Pay equity has become one of the hottest topics in recent years. An increase in legislation like transparent pay in job descriptions and a super-charged social justice movement has pulled back the curtain on inequities in the workplace.
Employees, consumers, and shareholders are taking a long, hard look at corporate pay practices before choosing to work for or support an organization. As a result, organizations are getting more proactive, assessing their pay practices and closing the gaps instead of waiting to respond to employee claims.
Pay equity isn’t simply the right thing to do. It’s becoming more and more a requirement of law, nationally and globally. Learn why you should work to implement a pay equity plan for your organization now to minimize risks and seize on the many benefits to the health of the business by implementing fair and equal compensation.
What is pay equity?
Pay equity is equal pay for work of equal value while still taking into account factors like experience, performance, and tenure. The goal is to ensure employees are compensated fairly, regardless of demographic status. To achieve pay equity, organizations must analyze both their controlled and uncontrolled pay gaps.
The controlled pay gap compares pay after accounting for variables like job level, skills, and years of experience. The uncontrolled pay gap, or opportunity pay gap, takes the median earnings ratio of one group to another without controlling for those variables to identify the inequities caused by systemic or structural issues.
Therefore, pay equity programs endeavor to close pay inequities based on protected characteristics, such as:
- Age
- Racial background
- Ethnicity
- Preferred gender
- Country of origin
- Sexual orientation
- Disabilities
Alternatively, there may be differences in pay that do exist that do not stem from historic structural or systemic biases. Pay inequality does not refer to pay discrepancies determined by:
- Prior experience
- Skill set
- Educational background
- Certifications
- Work performance
- Duration of employment
- Location
- Salary history
Why is pay equity important? 7 benefits for organizations
Pay equity is important because it’s the right thing to do. A person should not be hindered by aspects of their person that they have zero control over, like their racial background, sex, age, etc. Pay equity programs aim to bring justice and fairness into the workplace where historic prejudice has intruded for far too long.
With so many voices demanding pay equity within and outside of it, there are plenty of reasons why pay equity programs benefit an organization.
Avoid discrimination lawsuits
If business reasons aren’t motivation enough, consider the legal implications and resulting fines of pay discrimination if an employee files a claim and the organization is found at fault. Any pay disparities compounds year over year, which increases any settlement resulting from a claim—not to mention the reputational damage.
Ensure compliance with equal pay regulations
Pay equity laws from over half a century ago lays the groundwork for equitable pay in the workplace. These federal and state laws ensure that everyone in the workplace is given the fair payment they deserve. Organizations that implement pay equity programs provide organizations with the assurance to their employers and government regulators that they are abiding by the law.
Improve productivity
Organizations that pay their people more can expect higher productive output from their workforce. Alternatively, employees who feel that they are neglected due to unfair pay levels will be less incentivized to give 100 percent effort to an organization that doesn’t reciprocate.
Boost morale
People want to work in a place where they can feel fulfilled. Pay equity means so much more than just fairness. Organizations that are open, transparent, and fair with their compensation plans demonstrate respect for the workforce and build a better rapport throughout the organizational structure that translates into higher levels of morale.
Decrease workplace turnover
If a competitor is willing to pay an honest, fair rate to your employees, organizations cannot reasonably expect them to stay with them long-term. Paying employees what they are worth ensures they remain connected to the organization. Workplace turnover is likely to decrease if organizations treat their employees well with fair, equitable payment.
Build a better brand image
Consumers, particularly females, are often less likely to buy from organizations with a large gender wage gap. Investors are also looking deep into organization pay practices, adding pay equity analysis as a metric in their vetting process. Actively driving equitable pay practices—and correcting existing inequities—is good for business and your brand’s reputation.
Attract and retain new employees
Equitable compensation policies are critical for recruitment, retention, employee satisfaction, and sales. Job candidates are increasingly researching their prospective organization’s fair pay records before applying for a job with that firm.
Pay equity regulations and laws
Unfortunately, pay equity legislation wasn’t freely given. Only after decades of strident activism from dedicated equal rights advocates did the workplace protections for employee compensation take shape.
Organizations benefit from regulations and laws that determine pay equity. Not only do these laws represent the opportunity to learn from hard-working activists that made our present a more equitable place, but a strong grasp of these laws also ensures that organizations abide by the legal requirements that protect equal pay rights.
Equal Pay Act
The Equal Pay Act of 1963 prohibits unequal pay for equal or “substantially equal” work performed by men and women at the same place of business. It emphasizes job function over job title.
Civil Rights Act, Title VII
Title VII of the Civil Rights Act of 1964 prohibits wage discrimination on the basis of race, color, sex, religion, or national origin. Title VII is broader than the Equal Pay Act in that prohibits wage discrimination, even when the jobs aren’t exactly the same
EEO-1 Wage reporting
EEO-1 data collection is a crucial tool to ensure organizations adhere to equal employment standards. As per 709(C) of Title VII of the Civil Rights Act of 1964, employers with 100 or more employees must submit data about their workforce that delineates compensation based on demographic categories to the Equal Employment Opportunity Commission (EEOC0. In doing so, employers verify their adherence to federal law that they compensate their employees with equitable pay, regardless of their demographic background.
How to calculate pay equity
Organizations want to benefit from the advantages of an equitable workplace. To do so, they should look internally to ensure that they compensate their people with the pay to which they are entitled by law.
1. Data Collection
The first step to calculating pay equity is to collect relevant data. If organizations already adhere to the law as per Title VII, there should already exist databases they can leverage for an internal audit, namely their EEO-1 data collection.
2. Data Analysis
With enough data to leverage, organizations must analyze their compensation data with a shrewd, honest assessment. Remember to explore multiple methodologies when assessing analyses. For instance, compare controlled and uncontrolled pay gap datasets to get a high-resolution perspective on where and why pay inequities may arise.
3. Spot and correct unequal pay
After thorough analyses, organizations must search for and address any identified instances of unequal pay. These kinds of discrepancies may not reveal themselves right away. There may exist reasonable discrepancies based on factors unrelated to pay equity regulations, like educational backgrounds or time spent with the organization. However, discrepancies that cannot be explained through reasonable methods must be noted and addressed as soon as possible.
4. Assess how to work towards pay equity
Once instances of pay inequality have been verified, the real work begins. First, the unequal pay should be rectified immediately. But there’s more to effective compensation programs than purely reactive measures. Organizations should be proactive and take this opportunity to reflect on the circumstances that led to unequal pay and address the implicit biases that have infiltrated the organizational structure to better protect against future instances of unequal pay.
How to implement and optimize pay equity policies
Analyze your compensation strategy and conduct pay equity analysis
The best way to begin a pay equity initiative is to assess where your organization is today. Conduct an analysis of the current state to understand where and how pervasive the pay gaps are.
Leverage industry tools
Implementing pay equity strategies doesn’t have to be a manual process. A variety of software tools and services are available to help with initial assessment, predict budgets for salary remediation, and set up dashboards and reporting for more effective monitoring and management.
Ensure pay transparency (early on)
Organizations can leave zero potential for pay inequality by leveraging pay transparency from the beginning of the onboarding process. When organizations broadcast what they are willing to pay for a position, they indicate their good faith in the negotiation process. Many organizations are embracing pay transparency early on in the onboarding process; some states have made it a requirement by law.
Keep documenting pay equity strategies and update pay structures to align with changes
Remember that addressing pay equity issues is an ongoing process and a commitment that has to be continuously monitored, transparently communicated, and be engrained into the organization’s culture. That’s when the true transformation begins. That’s when organizations start seeing the benefits.
Create salary bands and create a structure for salary negotiations
Organizations should have good reason to explain why one employee earns more than another—that’s where salary bands come. Salary bands delineate the conditions that result in higher pay rates for a given position. Clear articulation of salary bands provides organizations that justification for differences in pay due to experience, prior qualifications, and not demographic reasons.
Address diversity, equity, and inclusion
A great way to mitigate implicit biases that affect organizational structure is to be more inclusive. Organizations that embrace openness and diversity equip themselves with a variety of perspectives that reduce the potential for biases to arise. By including folks from different backgrounds in the organization’s culture, employers can ensure that historically disenfranchised groups have the power to voice their concerns.
Create more equal opportunities
When it comes to promoting equality in the workplace, organizations don’t have to do it alone. They can leverage plenty of resources to create a more equal organization, from third-party managers to handle pay equity audits or leveraging pre-existing, watertight compensation plans.
Building pay equity for your organization with Payscale
Pay equity isn’t simply an advantage to modern organizations; it’s a necessity. Pay inequity is punishable by law, it can incur social backlash and boycotting from consumers, and it perpetuates systemic disenfranchisement of historically oppressed groups.
Alternatively, adopting a secure, equitable compensation program can yield several benefits to the organization, the workforce, and society at large.
Don’t let the injustices of pay inequities persist. Payscale helps organizations integrate equity-based compensation plans that root out any trace of inequities in the workplace. Learn more about how Payscale’s compensation solutions can help your organization promote fairness and equity in the workplace.
FAQs around pay equity
1. What is the difference between pay equity and pay equality?
As similar as they may sound, pay equity and pay equality are not exactly the same thing. Pay equality is centered on the belief that equal work should be given equal pay, regardless of the identities of the people performing the work. Pay equity takes this belief one step further, looking into the systemic issues, biases, social norms, and educational opportunities (or lack thereof) that bring about those wage discrepancies.
2. What is a pay equity audit?
A pay equity audit is an analysis of an organization’s compensation protocols. Pay equity audits are conducted to identify and correct instances of inequitable pay in the workplace. These audits may be conducted internally or supplemented by third-party groups.
3. How does the gender pay gap impact pay equity?
Women continue to be paid less than their male counterparts doing similar work. Full-time working women in the U.S. are paid 83 cents to every dollar paid to men. Discrepancies based on gender represent a significant portion of pay inequities in the working world. Pay equity programs seek to address historically entrenched unfairness, like the unequal payment women receive in the workplace through incentives, mandates, and beyond.
Check out Payscale’s equity-based compensation plans today, and bring your organization into the future.
