Pay equity is a topic that affects everyone, from first-time job seekers who want a fair employer to experienced leaders who want to attract and keep talent that drives innovation.
It seems simple enough, but implementing fair pay is a complex process that requires:
- Good data
- Ongoing reviews
- A willingness to reexamine assumptions about who fills different kinds of roles
- A cultural commitment to compensating every employee appropriately
Here’s a guide to understanding, implementing and maintaining an equitable pay structure in your organization.
What is pay equity?
The briefest definition of pay equity is the practice of compensating employees the same way for the same work, regardless of race, gender, disability, LGTBQ or other status.
That may sound straightforward, but true pay equity hinges on many factors beyond implicit (or explicit) bias in hiring, promotion and salary offers.
An equitable pay structure must also consider individual employees’ experience, education and level of responsibility. And it must address any imbalances in workforce representation that can exclude some groups from higher-paying leadership roles.
Pay equity is the law
Fair pay is also a compliance issue, one that’s evolving quickly. The federal Equal Pay Act has prohibited sex-based pay discrimination since 1963. However, because the law contains gaps and loopholes, and because the definition of equity has evolved, many states are writing their own pay equity laws.
The legal landscape is rapidly changing, but lack of awareness isn’t a defense if employees file a complaint or a lawsuit. It’s up to you and your HR team to keep up with any changes in the rules.
Equitable pay is a competitive advantage
Candidates and employees have more ways than ever to learn and share how companies pay and promote their talent. Social media, employer review sites and a growing awareness that employers can’t prevent workers from talking about their pay all contribute to a climate where talent can rule employers out (or in) based on their pay practices.
Paying employees fairly, then, can help you attract and retain talent. It can also prevent internal strife, low morale and turnover if employees discover they’re being paid differently for the same roles.
Implementing or improving your pay equity policies
Many companies wait until employees file grievances to start reviewing their pay equity practices. But getting ahead of the problem can reduce the likelihood of complaints – and the legal fees, morale damage and bad PR that come along with them.
Auditing your pay structure for fairness is a major, multistep process. Planning ahead can help you get the most from the process. Here are the steps.
1. Get a quick overview of your pay equity landscape.
If your leadership says they’re committed to fairness and no one’s complaining, do you even need to audit for pay equity?
Most often, the answer is “yes.”
A quick way to take the temperature of your pay fairness is to calculate your company’s pay gap by gender or race.
A further statistical analysis of everyone’s pay may reveal a significant difference in pay between the two groups. If so, your audit should focus on gathering data to understand what’s driving that discrepancy.
2. Gather data on every employee.
A full audit requires looking at every employee’s pay, role, responsibilities and education so you can view comparable employees to see if there are gaps in compensation.
As you gather data, be on the lookout for positions that are essentially the same but are paid differently. Jobs that require substantially similar skills, background or experience, responsibilities and working conditions should typically be in similar pay grades, regardless of title.
For example, an administrative assistant and office coordinator may perform the same essential duties, so all other factors being equal, their pay should be similar.
Depending on the size of your company, how easily you can access the data and how much time you can devote to it, the process typically takes at least a week and perhaps as long as several months.
3. Look at your workforce representation
One element of pay equity that’s sometimes overlooked is workforce representation – the percentage of certain roles that are dominated by a particular gender, racial or other group.
When certain roles are dominated by one group that can reduce the possibility of true equity across your organization. It can also raise a flag that some groups are being passed over at the hiring, development and promotion stages.
For example, if your organization’s highly paid senior leadership team is mostly male while female and non-binary employees are clustered in administration, there’s going to be a large overall difference in pay by gender. It also means that your company needs to revisit its commitment to diversity in order to get the recruiting, retention and innovation benefits of a truly inclusive workplace.
4. Consider working with a PEO
What if you don’t have the resources to conduct your analysis in-house?
You’re not alone.
Even large organizations may not be set up to capture the kind of data a pay equity audit requires.
A professional employer organization can handle the heavy lifting of data collection and analysis, interpret the results and help you plan to remediate any problems the audit reveals.
For example, you may find that your company isn’t promoting women of color at the same rate as white women. Is that because of implicit bias, inconsistent talent development programs or something else? A PEO can help you tailor solutions to the root of the problem.
Note: It’s recommended that any pay equity analysis is conducted under attorney-client privilege.
Put your compensation plan in writing
When you know what needs to be fixed, put it in writing. You may need to write or rewrite your organization’s compensation philosophy and policies to address inequities in your existing pay structure.
Your team should examine, document and make any necessary updates to:
- Job descriptions – they should accurately detail the duties and responsibilities of each job.
- Salary structure, pay grades and bonus plans – ensure objective criteria are used and aligned with job categories.
A documented framework can help managers stay on an equitable track when making pay raise decisions. That can help prevent disparities in pay between different groups due to implicit bias and siloed decision-making.
Decide how to talk about pay equity
Because pay equity is a sensitive subject, it’s best for senior leadership to decide how and when managers can discuss it with employees, so that everyone is on the same page.
Elements to consider when developing a communication plan include:
- Does your organization currently have equitable pay processes in place?
- What steps is your company taking now to address any disparities?
- What level of transparency does your company have about your written pay policies?
Once leadership has a plan for communicating about pay equity, it’s important to put that plan in writing and ensure that managers are trained on it.
Make equitable pay part of your company culture
Because mapping a plan for equitable pay requires an investment of work and time, the commitment must be part of the culture in order to succeed. That requires leaders who commit to the idea that pay equity is an important element of the compensation process.
Building pay equity into your culture also requires ongoing attention. Regular reviews can show how much progress your organization is making toward equitable pay. They can also help identify other areas like recruiting, promotions and performance review practices that may also need adjustments so your company can succeed at building a culture of equity.
Make sure your other processes are aligned with best practices, too. Download our free e-book: 7 most frequent HR mistakes and how to avoid them.