The four risks compensation reporting poses for global businesses

Brian Jebb and Sarah Henchoz

The world has become increasingly focused on closing the pay gap and as a result we’ve seen regulation around compensation reporting gain momentum.

Despite encouragement from the government and regulatory agencies to increase transparency where compensation reporting is concerned, few have followed through on putting penalties into practice when corporations fail to make progress in closing their pay gap or fail to report entirely.

With election season about to heat up in the U.S., it’s likely that compensation reporting will continue to be a topic of discussion amongst potential leadership. It’s more important than ever for companies to pay attention to how they’re reporting to avoid detrimental outcomes for their business.

So, what are these risks and potential outcomes for businesses?

1. Reputational Risk

The public has been more aware and vocal about pay gaps than ever before. In response, we’re seeing the media react with more widespread and damning coverage about companies that are falling short on taking action. Negative press coverage or widespread reputational damage can have a huge impact on a company’s stock price and bottom line.

2. Business Risk

Businesses face risks not only from a compliance perspective, but also in a competitive perspective amongst their peers, if they fail to properly address compensation reporting. The possibility of fines and penalties from regulatory bodies could severely impact a company’s bottom line, and even greater, a lack of action could position a company unfavorably in the war for talent globally.

3. Litigation Risk

Shedding light on a large pay gap or failing to disclose any data on compensation at all could put companies at risk for litigation in the form of class-action lawsuits. There are many instances in which an employee could call upon compensation as a proof point of mistreatment, but we are unlikely to see many of these lawsuits reach the courts until there are more concrete laws in place that outline punishments for offenders who fail to report on compensation.

4. Shareholder Risk

Company shareholders have a stake in the game – and when it comes to compensation, they care greatly that the companies in which their invested are paying their employees fairly. This concern has only grown over the years given the rise in shareholder attention to environmental, social and governance (ESG) factors when investing.

In short, given today’s highly competitive business landscape, companies who ignore the push for pay equality won’t survive into the next evolution of corporate practices.

*Content republished from Bloomberg Law

 

Comments published on Employment Talk do not necessarily reflect the views of Allen & Overy.

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