Analysis

Why is it an ethical issue and important to examine?

Pay disparity for employees performing the same duties and producing the same output is a common occurrence in today’s workplace. According to data from the U.S. Census as recently as August 2018, women still make 80.5 cents on every dollar a man earns, and men of color make around 0.70 cents to every dollar a white man earns. Additionally, because of globalization, outsourcing and the intense need for businesses to lower costs, disparities within the same job function are also becoming increasingly rampant. An employee at a company in the U.S. could make more than his counterpart in a different country, while still working for the same business and doing the same amount of work. This becomes an ethical issue because both are putting in the same amount of hours and effort, yet are compensated significantly different simply because of their geographical location. As many of us begin to enter the workforce, or have already joined, this is an incredibly pertinent issue because some of our counterparts may be making less than us. Perhaps some of us will get the opportunity or jurisdiction to make decisions on this issue when hiring others, so we should all be well aware of this reality. This paper will explore the differing opinions on how workers should be paid across geographic regions while performing the same role.

Present both sides of the issue.

The first opinion is that workers should be paid the exact same amount for the same role even in differing countries. According to Article 23 in the Universal Declaration of Human Rights, “Everyone, without any discrimination, has the right to equal pay for equal work.” To offer an employee a lower or higher amount for a similar role discriminates against his ability and value to the company. It is a violation of his human rights, and unethical because you are paying him less than someone who does the exact same work and produces the same level of output and value for your company.

The second opinion argues that workers should be paid an amount comparable to peers in their own country. Companies are only obliged to ensure that employees’ compensation fulfills their basic needs and that they are comfortable (meaning they have a little extra to save and a cushion in times of emergency). Their pay should be relevant to the norms within their region, not based on norms within the company. However, it does become a little difficult to define what is “comfortable,” so companies must develop an objective, quantifiable way to establish a number of “comfortability” for their employees. Proponents of this opinion argue that it is the more ethical decision, because you are paying them livable wages and fulfilling your obligation to your employee, while also cutting costs and keeping the company profitable, which fulfills your obligation to shareholders.

What are the pros and cons of each alternative (e.g., consequences)?

Some of the pros of paying workers in similar roles the same amount are: not violating article 23 of the Universal Declaration of Human Rights (workers should be paid equally for equal amounts of work), consistency across the company, lack of discrimination based on location, and overall employee and moral satisfaction. You avoid the risk of making employees feel disheartened and undervalued, as well as mitigate the risk of possibly being sued for discrimination. However, the primary issue with paying these workers the same is that it can be unsustainable for the company. Businesses generally outsource, hiring cheap labor in other countries, in an attempt to cut costs and stay competitive. Paying all workers an equal rate may force the company to lay off employees and ultimately contribute to the unemployment rate. Additionally, paying workers abhorrently more than their geographic peers could lead them to become complacent in their roles and not seek development or challenges. This leads into the second opinion that argues that geographic location should be factored in heavily.

The opposing argument states that compensation should be offered based on what those serving similar roles in the same region are making. For example, if the average salary for an entry level management consultant in the U.S. is $70,000 but in India it is $50,000, the compensation should be closer to $50,000. The benefit of this opinion is that the company would be able to maintain its competitive edge and successfully lower costs when possible. This opinion argues that it is not unethical because your employees are still earning a livable, and comfortable wage so you are meeting their needs and not put in a position where you may have to fire them because it was too costly. In addition, you avoid the concern that you could be paying them way more than other workers relevant to their cost of living (though you may pay someone less than his U.S. counterpart, his cost of living may be considerably less and you end up actually paying him a lot more). However, the consequence of this course of action is that you are clearly paying someone less for the same amount of work, and this may lead to moral uneasiness within your company and negative press. Furthermore, you are in explicit violation of the Universal Declaration of Human Rights. Some may even argue that setting a precedent like this can become a slippery slope. If you were to use the same argument for women and people of color in the U.S., stating that you are simply paying them what those in their demographic are being paid, you would further widen the pay gap. Another consequence is that your workers may feel undervalued for their work and discriminated against.

Which alternative do you recommend and what moral theories or principles can you use to support your beliefs?

I recommend the second approach that compensation should be defined in consideration of geographic location. However, I don’t believe this number should be determined based solely on the salaries of peers doing similar work in that region. Making decisions based on how others approach a situation is never a good moral justification. Nazi Germany and pre-Civil Rights Act America are some clear indications of when society has made heinously wrong moral decisions. These numbers should be determined based on research and carefully-calculated metrics that outline comparable salaries based on cost-of-living in different countries. If the equivalent of a $70,000 salary and similar standards of living in the U.S. happens to be $50,000 in India, then that is what the worker should be paid regardless of whether the standard pay for that role in India is less. Certain fields may be valued less in different regions (and those workers may be paid terrible wages), but in order to stay consistent with your company standards and show value for your employees’ contribution, you should pay them the $50,000. This mitigates employee dissatisfaction, risk of legal issues, and bad press, but also allows you to stay in a competitive position.

According to the theory of Deontology- Justice and Fairness, individuals must be awarded equal rights, and equitable opportunities and benefits. Paying these workers in different regions equitable (not equal) amounts enables them to receive comparable benefits and opportunities. Additionally, according to the Rights clause of Deontology, it is a human right for people to meet certain standards of living and survival. Wages based on cost-of-living ensures that their needs are met, they have enough to survive and a little extra to live comfortably. Furthermore, this course of action allows companies to fulfill the Carol definition of corporate social responsibility which states that businesses must meet philanthropic, ethical, legal and economic responsibilities. These wages enable the company to remain sustainable and profitable (economic responsibility), not violate minimum standards of pay (according to U.S. standards) or discriminate between workers (legal responsibility), value employees, treat them equitably and morally (ethical responsibility) and be a good global citizen (philanthropic responsibility).

What will the impact of your recommendation be on an organization?

Organizations will be impacted by these recommendations because some may need to reevaluate and make changes to their global payroll standards. They will need to undertake considerable research to determine the correct metrics for establishing comparable pay (based on role and cost-of-living) across regions. In addition, they need to review their current compensation numbers between their different locations and adjust based on the new calculated standard of pay. Some may need to cut other costs to fulfill this new standard and allocate for this increase of expenses in the future. Overall, I think the company will benefit from this change, and concerned workers will no longer feel guilty about the amount they are being paid. The company will be consistent in their compensation, make employees feel valued and increase employee satisfaction and moral ease. This will decrease the likelihood of them being accused of discrimination, bad publicity and violating a human right cited in the Universal Declaration of Human Rights.