Discover why pay equity is essential to underpin your total talent management and find out why hukaroi's Equitable Earnings Framework is the solution to meet this challenge. Our co-CEO Jochen Moerman talked to Mattias Van Nimmen of Connecting-Expertise.
Our co-CEO Jochen Moerman was invited for coffee by Mattias Van Nimmen of Connecting Expertise. During the interview Jochen answered questions about how to treat people fairly, whether they are employees or self-employed (e.g. freelancers), and why this is so important. In this blog post you will discover why hukaroi's Equitable Earnings Framework is the solution to meet this challenge.
You can revisit Coffee Corner in full at the bottom of this blog post 👇
Equity (or still: fairness, organizational justice) is about treating people fairly and properly within the organization.
Equity falls into four dimensions:
Important: In the context of equity, we are talking about subjective perception (a feeling). That perception can be fact-based, but it can just as easily be factually incorrect. So creating equity involves the necessary communication and transparency that creates a culture of trust.
Does one trust that one is paid correctly? Does one trust that promotions are implemented fairly? Does one trust that people are treated with respect? Do people trust that relevant information is shared?
One of the hottest topics within equity is the gender pay gap, which also has a legal translation through the prohibition of discrimination based on gender or sex.
Another hot topic - and this is the topic of the Coffee Corner - is pay equity regardless of social status (employee vs. self-employed). Specifically, how can we pay employees and freelancers fairly with respect to each other?
The importance of equity should not be underestimated.
First and foremost, equity is not static. People who feel unfairly treated (both those who are treated worse and those who are treated better) do not resign themselves to their fate. They will take action. That action can take many forms: lower productivity, lower quality of work, quiet quitting, social engineering and influencing colleagues up to and including leaving the organization as the most extreme action.
Second, equity is a hygiene factor. Equity does not necessarily lead to motivation, but inequity will lead to demotivation. Equity is the foundation on which you build to create intrinsic motivation in your people or implement a bonus policy, for example. Without a sense of equity, anything you do on top of it is doomed to failure. So companies that invest in their HR and pay policies are best to start with the basics. Because investing in policies that are unfair will not yield any ROI.
Third, equity is a strategic component of any HR and payroll policy. And increasingly, companies need to develop a total talent strategy, being one consistent strategy for all possible forms of employment (from employees to freelancers).
And when it comes to setting a framework for freelance fees, you find that companies are abandoning their strategy.
To quote an HR director, "We pay our employees on P50. And that works. But when it comes to freelancers, suddenly we're the best payer on the market. That doesn't make any sense!"
There are a number of explanations why companies fall into this lane and seem to unload their HR and pay strategy. But in the end, it always comes down to the fact that companies lack a principled framework on which to base the remuneration of freelancers. And such a framework (the Equitable Earnings Framework) we have developed with hukaroi.
Now, for completeness. There are also other aspects on equity that companies will have to work on in the future. One of the best examples is within the dimension of procedural justice. As an employee, it takes quite a long time to go through a hiring process, whereas as a freelancer (often still for the same position), you can start a week after the first contact. Similarly within the other dimensions of organizational justice such as informational and interactional justice.
The only way to compare a freelancer's compensation to that of a comparable employee is to start from both short- and long-term net income (think retirement). Any other basis of comparison - even wage rates that are most common - is based on quicksand and cannot be convincing. Taxation and social security for employees and the self-employed are fundamentally different. Moreover, when it comes to wage costs, it is often not clear which wage cost should be taken - the gross wage cost, the net effective wage cost, the effective employment cost (none of these is a solid starting point, by the way)?
Based on the Equitable Earnings Framework, we calculate the fee that should enable a self-employed person to finance in the same net income in the short term, in the long term AND the same professional expenses as the comparable employee.
The great merit of such a framework is that you can negotiate around principles rather than position. When the freelancer assumes a daily rate of 700 EUR while the client is thinking of 600 EUR, both are still a tad dissatisfied that they end up at 650 EUR. A rationale that shows that 650 EUR is fair ensures a better outcome at the end of the negotiation.
It's about the objective criteria in the framework that you consider, rather than the outcome as such. One question that often comes back is whether the framework includes this or that to arrive at a fair fee. Well, the professional fees that we take into account for self-employed people, for example, are generally between 15,000 and 30,000 euros. So, yes, what a fee has to cover, we take a broad and transparent approach.
The debate over pay equity regardless of social status is often polarized. Either one acts in the interest of the freelancer (the fee should be as high as possible), or one acts in the interest of the client (the fee should be as low as possible).
The Equitable Earnings Framework just occupies a neutral position. Its goal is to put the client and freelancer on the same side of the table, looking at the same problem together. The Equitable Earnings Framework does not take sides. It is not in the interest of the client or the freelancer per se. It is in the interest of both parties together, the collaboration they want to create and the win-win they want to achieve. So the Equitable Earnings Framework is not an us-versus-them story at all.
We should also add that a principled framework such as the Equitable Earnings Framework also capitalizes on an uncomfortable truth. And that is that in reality, neither clients nor freelancers have a good idea of what a fair freelance fee should look like. The Equitable Earnings Framework provides both parties with that financial understanding.
Finally, we need to put the Equitable Earnings Framework in context. Because there are some misconceptions around that.
The Equitable Earnings Framework is NOT about charging freelancers a fee as the absolute truth that should be prevalent in the marketplace.
The Equitable Earnings Framework aims only to bring consistency within one's organization regarding how freelancers' fees compare to employees' salaries.
Watch the interview (in English) with Jochen Moerman in full again 👇
below.
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