By Tristan Orford and David Wohlreich

Equality, Equity, Compensation & Benefits, oh my

As the COVID-19 pandemic made life harder for just about everyone, companies recognized the particular burden placed on parents and caregivers of children. Many employers who were financially able to do so launched new programs of support or enhanced existing ones. Paid leaves were extended, and stipends and online resources proliferated. And then, the complaints started. Some employees without children objected. Allegations of unfair treatment and discrimination against the childless, long simmering in organizations which had pushed to create more inclusive and supportive benefits, flared with new urgency. It’s an ugly and painful conversation for the companies and employees involved, but one which reveals some fundamental contradictions at the heart of total rewards, the difference between equality and equity, and just how nebulous those most valorized of virtues, fairness and justice, truly are.

We’ll explore the topic in more detail and explain why we should differentiate how we design and evaluate benefits and compensation. Put briefly – compensation should focus on aligning the amount of value delivered to the employee with the value added by their work, and benefits should not.

The usual disclaimer

While we may allude to legal considerations, we are not lawyers, and any professional is advised to consult an experienced employment or labor attorney prior to engaging any area with a lot of complexity – like pay or benefits. Similarly, while both authors are employed as total rewards professionals, these words are our own and are informed by as broad a review of the space as we’re capable of. They do not necessarily represent the views or actions of our current or any past employers. While both authors have experience in global rewards, we are both Americans and recognize our frame of reference is anchored in U.S. employment. We also work in primarily pay-for-performance environments and so probably are also anchored in that perspective.

And, as it’s relevant to this piece: one of your authors is a parent, the other is not.

Fair is foul, foul is fair

If a company announced that it was going to pay people more based on how many children they had, what the employee weighed, or even what their sex was, that company would find itself in an incredible maelstrom of legal, cultural, and ethical attacks. And rightfully so. The very idea offends our sensibilities – beyond being incredibly illegal in most jurisdictions. Yet every company provides benefits and programs which cost more money or have different eligibility based on these very factors. All things being equal, an employee with a family costs the company more than a single employee. An employee over the age of 65 costs a company more than an employee under 30. But hiring only young and single people would be disastrous for morale (at least over the long term), the ability to attract and retain talent, and, frankly, compliance with the law.

Like clockwork, every few years, there’s a dust up, debate, or internal (sometimes external) scandal about programs which benefit one group more than another. A company hosts a recruiting event calling specifically for applicants from under-represented minority groups. A parental leave program grants more paid time off to birth-giving parents than non-birth-giving parents. The U.S. Department of Labor through its Office of Federal Contract Compliance Programs (OFCCP) announced it was investigating Microsoft’s diversity commitment for being discriminatory against non-minorities. One of your authors started many years ago in food service, and even there, debates were eternal among the line cooks and waiters about “smoke breaks” and how they were discriminatory against non-smokers. Incidentally, the controversy around smoke breaks also presented itself for the other author (indirectly) in perhaps the most diametrically opposed work context imaginable: investment banking. The need to be treated fairly is righteous and eternal. But “fair” is a very difficult and complex concept. 

There’s only so much pie to go around

The field of total rewards is at its core about resource allocation. A company has only so much money and time to invest in attracting, rewarding, motivating, supporting, and recognizing employees, and the company tries to determine and deploy the vast portfolio of possible programs and dollars in a way that’s aligned with its overall strategy and its people strategy in particular. That means tradeoffs. Even the largest companies with the deepest pockets can’t provide everything to every employee – salary, bonus, equity, paid time off, enrichment programs, support programs. Money is finite, as is time, but the problems to solve are not. So a company balances direct compensation (salary, bonus, stock compensation) and what we usually frame as benefits and perks (health insurance, paid parental leave, fancy cribs for new parents, language lessons, commuter reimbursement, gym memberships, etc.). And we call that full portfolio “total rewards.” But not all elements of rewards are the same, and there are deep cultural, legal, and practical reasons why we may (and we will suggest, should) treat elements of the former (compensation) differently from the latter (benefits). More on this later, but first… 

But, it is unequal!

Here’s the secret that companies evade at their own peril. When employees say they’re not being treated the same, that offering benefits or programs designed to support parents more is a kind of discrimination, they’re right. It’s not equal. And that’s the heart of this whole painful debate. Equitable distribution of resources (one of the technical terms we’ll present and unpack here is distributive justice) is a critical concept within groups and organizations. Organizations offering more or less of some resource to one group (money or time off or simply workload to parents in this case) that’s not related to their role or performance comes across as a violation of this principle. And in the case we started with (more flexibility plus benefits for working parents), there’s a sense of a double violation of this principle, as we have parents who are receiving more support from the organization while also being seen as contributing less (via taking more time away from work) than those without children. So, with a quick read, we may be forced to agree – this seems unfair. The failure here, and the failure at the heart of most of these seemingly “pure” arguments for equal treatment, is that there are unstated assumptions which cast the whole system in a different light.

Equity, Equality, and the Allure of False Simplicity

Your authors have long worked in industries which espouse meritocracy as their highest ideal. And it’s arguably a beautiful ideal – let the ability and performance of each individual employee determine their ascent, their development, and their reward. In a world in which everyone is starting from the same place, systems of evaluation are perfectly calibrated and free from bias, and inputs and outputs are universally agreed upon, that would be possible. But none of us live in that world, nor can we see it in any but our wildest dreams. And this is where the dogged Chicago School ideology inevitably comes into conflict with an ideology that recognizes the distinction between equality and equity (as illustrated in this famous picture). 

If we view employees as purely a formula of input: output, produce X: receive Y, any distribution of resources which deviates from the direct input of the employee to the organization is unfair and damaging to distributive justice. But designing total rewards programs in this way, purely for equality, results in outcomes that are anything but equitable. And the costs not only to the employer but to the society in which it operates can be devastating. Imagine an employer which made it impossible for parents to succeed, or one where only those employees who started in a private school could reach any level of management. Imagine the lost opportunities for contributions to be made, the cost of turnover, the flight of the best and brightest to other companies. And not just those who suffer directly – parental leave policies, for example, are generally popular with nonparents in addition to parents as a signal of a company’s values. 

And imagine the cost to a society where the burden of being a parent is too great to justify it for any but the most wealthy, or where employees have to drop out of the workforce entirely for parenthood. Where is the next generation of employees and customers supposed to come from? Put more simply, for all the costs of supporting parents or caregivers of elders or creating special development programs for underrepresented groups, what are the costs of not doing any of those things?

Discrimination: not always a dirty word

When looking at rewards (usually benefits) programs and “valid” discrimination, there are a number of core reasons why we discriminate – and most are anchored in the jurisdiction and culture in which the company operates. There are objective (physical) considerations, structural/legal considerations, and cultural considerations. Take parenthood as a topical example, even outside the COVID context.

• Objective/Physical: childbirth is a medical event for the birth-giving parent (often, the mother) in a way it simply is not for the non-birth-giving parent.

• Structural: the healthcare costs of a child in the U.S. (where employer-provided healthcare programs are the sine qua non of benefits) follow the birth-giving parent rather than the non-birth-giving parent or a split between the two. There are some reasons for this, but it’s probably best understood as a reality that providers have to deal with, at least in the short term.

• Legal: Most jurisdictions provide different minimum parental leave periods or job protection periods for birth-giving vs. non-birth-giving parents or simply for mothers vs. fathers.

Like it or not, these often form the basis for how companies can build and apply rewards programs.  This means there can be principled reasons for making exceptions to narrowly defined distributive justice; in fact, they may very well be legally mandated. It’s the question of how this is done that often matters most, and how we can achieve the benefits of these exceptions while minimizing the downside. 

The big difference – compensation and benefits

While your authors regularly assert the importance of viewing compensation and benefits together as part of the total rewards strategy, there are significant differences, and one way to frame them is in terms of principles of equity and best practices. While hopefully useful, this is something of an oversimplification as these aren’t truly mutually exclusive categories. 

Compensation is a reward and retention vehicle delivered directly to the employee and based on impact to the organization, role, and performance. The mechanisms for delivering it are monetary, and include salary, hourly rate, bonus target, bonus received, stock compensation, and sales commission. It is expected and nearly a universal practice that compensation differs profoundly from employee to employee, and generally based on the work someone does. And it is absolutely proper, at most organizations, to pay everyone slightly differently based on their results. It is generally improper to pay someone differently based on who they are, their lifestyle choices, their family circumstances, etc. Your authors often push to keep compensation “clean” and focused on the work, because role, results and performance (assuming calibration and continuous efforts against bias) are demonstrable and valid reasons for pay differences. Very little else is, in a pay for performance context.

Benefits are generally a support and engagement vehicle delivered indirectly or directly to the employee and based on a general expectation of what employees need to do their jobs. This would include basically everything that’s not compensation, but most classically health insurance and dental insurance and paid leave programs (family, disability), and the host of other benefits like wellness programs, transportation support, education, employee meals, loan repayment programs, debt consolidations services, ebike credits, an so on. Employees take very unequal advantage of benefit programs, and in many ways that’s the point, they are intended to try to even the playing field a bit. Robust medical benefits make it possible for those with health problems to remain employed and employable. Parental leaves (maternal and paternal) allow parents to remain in the workforce, particularly mothers (on whom the burden of childcare typically falls most heavily). Benefits are often universally applicable (though some companies have specific perks for executives or specific cohorts), but will not be equal in their utilization.

To simplify slightly – compensation should focus on aligning the amount of value delivered to the employee with the value added by their work, and benefits should not. We can pay someone more for doing a great job. We probably shouldn’t give them more healthcare coverage.  On the flip side, imagine cutting health coverage due to lackluster performance – not a good idea. 

For both values and regulatory reasons, keeping compensation pure and aligned on the job and performance while creating benefits to meet diverse needs of our workforce (and not just our workforce now, but what we want or hope our workforce to look like in the future) is how we build a coherent total rewards strategy. This in turn serves as the basis for approaching how to make the hard allocation trade-offs that come with this line of work.

For a field that loves Excel, we sure talk a lot

The hardest and most important part of any total rewards topic is communication. Our last piece on pay transparency was about 50% concerned with talking about pay transparency. It’s no different here. Employees are busy. They shouldn’t have to devote a ton of time and effort to understanding or exploring their rewards. They should be writing code and modeling weather patterns and calculating EBITDA and influencing influencers and the million other things that companies pay employees who don’t work in total rewards to do. But when employees don’t understand their rewards, or they feel they’re not fair. This creates organizational churn, and sometimes can even damage the very thing those rewards are built to do – create better employee sentiment and make work more sustainable for the people doing it. The best rewards program in the world, poorly or not communicated, can actually be harmful.

As HR practitioners, it’s easy for us to put a program in place and then feel that our work is done. After all, sitting behind the curtain we see that extreme events still happen to our people, and that the company helps support them through these times. This is fantastic, of course, and we have a lot of other demands on our time. But if the people at our organizations don’t understand these outcomes at some level, are we depriving them of some important context? Even if an employee isn’t availing themself of a benefit program at our organization in a material way, it’s almost certain that their colleagues are. We routinely see events (illness, childbirth, economic hardship) that, absent these programs, would be existential challenges to our ability to do our work. That companies provide these programs and enable folks to get through these situations should be celebrated, and perhaps we need to start telling the stories of all of the premature births which didn’t lead to the parents’ financial ruin, or the leave program that allowed someone to not choose between their job and grieving for a family member. If we don’t, we risk folks missing the point of the programs and writing them off as cheap gestures (believe us, they are anything but cheap).

We don’t claim to have all of the answers here, but there seems to be an awareness campaign potential here, something along the lines of “this could have been you” and, probabilistically, it likely will be someday. What this means for how we measure the “success” of rewards programs is also an interesting question. Do we measure satisfaction? Utilization? The ability to raise all employees to a certain baseline level?

Context is key

Employees are smart. They’re resourceful. But they likely don’t have the full context that senior leaders and HR professionals have. Provide that context. If an organization doesn’t have a people strategy or a rewards strategy or philosophy (and it probably does, even if it’s not clearly articulated or codified), that’s a good place to begin. Tell employees why the company offers the rewards it does. Explain the idea of trade-offs – with limited resources, how does the company prioritize what rewards it offers? How do the benefits provided align with the company’s values, and how are decisions made? How can employees call for new benefits or share feedback on existing ones?

Be honest

Employees are smart (see above). They have little tolerance for platitudes or dissembling. Not all rewards are meaningful or even applicable to everyone. Don’t pretend they are. Parental leave helps parents. If an employee isn’t going to become a parent, they’re never going to be able to use that leave. That’s ok. This is an opportunity to help those employees understand how the company (and, we’d argue, society) benefits from those benefits – even if an individual employee doesn’t. And not all benefits are for a limited population like that – most probably shouldn’t be. Everyone gets health insurance, everyone gets commuter benefits, everyone gets a movie theater pass, whatever it may be. Broad programs support all employees. Then specific programs or benefits support specific populations. This allows the company to employ a more diverse workforce, attract and retain people from different backgrounds and with different aspirations, it makes the company more flexible and allows more perspectives to flourish, and it makes the company a place we all (at least, both of your authors) would actually want work. The pride that employees can feel working for a company that supports parents, or neurodiversity, or workers with eldercare responsibilities, or employees with disabilities, or employees who grew up economically under-resourced, can be profound. It can be a tool for talent acquisition, for retention, and for engagement. If handled carefully but openly. Sharing benefits with no explanation, no context, and no leadership commitment to specific values can be very ineffective – and that’s a profoundly upsetting place to be when we’re trying to help employees.

So what about parents and the pandemic?

While your authors enjoy writing collaboratively and share this whole piece, here the one of us without a child is going to speak directly. 

I don’t have kids. I don’t know if I’ll ever have kids. But I don’t want to work at a company where people can’t have kids. Where women drop out of the workforce at far greater numbers to have a family (it’s 2020, but the data are clear; when a parent drops out of the workforce to care for children, it’s almost always the mom). Where the best and brightest of our colleagues and leaders depart the company in droves to work for more parent-friendly employers. It may not be fair. I may have to cover a meeting as a colleague deals with a sick child or struggles to get Zoom schooling up and running for a toddler. I may have to give a little more. I get it. It can be hard. But the consequences are too great, and sometimes those of us who have a little more capacity or a little more time can do a little more. That’s part of being on a team. And, frankly, part of the joy of working for a company is getting to support and be supported by the people around us.

To say it more directly: if you’re going to complain because parents in a pandemic are getting a little more support, not only is this an abysmal failure of empathy, it’s remarkably short-sighted, and a company would be well-advised not to listen to those voices lest it lose its way.

My former colleague David Hanrahan summed up parenting in a pandemic with comedic but poignant effect:

If employers can help by doing a little more for parents, how can we not?