As a business leader, you need to know that disparity in pay and opportunity for advancement between employees can create a sense of inequity. When such inequities exist, companies miss out on the benefits that diversity and inclusion efforts help to provide-such as increased engagement, more ideas and ultimately better performance. The first step toward bolstering equity is understanding what diversity, equity and inclusion mean and why they are important.
- What is Equity?
- How can companies make sure they are treating employees equitably?
- How to convince management that this is necessary
- The challenges to achieving fair market value
- Equity vs parity in the workplace
- Why is Equity Important?
- 9 benefits of having equity in the workplace
- A feeling of ownership interest
- 5 ways to create more equity in your company
- Examples of companies with high levels of ownership equity and why they are successful
- Accountability enhances equality
- Common misconceptions about what “equity” means
- What is the difference between equity and equality
- In conclusion on equity
- Caveats and Disclaimers
What is Equity?
One of the most well-known and quoted definitions for equity was given by John Rawls in his book, A Theory of Justice. He said that “to be treated equally according to justice is to treat equals equally.” Equity, then, is treating equals as equals through an equitable process and providing them with equal opportunities.
One way to explain equity is by drawing an analogy to sports. Just as different athletes have different strengths, each person who works for a company also has different strengths. In sports, those differences are recognized and the team is made up of players that best complement each other. This is how equity helps companies. It ensures that everyone receives an equal opportunity to be a part of a group based on their skills and abilities.
How can companies make sure they are treating employees equitably?
One way companies can make sure they are treating employees equitably is by discussing what equity is and why it’s important. It is important to reflect on the biases that might be hidden in their pay and promotion policies, which can create inequity and limit opportunities for advancement. Diversity and inclusion efforts help to provide many benefits: increased engagement, more ideas and ultimately better performance.
The first step toward bolstering equity is understanding what it means and why it’s important. According to the McKinsey Global Institute, the lack of women in leadership roles globally is a $28 trillion bucket of unrealized potential. Lack of equity can lead to significant amounts of wasted talent, ideas and innovation.
McKinsey suggests the following: ensuring pay equity by assessing and removing any biases in pay; setting clear guidelines for promotion that ensure fairness; building a strong pipeline of female talent by creating development programs, mentoring and sponsorship opportunities; encourage flexibility as well as rewarding results not hours worked.
How to convince management that this is necessary
One way to convince management that this is necessary is by highlighting the negative impacts of inequity. According to research from McKinsey & Company, organizations with highly effective diversity and inclusion (D&I) deliver:
· 1.8 times higher earnings per share (EPS)
· 2.7 percent higher return on equity (ROE)
· Total shareholder returns that are 70% better than industry peers’
With such significant performance gains, it makes sense to gain a better understanding of equity and what it means.
The challenges to achieving fair market value
The first challenge is recognizing any biases that may be at work in pay and promotion policies. These can create inequity and limit opportunities for advancement. Another key barrier is a lack of transparency.
Gaining buy-in through discussions will also help companies address any pay disparities in their organization. One study by the University of Florida found that after surveying over 400 business leaders, 80% disagreed or strongly disagreed with the statement, “Whether someone is paid fairly is unrelated to their gender.” In fact, when comparing equally qualified men and women in a company’s workforce, it was observed that there can be up to a 20% difference between what they are paid. Adjusting for this can help reduce inequities.
Equity vs parity in the workplace
The difference between equity and parity is that equity implies a greater degree of justice, fairness, and impartiality. Parity is more about equality in practice by trying to balance out the inherent inequalities in the system.
“Equity: treatment or participation in an activity that is just and fair, as by giving each person what he or she deserves. ” -Merriam Webster Dictionary
“Parity: parity of pay, access to jobs etc.; equal status, esp. equal standing with others.” –Merriam Webster Dictionary
People who feel like they are being treated with equity and parity tend to be more engaged in the work that they do, and also feel a greater connection to the organization as a whole. This makes them much more likely to go above and beyond for the company rather than just what is expected.
Why is Equity Important?
The word equity is defined as fairness and impartiality that is based on reason, law, or natural justice. This term can also refer to equality of opportunity, resources, or treatment. An example of a business with a low level of equity might be a company where the owner does all the hiring and promotes all the people he likes. A company with a high level of equity has many different friends from different levels of the company who are able to make decisions about hiring and promotion without bias or favoritism.
Inequity leads to poor performance as well as disengagement among employees. Inequities will create rifts between workers who feel left out because they see others being promoted or being paid more. Inequities, as well as unfair performance evaluations, have been shown to affect employee turnover and company culture in a negative way.
9 benefits of having equity in the workplace
- diversity of a workforce helps a business because it provides a variety of ideas
- flexibility is needed for advancement opportunities because that will keep people from feeling left behind or not getting the chance they deserve
- diversity of ideas helps a company because it can lead to improved thinking and better solutions for problems
- better engagement is needed because if the employees are disengaged, then the work will suffer
- equity helps a business because it fosters not just equality, but fairness and impartiality that is based on law or natural justice
- equity encourages more people to work at a company
- equity encourages more employees to stay there longer
- discrepancies in pay have been linked to increased turnover rates
- inequities between coworkers can result in rifts and feelings of unfairness, which will lead to decreased performance
A feeling of ownership interest
When people feel like they are being treated with equity, they feel ownership in their work environment—they feel like what they do matters and contributes to the organization. When people don’t feel like their contributions matter (i.e., there is no feeling that their efforts are recognized or valued by the company), then it creates a lot of disengagement which leads to turnover.
People who are being treated fairly feel that they have opportunities for advancement within the company, and this can be important because it gives people a sense of future opportunity with the organization. When there is no equity or parity people begin to feel stuck – they don’t want to leave their current role, but also aren’t encouraged or excited about leadership opportunities that could come their way.
5 ways to create more equity in your company
1. Recognize the importance of equity
2. Create a culture that fosters equity
3. Evaluate your company’s current policies and practices for inequities in pay, opportunity, promotion, etc
4. Implement changes to create more equitable outcomes for all employees
5. Communicate these changes with your employees so they know what is expected from them – this will help foster engagement among the staff
Examples of companies with high levels of ownership equity and why they are successful
Some examples of companies with high levels of equity include Kaiser Permanente, Google, and the International Alliance. These companies are successful due to their ability to increase diverse perspectives and engage employees in the company’s success.
“Unless people feel they are being treated equitably, it is hard to get them to contribute peak performance,” says Sam Parker of the Center for Creative Leadership. “They begin to think about themselves as employees instead of assets.”
For example, Google prioritizes diversity and inclusion efforts by ensuring fair pay practices, removing biases in hiring practices, and providing unconscious bias training for all employees. Google sees benefits from these efforts in increased engagement of employees, more ideas generated by diverse teams, and higher performance.
“We are looking at whether … there are differences between us that can explain any differences in attrition or performance,” Parker says. “If you don’t know what they are, you can’t correct them.”
According to a 2016 Harvard Business Review report, companies with the most diverse workforces boast better performance and stronger financial results while closing gaps in representation. They also have higher levels of employee engagement than their peers do. For example, at American Express OPEN, “engagement is more than 2.5 times greater, and the company has 50% higher revenue growth” than other U.S. companies, according to Glenn Llopis, chief strategy officer for consulting firm GLEE Inc.
Accountability enhances equality
Accountability is another factor that enhances equity. Companies must be clear with employees about their expectations to reduce inequities caused by unclear career paths or missed opportunities for advancement.
“Organizations need to be accountable if they want to maintain high levels of equity,” says Elisa Steele, president and CEO of International Leadership Associates (ILA). “If you give employees opportunity but not accountability, then they won’t develop the skills necessary to capitalize on those opportunities.”
Common misconceptions about what “equity” means
The word “equity” is often misunderstood as a term that only includes hiring practices and compensation, but equity is actually more comprehensive. It also includes differences in opportunity for advancement, benefits, and responsibilities.
A common misconception about equity is that it means competitiveness. Organizations that have a competitive emphasis tend to focus on their best employees and offer them the best opportunities while not giving enough attention to other employees. In these companies, it can be difficult for employees who are just starting out to get the same opportunities as more experienced employees. This can lead to a sense of inequity, resulting in decreased engagement and lower performance.
A company can improve on its equity by ensuring it offers employees all of the same opportunities and benefits-for example, by introducing company benefits to mothers so they can spend more time with their children.
What is the difference between equity and equality
Both equity and equality sound similar in that they both refer to a likeness or similarity in quantity, level, or value. Generally, the term equality implies equal opportunity. This means that everyone is treated equally and has an equal chance to succeed in life, meaning there are no obstacles for certain groups of people preventing them from reaching their full potential. For example, if a child was born into poverty or into a disadvantaged neighborhood where opportunities were limited, they would be treated the same as every other child born into a richer family or neighborhood. Additionally, equality means that everyone has an equal share of economic and political power.
By contrast, equity is related to fairness in opportunity; it means that people are not necessarily given what they need but rather assigned what they deserve. Therefore, some people will receive more and some will receive less, but those who have been given more are those who have worked the hardest for it. This means that people may not necessarily be provided with equal opportunities, as everyone does not start from the same place as one another. To gain more, you must work for it.
In conclusion on equity
The message is that companies must understand what equity means and how it affects individuals in the workplace. Employees need to understand what equity is as well, so they can recognize where there might be inequities (such as lack of opportunity or advancement) and voice their needs. After understanding more about equity, companies can make changes that lead to stronger engagement and better performance among employees.
“By understanding the importance of equity, companies can take steps to secure their future success,” says Steele. “It’s about more than just hiring diverse talent; it’s also about giving everybody equal opportunities and providing all people with the same level of benefits.” And that makes everyone feel like they are an integral part of the team; that the company has invested in them and is interested in their success.
Caveats and Disclaimers
We have covered many topics in this article and want to be clear that any reference to, or mention of ownership, compensation, publicly traded, real estate, profits or compensation in the context of this article is purely for informational purposes and not to be misconstrued with investment advice or personal opinion. Thank you for reading.
Research & Curation
Dean Emerick is a curator on sustainability issues with ESG The Report, an online resource for professionals focusing on ESG principles. Their primary goal is to provide resources to help middle market companies, SMEs and SMBs transition to a more sustainable future.