Feb 14, 2022, 20:49 PM by Dave Meginley, aPHR, GPHR, HRCI Chief Revenue & Learning Officer

As HR practitioners, it's incumbent on us to work towards pay equity in our organizations. Here's how to enact pay equity at your company.

The good news: The gender pay gap is closing. The bad: It’s closing slowly. A new PayScale survey found the controlled gender pay gap (which controls for title, experience, etc.) shrank by a single cent over the past six years. In 2015, women made $0.97 for every dollar men made for the exact same work. Today, women make $0.98 per every dollar earned by men for the same job. (The current uncontrolled gender pay gap is $0.82 per dollar.) This gap grows when race is taken into account. A black woman earns $0.97 compared to a man in the exact same role. Over time, this has big implications: PayScale notes a black woman would have to repeat 2020 2.2 times to catch up to a white man's lifetime earnings. 

There are several systemic reasons why these gaps persist. Biased managers may pass over perfectly qualified women or employees of color for promotional opportunities. Women tend to be dissuaded from certain roles coded as "male" that may pay more, while certain racial groups may have less access to educational opportunities. But there may be more insidious reasons for pay inequity lurking in your own organization, ones which at first often don’t sound particularly sinister. 

“Many factors have led to the identification of disparity at organizations and very few of those factors are due to managers having overt biases against a particular group,” says Cheryl Boyer, SPHR, Director of Diversity and Inclusion Services at Berkshire Associates, Inc. “Most disparity comes from policies that have nothing but the best of intentions as a part of a business strategy, but unfortunately, these policies can apply differently across protected groupings.”

As HR practitioners, it's incumbent on us to take strides towards greater pay equity and address unfair pay gaps in our organizations. Here's how to enact pay equity at your company.

Develop Equitable Policies and Procedures

Pay equity must begin with objectivity. This requires efforts to remove bias from compensation and promotion criteria. The Equal Pay Act deals specifically with gender disparities and requires that men and women be given equal pay for equal work in the same establishment. The jobs need not be identical, but they must be substantially equal. It is job content, not titles, that determines whether jobs are substantially equal. 

Specifically, employers may not pay unequal wages to men and women who perform jobs that require substantially equal skill, effort and responsibility, and that are performed under similar working conditions within the same establishment. Although the Paycheck Fairness Act failed to pass in a divided Senate, the legislation provides some guidance on clarifying the “factor other than sex” defense. The Act states that other factors must be clearly related to the job and consistent with business necessity.

“Since pay disparity is more likely to be identified in areas where candidates and companies negotiate pay, determining the criteria for starting pay is extremely important,” Boyer says. Common factors for setting pay include time spent in the role, time spent with the company, external experience and education. Be aware of the impact external factors may have on opportunities to excel, such as lack of access to experience or education. If pay is based on achieving specific educational or certification requirements, for example, make sure non-certified employees have access to the education they need to qualify for a promotion.

Make Sure Your Pay Aligns With Market Rates

What you're paying your workforce should be accurate and fair in the larger market context. Conduct pay equity audits at least once a year to maintain market alignment. To conduct a pay equity audit, collect or purchase data demonstrating pay for comparable positions in your industry (or in the larger market).

Although there’s a lot of free data available, it’s a good idea to purchase better quality data that offers a better benchmark for your specific company, says Jocelyn Thompson, SPHR, PHR, principal and CEO at WorkVision Consulting. You need data that is recent and specific to your location. Free data could be compiled over a number of years and may no longer be accurate, or be based on too large a region (for example, the entire east coast). This could lead to pay decisions that aren’t in line with the current market, potentially leading to inequities and making it difficult to attract talent. It's essential to be as accurate and up-to-date as possible to stay competitive in the market and to ensure pay equity among your employees.

Create a compensation band based on external market data. Then collect internal company pay data and compare it against the external market band. You must understand where your compensation falls in the market band before you can develop a comprehensive pay equity strategy. Finally, propose adjustments for employees who fall outside of their compensation band. “Implement that company-wide,” Thompson says. “That includes communicating it to the company.” You’ve put in the work; make sure you get out the word. Share the strategy, process and actions taken to bring everyone up to market pay. And make sure everything stays up-to-date: Conduct routine pay audits followed by remedial measures to avoid or eliminate any disparities that could lead to a pay equity claim.

Address Changes in Work Processes

There are several factors impacting today's workforce and changes in compensation, which can affect pay equity. One is virtual work and how best to manage a remote or hybrid team. Items to consider on this front include tracking breaks and leaves, staying compliant with employment laws and adopting decentralized process efficiencies. When workforces are distributed (potentially widely), it’s even more important to be clear on work-related pay criteria. If factors influencing pay are exclusively based on work performed, there are fewer opportunities for bias towards, for example, workers who are visible in the office on a regular basis over those working entirely remotely.

Consider how market changes could impact your pay equity strategy, too — especially wage compression. "Increases to minimum wages and increased pay due to demand for talent may result in compression of wages,” Boyer says, “making pay equity more difficult as new hires or employees with less experience are paid close to (or more than) tenured employees or those with more experience." This phenomenon is rampant since employers have to offer more to attract lower-level employees, and it could have a significant impact on your pay equity strategy.

HR must be agile in monitoring workplace culture and shifts in performance. Be ready to adapt policies and practices that reward behavior and pay based on each individual's efforts to meet or exceed their goals.

Transparency Benefits Everybody

People are reassessing what they want out of their jobs right now. To attract talent, you must become more competitive. That doesn’t always translate to offering more: It means paying fairly, communicating how pay decisions are made and being completely transparent with your workforce about pay. Indeed, a company that behaves ethically yet insists on being opaque can be penalized for their secrecy. In 2015, PayScale surveyed 71,000 people. They found two-thirds of those actually being paid the market rate still believed they were underpaid. Who can blame them? Their companies kept them in the dark, so they assumed the worst.

Pay transparency is a vital component of pay equity, and it's becoming more common for laws to require reporting on pay. "Depending on where they're at on the pay transparency spectrum, HR professionals should be pushing leadership to move to the next step," Thompson says. "Companies that are doing that are getting ahead of what we know is to come with how laws are going to change." 

Recent Colorado and California laws require some degree of pay transparency. The Colorado law requires all employers in the state to provide more robust notices around open positions, including expected compensation. The California law requires employers to report workforce pay data to the state.

Define pay transparency within your compensation philosophy. Be very clear and transparent about why you make pay decisions based on specific criteria. Train managers to address questions regarding pay. They need to be comfortable answering questions in a way that aligns with the company's philosophy and strategy. Also train them on what should be transparent and what shouldn’t. (Managers might share pay bands for their department with their reports versus giving specific dollar amounts made by each colleague, for example.) Keep in mind the ultimate goal: To make certain employees feel like they understand how pay decisions are made.

Monitor Discrepancies and Concerns — Especially Among Underrepresented Groups

Your regular pay audits will reveal where there are discrepancies in pay so that you can adjust compensation accordingly. If you’re uncomfortable doing this in-house, Boyer suggests working with a third-party consultant under the direction of legal counsel. Regularly evaluate pay scales, identify any inequities and immediately fix individual issues as well as any systemic equity roadblocks.

Work alongside your colleagues in diversity, equity and inclusion to overcome systemic pay inequities. “The renewed focus on social equity and transparency may increase the demand for companies to ensure pay equity, and then provide a report to interested stakeholders,” Boyer says. Continue working towards creating equal opportunities to earn across gender, race, ethnicity, age and other protected categories. Concentrate on evaluating and empowering existing talent from underrepresented groups with opportunities for promotion, bolstering the diversity of your workforce at all levels. 

Keep Your Pay Equity Process Public

Openly professing the importance of pay equity contributes to building a sustainable and successful business guided by equal opportunities for all. Likewise, inequities are less likely to occur when there are clear, well-known procedures to detect and prevent them. Louis D. Brandeis noted, “Sunlight is said to be the best of disinfectants.” By ensuring pay inequities can be spotted and addressed, we may eventually eliminate them.