How organizations are shifting to sustainable pay equity programs

In recent years, pay equity has moved into the spotlight, fueled by emerging legislation, a more informed employee base, and a supercharged social justice movement rallying for the cause. And companies are taking notice.

“Pay equity has very much become a multi-stakeholder issue now,” said Ruth Thomas, Pay Equity Specialist at Payscale. “It’s not only something that your employees have expectations about, but something that impacts your customers, your investors and your reputation in the market.”

Research shows that consumers, particularly female consumers, are less likely to buy from companies with large gender pay gaps. Investors are increasingly adding pay equity as a metric in their vetting process. Top candidates are researching a company’s fair pay records before applying for open positions or responding to recruiter calls.

All of these factors are leading to a dramatic shift in the way organizations are approaching pay equity. Instead of making changes only after an employee has filed a claim, companies are now proactively monitoring their compensation practices to guard against racial and gender discrimination before any claims are filed.

“Companies are shifting from reactively dealing with legislation to making pay equity a strategic imperative related to both employee engagement and business performance,” Thomas said. “There’s a significant body of research that shows businesses that prioritize pay equity are more likely to see financial returns above national business medians.”

Companies that close pay gaps today quickly see the benefits, from greater employee engagement to improved retention to an elevated brand reputation. It also makes good business sense from a financial perspective.

“Companies that close pay gaps today will ultimately pay an average of $439,000 less than those that take action further down the line,” Thomas said.

But, how can organizations get from where they are today to where they want to be?

Get a clear view of who’s doing the work and what’s being done

“The journey starts with understanding the work that’s being done within your organization and levelling employees, so you can start to make pay comparisons,” Thomas explained.

That’s step one.

Do a pay equity audit

Assess your current payment practices to understand what you’re actually paying for, and how different groups are paid.

“Unless you really do a pay equity audit and understand what you’re paying for, it’s hard to definitely know whether or not you have a gender or racial pay gap,” Thomas said.

Evaluate your policies and processes that impact compensation

Review your existing policies and processes around talent acquisition, promotions, bonuses, benefits and anything that impacts compensation.

“Make sure these are free of systemic bias or structural issues that can cause inequality and lack of pay equity,” Thomas said.

Establish metrics for monitoring risk

Capture metrics at different points throughout your talent pipeline to look for blockages or areas with unseen or unconscious bias. These metrics should include:

  • The number of applicants who apply for positions, the diversity of those applicants, and the percentage of those applicants who actually get hired
  • The percentage of employees who represent protected category groups who have been promoted to senior leadership positions
  • Performance ratings by protected category groups
  • Performance against specific KPI metrics to identify if these metrics favor some employee groups over the others
  • Average pay, ad hoc pay and eligibility for incentive plans

Approach pay equity as a continuum

It’s important to note that pay equity isn’t a “once and done” program. The reality is, things change. People get promoted, bonus and incentive programs are revised, new talent is hired and raises happen throughout the year—all of which impact remuneration.

“Workforces are very dynamic. So, once your initial audit is complete, there are many employee-related transactions occur that can allow pay inequities to creep back in,” Thomas warned. “This is why you need to continually analyze your pay practices on an ongoing basis, which, for most organizations, means conducting an audit at least twice a year.”

Build a culture of trust and transparency

Recognize that pay equity is about more than the numbers. It is about building a culture of trust and transparency so that everyone has a shared understanding of pay equity, and a commitment to become an advocate in ensuring fair pay throughout the organization.

That’s when real, meaningful change happens.

Watch the full video here.