HR Leadership Column

Dealing with Income Inequality

A single HR executive can't solve the problem of income inequality within an organization, but he or she can still make a positive difference in the lives of the people he or she works with.   

Wednesday, February 19, 2014
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To help pay for college, I worked every summer as a waitress at a family restaurant. I was paid minimum wage, less the tip credit. The restaurant didn't have alcohol, so the checks -- and the tips -- were never very big.  

While it was a summer job for me, I worked side-by-side with people who worked at the restaurant full-time and year-round. Most had no education, which is not to say they weren't smart. To wit: The cook, who could juggle a full restaurant's food orders and get them out the kitchen window in record time, couldn't read.

I always think of these folks when I see reports on the growth of income inequality -- not just in this country, but around the globe. Back in my waitressing days, I had no mortgage, food or transportation expenses. How did my co-workers do it then? How would they do it today?

The data is sobering. The Congressional Budget Office recently reported that, over a 30-year period ending in 2010, a growing fraction of income has gone to the top 40 percent, with the top 20 percent seeing their pre-tax income rise from 43 percent in 1979 to more than 50 percent in 2010. Meanwhile, households in the bottom 40 percent saw their income drop. The very bottom 20 percent saw just 5.1 percent of pre-tax income in 2010, down from 6.2 percent in 1979.

In other words, income growth for households in the middle and lower parts of the distribution slowed sharply, while incomes at the top continued to grow strongly. Keep in mind that, up until the 1970s, Americans' income tended to grow at roughly similar rates for low-, middle- and high-income households.  

There are many reasons for this growing disparity, from globalization creating competition for low-wage workers from around the world to an increase in single-parent, single-income households.

Just as there is no single cause of the gap, there is no single cure. Some argue for an increase in the minimum wage, while others argue such an increase will eliminate jobs for the very people the increase is intended to help. You can find research supporting each argument. Most agree, however, that providing training and skills to low-income workers is the best hope for preparing them for higher-paying positions.

But what are the implications of this growing focus on income inequality for HR executives? Companies operate within a larger economic eco-system, governed by supply and demand, and competition to be the low-cost provider. What can one HR executive really do in his or her little corner of the world?  

First, you can be aware that this issue is the subject of growing concern around the globe, making it increasingly important to educate the workforce on the economics of your business and how compensation decisions are made. You can also ensure your compensation system has a rational framework that is seen as fair and equitable by the workforce. While I know no one is ever happy with his or her own compensation, it's less likely to be a source of frustration if employees at least understand how pay is determined.

Second, simply arguing "we need to pay people more" isn't a strategy unless you're looking for a swift exit from the organization. Instead, are you sure you are paying competitively? Have you done any analysis on whether paying a bit more might result in lower turnover and greater savings? Are you able to make a data-driven case that providing more training would pay for itself through increased productivity and revenue?  Are you providing developmental opportunities that serve the interests of both the business and the employees?

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Third, just as you must educate the workforce on the economics of the business, you must also ensure that the highest earners within your organization appreciate that the issue goes beyond the debate on "say on pay" and a growing institutional investor focus on executive compensation.

Do your executives really appreciate the financial impact when they ask an employee with kids in day care to stay late? Do they understand the challenges an employee faces when using an unreliable public-transportation system? Do they understand the financial impact to a single parent who has to take a day off without pay because one of his or her kids becomes sick or an elderly parent suffers a fall? 

Don't assume that every smart, well-paid executive understands the challenges. Find the highest-paid executives in your organization who do understand the issue and enlist them to help educate their peers on the real value of providing as much workplace flexibility to the workforce as the business permits.

As a single HR executive, you can't solve the problem of income inequality -- but you can make a difference in the lives of the people you work with.   

Finally, I know that everyone who ever waited tables is a great tipper. But for all of you who never waited tables, don't cheat your server!

Susan R. Meisinger, former president and CEO of the Society for Human Resource Management, is an author, speaker and consultant on human resource management. She is on the board of directors of the National Academy of Human Resources.

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