By May Knight from Korn Ferry
We’ve been tracking the pay gap between lower-level employees and senior managers since 2008. Over that time, the gap has continued to grow, no matter the economic conditions. Powered by globalisation and digitalisation the gap between skilled and unskilled keeps widening.
Understandably, the pay gap has become a hot social and political issue. However, we believe it’s important to look behind the emotional headlines. Our research shows that it’s rarely willfully unfair pay practices that create and perpetuate the gap. Rather, it’s market demand for skills and local or regional business conditions that are driving the difference.
Supply and Demand
Often, it’s the most basic of economic principles that’s to blame: supply and demand. At the lower end of the labour market, automation and offshoring mean there are now more people than jobs and this slows increases in pay. At the top end, there’s a shortage of people with important hard skills and proven experience, such as STEM. The same goes for in-demand soft skills, such as emotional intelligence, creative thinking and the ability to manage large and complex teams. As a result, pay at these higher levels is going up and increasing faster than other jobs.
The cost of living can amplify this effect. Jobs at the lower end are typically paid a ‘local’ wage, while jobs at the higher end compete in a global market. So the lower the cost of living in a country, the bigger the pay gap.
What’s the Story Behind the Stats in APAC?
In line with the global story, most Asian countries we studied saw moderate increases in their pay gaps between lower-level and higher-level employees. The average increase across Asia is 15 percent, but the disparate nature of the Asian economies means this figure cannot adequately communicate the complete and complex story of the region.
In Malaysia, the increase was on the Asian average. “At the higher levels of the labour market, Malaysian companies continue to face challenges finding and retaining quality candidates,” explains Halim Ariff, Country Manager, Korn Ferry Malaysia. “But when they do they are willing to pay for strong performance driving higher wages at the top of the market.”
Singapore tells a similar story, with the average increase at a slightly below average 12 percent. “The salaries at senior level have risen steadily owing to an increased need for talent that can grow the business and take organisations global,” says Kartikey Singh, Associate Client Partner, Korn Ferry Singapore. “However economic and inflationary growth has also led to significant salary increases at lower levels, which had led to a moderation in the pay equity gap. Going forward, as businesses feel the pressure of technological disruption and the effects of the talent crunch on middle and top level leaders, we may see the gap widen at a faster pace.”
The pay gap grew significantly more slowly in Hong Kong, where the high cost of housing, high senior management salaries (compared to other Asian economies) and a low unemployment rate (at less than 3%) leave little room for a significant increase in the pay gap. “The pressure to increase wages at the lower end of the labour markets is high, especially with the high cost of housing,” says Alvin Low-Thue, Senior Client Partner, Korn Ferry Hong Kong. “In addition, the local government – one of Hong Kong’s largest employers with close to 185,000 civil servants – has consistently raised the pay for low level and mid-level staff at the same rate. This has certainly helped to limit the pay gap growth.”
In India, the pay gap has also increased, though the data indicates that salaries at both the top and lower ends of the labour market are growing, albeit the latter more slowly. “We’ve seen rapid increases in the size and complexity of large corporations in India over the last decade and this has resulted in a dire need for senior, seasoned professionals who can take up executive responsibilities and manage complexities of a much higher order,” says Amer Haleem, Business Manager, Korn Ferry India. Inflation and a rising cost of living are also taking their toll, as companies seek to attract senior executives from regional or international economies, while lower level salaries are determined by the national labour market.
The pay equity gap movement has been less pronounced in Australia and New Zealand than in some other geographies. “When compared to the developing world, wages for junior roles are relatively high in ANZ, and combined with social equity policies and union pressure, wages for these roles have largely kept pace in their percentage increases when compared to more senior staff,” says Paul Wright, Senior Client Relationship Manager, Korn Ferry Australia. In the past decade, some sectors, especially resources and Oil & Gas, have seen some years of double digit increases but these increases have generally been across all levels rather than focused on senior roles only.
What Can Organisations Do?
Wherever your organisation operates, you’re at the mercy of the market when it comes to pay. But this is a difficult message to communicate to your people. Inequality is seen as bad, ergo, so is the pay gap. However, as we’ve discussed there are real market forces shaping the pay gap that can’t be controlled. What you can control is how you talk about it. We suggest you do three things:
- Understand all the factors at play and plan for the future
Don’t fall into the trap of simply blaming local market forces and conditions: the industry you’re in and your operating model 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. As a result, organisations must develop a strong understanding of the current market competitive position and a strategy for all jobs, and especially the senior managers and highly skilled jobs.
- Be open and transparent
It may not be a regulatory requirement to disclose the gap between top and bottom pay (yet), but consider how voluntary and appropriate transparency can help build understanding and trust in your organisation. By communicating the reasons for your gap and explaining your pay policies, you can show there’s a method behind why you pay some jobs more than others.
- Help your people to move up the organisation
Market forces control the pay gap in many cases, but they don’t have to control the potential of your people to move from the bottom to the top. Create and communicate clear career paths and then help your employees to develop the hard and soft skills they (and your organisation) need. Your employees will feel more engaged, and you’ll save money by filling more senior roles from within. Win win.