Compensation transparency, pay audits can help cannabis companies recruit and retain talent

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Cannabis compensation, Compensation transparency, pay audits can help cannabis companies recruit and retain talent

This story is part of “Fresh Priorities,” our cover package in the May-June 2022 issue of MJBizMagazine.

The battle for social equity in cannabis, as in every other industry, includes achieving pay equity.

Generally speaking, pay equity means employees get paid the same amount for substantially similar work.

When considering pay equity – or, perhaps more appropriately, pay disparities when comparing white males to women and minorities – many labor market and compensation analysts also factor in differences in positions and job titles since white males are hired for better-paying executive and managerial positions more often than women and minorities.

No Pay, No Stay

Resolving unfair pay disparities is good business policy any time, but it’s especially timely now, during the “Great Resignation,” when companies are having a harder time retaining employees and replacing those that leave.

“A company that believes in fairness and equity will attract people … because they stand for that purpose,” said Jim Finkelstein, CEO of California-based compensation advisory firm FutureSense, which provided the salary data for this report. “Equal opportunity and rewards support employee performance.”

At the same time, at least 14 states—and the number is growing—have pay-transparency laws that require employers to list salary ranges for posted job vacancies. These laws exist in some of the nation’s biggest marijuana markets, including California, Colorado, Illinois, Massachusetts, Michigan and Oregon.

 Sorry Statistics

Despite the legal and ethical reasons to do away with pay inequity, it persists.

“In our experience, it’s quite common, however not many are willing to admit it. … The glass ceiling still exists, and there are still significant pay gaps when it comes to race and ethnicity. For example, women are still only making 80% to 84% of what men make for the same job,” Finkelstein said, citing the Bureau of Labor Statistics, Pew Research and the QWI (Quality Work Index) Explorer of the Census Bureau.

Even one or two cents on the dollar in missed wages is not as minute a difference as it might seem. In a year, it can amount to thousands of dollars, and compounded over careers of 30 and 40 years, add up to hundreds of thousands of dollars, exacerbating the wealth gap.

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Audits and Transparency

Perhaps the most important first step a company can take to achieve pay equity is to conduct what human resource professionals call a pay-equity audit (PEA). A PEA requires numerous steps, but there are many free guides available that describe the process (see “Resources to Combat Bias and Pay Inequity,” below).

A successful PEA requires that auditors work with an accurate set of employee data, including each employee’s length of service, job classification and demographic information including age, gender and race, according to the Harvard Business Review. The better the HR recordkeeping systems, the better the data will be, and less work will be required to clean it up for auditors.

Next, auditors analyze salaries and pay differentials, accounting for factors such as experience and training. This allows auditors to spot “outliers” based on age, gender and race, Harvard Business Review said.

Human resources departments at smaller organizations typically conduct their own audits, while employers with more than 500 employees often hire consulting firms that specialize in audits, the publication said.

Massachusetts-based multistate operator Curaleaf Holdings is examining its own pay-equity record, said Lanett Austin, the company’s senior director of talent management and diversity. Curaleaf looks at pay bands, title consistency and other factors where disparities might signal inequity.

Companies striving for pay equity must be transparent with what employees make. That means putting salary ranges in the job description.

“Put that salary range in your job description. That can be an attractor,” said Natasha Bowman, president of Performance ReNEW, a corporate coaching and advisory firm specializing in diversity, equity and inclusion (DEI). “Some organizations now are starting to publish their salaries, and that’s a proof of pay equity. It shows we’ve looked at it based on objective factors. And diverse candidates really appreciate that transparency.”

Once audits have been completed and pay disparities identified, companies must bring pay for below-average earners to the same level as their peers, compensation experts said.

“Rectifying inequitable pay might require homogenizing base pay despite the inherent spread of competitive market ranges (i.e., start by paying everyone in the same job the same amount),” Finkelstein said. “Companies can then differentiate bonuses or other incentive compensation based on performance—but only if that performance is based on an equal playing field where employees in a given role have an equal chance for accomplishing the same objectives.”

A 2019 Korn Ferry study cited by the Harvard Business Review found that at most companies, up to 5% of employees are eligible for pay increases and the average salary adjustment typically ranges from 4% to 6%. These efforts usually cost companies less than 0.3% of their total salary budget, the publication said.

Purse String Posts

Many marijuana executives say pay-equity problems boil down to the positions for which people of color are hired or not hired.

“If you are unwilling to hire people of color and women in high-paying positions, then there is always going to be pay disparity,” said Amber Littlejohn, executive director of the Minority Cannabis Business Association. “There is a consistent devaluing if you look at these hires as, ‘We have to do this,’ as opposed to truly valuing the skills that people are coming with. Then, there’s always going to be a tendency to devalue when it comes to determining pay.”

Christine De La Rosa, CEO of The People’s Ecosystem, a cannabis company in California, said there is a dearth of people of color in director and C-suite positions. It’s important to have people of color who manage the money, she said.

According to the report “Women and Minorities in the Cannabis Industry,” published by MJBiz in 2021, only 13.1% of marijuana executives identify as minorities—only 0.1% more than the national average.

“(Many companies) say ‘we’re diverse,’ but their BIPOC executives are in an HR position, a marketing position, a DEI position, which have no connection to how money is spent in the company. It doesn’t make their positions any less (valuable),”  De La Rosa said. “But there’s nobody in the C-suite to say, ‘The way you’re about to position this product in your market for Latinos is not going to work.’ Because there are no Latinos in that C-suite … to make sure that you don’t make a mistake.”

This story is part of “Fresh Priorities,” our cover package in the May-June 2022 issue of MJBizMagazine.

Resources to Combat Bias and Pay Inequity

Achieving a diverse workforce and pay equity takes work and intention, but taking that first step can seem overwhelming when you’re not sure where to begin.

Luckily for cannabis executives aiming to meet goals of diversity, equity and inclusion (DEI), rich literature already exists on the subject, along with several advisory firms to help you get started.

“Bias-Free Hiring Quick Reference Guide”
This guide identifies the stages of bias literacy so you can identify where you and your company rate in becoming bias literate. It identifies 13 types of biases in hiring and offers tips on how to structure the hiring process to minimize the impact of bias. (Turner Consulting Group, nine pages.)

“Conducting a Pay Equity Audit”
This guide provides practical guidance for employers considering a pay equity audit to assess pay disparities among employees performing equal or substantially similar work. It addresses the purpose and parameters of the audit, practical guidance for conducting the audit and post-audit considerations and remediation strategies.
(Karen L. Corman. Skadden, Arps, Slate, Meagher & Flom, 15 pages.)

“2022 State of the Gender Pay Gap Report”
This annual report reveals how much women are paid compared to men with analyses by age, education, industry, job level, occupation and race. Employers can help close the gender pay gap with pay equity analysis and continuous monitoring within their organizations using compensation-management software. (Payscale, 11 sections.)

“How Fair Pay Perception and Pay Transparency Combat Turnover”
This report looks at the impact of fair pay perception and pay transparency on job-seeking behavior as well as turnover rates and strategies organizations use to retain employees.
(Payscale, 15 pages.)