The Great Divide

	Bob Wesselkamper Global Head of Rewards & Benefits Solutions Korn Ferry
	Ben Frost VP & General Manager, Reward Korn Ferry

The growing gap between top and bottom pay.

Our data shows the gap between top and bottom pay is growing on average in all regions. What does this mean?

At Korn Ferry, we’ve been publishing the pay gap between lower-level employees and senior managers since 2008. So we’ve seen how it’s steadily grown.

Our latest infographic shows data from our global pay database. And it confirms that the upward trajectory is continuing. Since 2008, the pay gap has increased in 77% of the countries for which we have data (the smallest increases have been in Europe and the biggest in the Middle East).

To create the infographic, we looked at the typical pay for people at a director or senior department manager level in each country. And we divided it by the typical pay for someone at a skilled manual worker or graduate trainee level. We then compared the result with the same figure from 2008 to calculate the percentage difference.

At the lower end of these labor markets, automation and offshoring means that enhanced productivity results in an abundance of available labor - more people than jobs – which slows the increases in pay. Meanwhile, at the higher end, there’s a shortage of people with important hard skills and proven experience, such as STEM. Organizations also have to compete for senior managers with in-demand soft skills, such as emotional intelligence, creative thinking and the ability to manage large and complex teams. So pay at this level is going up – and likely to increase faster than other jobs.

The cost of living can amplify this effect. This is because jobs at the lower end are paid a ‘local’ wage, while jobs at the higher end operate in a global market. So the lower the cost of living in a country, the bigger the pay gap.

But what of the 23% of countries where the gap has gone down or stayed the same?

Again, local factors play an important role. For the remaining two G7 countries: France and Italy, the pay gap has shrunk by 5.8% and 3.1% respectively since 2008.

There are two main reasons for this:

1. Pay at top job levels has remained relatively the same. Higher tax levels for top earners means companies are disinclined to raise wages, since most of it would go to the government.

2. Government and union intervention in pay at lower levels. Minimum wage requirements and restrictions on how companies treat wages (e.g. cutting pay) means pay rises in lower-level roles.

What can organizations do?

It’s clear from these examples that wherever your organization operates, you’re at the mercy of the market when it comes to pay. But if you’re in a country where the gap has grown, this presents you with a problem. The last recession cemented the societal view that inequality is bad. This means that pay gaps are also bad – especially when they get bigger. So how can you communicate this difficult message, both to the public and your own employees?

At Korn Ferry, we suggest you do three things.

1. Understand all the factors at play and plan for the future.

Local market forces and conditions aren’t the only things influencing the size of your pay gap. The industry you’re in, and the operating model you use, are factors too. For example, a retail company will have a bigger pay gap than a professional services firm, because it mainly employs lower-paid people, not well-paid ones. (In other words, its shape is very different). And a retail company that outsources its lowest-paid work will appear to be more equitable than a competitor that employs people to do it. There can also be variants in pay for lower-skilled roles, depending on the level of technical skill they involve (which differs from industry to industry). As a result, it is imperative that organizations have a firm understanding of the current market competitive position and a strategy for all jobs, and especially the senior managers and highly skilled jobs.

2. Be open and transparent.

Some countries already require companies to report on their gender pay gap; the gap between the top and bottom could be next. Get on the front foot by understanding the current state of work and roles in your organization and be prepared to communicate the reasons for your gap and explaining your pay policies. This will show that there’s a method behind why you pay some jobs more than others (for example, the level of skill they require).

3. Help your people to move up the organization.

Show them that there’s a clear career path to follow that will take them to higher-paid roles. Then help them to develop the hard and soft skills they (and your organization) need. Your employees will feel more engaged, and you’ll save money by filling more senior roles from within.