August 11, 2015
Since 2008 the pay gap between lower level employees and senior managers has widened in every region across the world, a global survey has found. The pay gap between lower level workers (comprising skilled manual, clerical, supervisor or graduate entry jobs) and senior managers (heads of departments or equivalent) is now on the rise in as twice as many countries as it is falling (42 to 21). The latest research from global management consultancy Hay Group reveals however that Europe has the smallest gap, with an average increase in the pay gap of only 2.2 percent since 2008. This has been fuelled in part by the use of communal pay cuts to avoid redundancies, whereas US firms prefer to cut jobs and urge remaining senior managers to expand their job roles. The research underlines how a large job pay gap can lead to discontent and disengagement among the workforce.
Ben Frost, consultant at Hay Group, comments: “The job level pay gap has accelerated since the recession. However it is not purely a post-recession issue. This is a trend that has been building for the past 30 years through economic boom as well as bust.”
He continues: “Frequently discussed but often misinterpreted, the size of the pay gap can depend upon a number of factors, not least the shape of the company and the types of workers it employs. Not forgetting these nuances, the pay gap has accelerated as globalisation opened up workforces and lower level jobs are increasingly automated and off-shored. This reduces the number of jobs available and increases competition for those left, keeping pay down.”
In contrast, pay is going up for senior managers where skills such as emotional intelligence, creative thinking and advanced judgement are in high demand and short supply. In addition, senior managers are increasingly being asked to take on more responsibilities and more complex work.
Ben Frost continues: “The potential for a large job pay gap to cause discontent among the workforce is huge. Organisations need to be transparent with employees and communicate why reward policies are in place. They should also invest in their training and development programmes to upskill their workforces to meet the future demands of their businesses. Done properly, these solutions present an opportunity for organisations to navigate the pay gap and improve employee engagement.”
Europe is the region with the greatest number of countries that have experienced a decrease in the pay gap, with Switzerland, France and Poland recording decreases of 3.3 percent, 5.6 percent, and 12.8 percent respectively. In comparison to Europe, North America has experienced a 7.2 percent increase in senior manager pay compared to lower level employees. The United States alone has seen a 10.6 percent increase.
Ben Frost explains: “Despite an average global increase in the job level pay gap, Europe and America have diverged in part due to local employment practices. In response to the recession, many companies in Europe introduced communal pay cuts to avoid job losses. In comparison, US companies more frequently cut jobs and asked the remaining senior managers to expand their scope of work during the recession. Many of those who remained employed received a pay increase as compensation for their expanded role, leading in part to the widening job level pay gap.”
The data for this research was drawn from Hay Group PayNet which contains data for more than 16 million job holders in 24,000 organizations across more than 110 countries.