other factors are flagged.

When it comes to payment transparency, every organization has their own comfort level with the types of tools they use. But, regardless of the methods, the benefits of getting paid material are increasing. Payment transparency increases retention by 30% or more, one study found. About three-quarters of US workers are more likely to trust organizations that include salary categories in their job postings. And more than two-thirds of workers will switch employers based on salary visibility, even if compensation is the same.

Of course, people are still an important part of solving income inequality. But I can bet you a cup of coffee that removing bias and guesswork will leave workers feeling better about their wages and their jobs.

AI takes these smart comp capabilities to the next level. Instead of going through charts and tables, managers can ask questions in plain language. For example, a manager might ask, “Which people in my department deserve a promotion?”

A process that could take hours or days is compressed into minutes. Armed with that data-driven insight, managers can justify their salary decision to the employee, bringing clarity to what can be a difficult conversation. In addition, HR has a record of reason. More importantly, there is consistency across departments.

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