Organizations that proclaim to care about inclusiveness and equality can begin by compensating their people fairly. After all, the issue of pay parity has been gaining steam for some time now and employers are increasingly under pressure from stakeholders to address it.
The movement to remove wage gaps is gaining momentum, propelled by other national movements such as #MeToo. For example, more than a dozen states have either passed or are considering pay transparency measures.
Now comes a tight labor market spawned by COVID-19 in which employers must seek every edge to attract and retain talent.
That means paying employees equitably. To be certain you are, you must first conduct a pay equity audit (PEA), followed by other steps including remediating any issues. Let’s look further at reviewing and resolving pay inequities.
The Issue
Despite protracted efforts, employers continue to pay women and people of color less than white men for the same work. According to the Harvard Business Review, Black women, as well as Latinas, sustain losses of up to $1 million over a 40-year career.
Most organizations in multiple surveys said they were focused in earnest on pay equity concerns. However, another study of some 900 large employers found that just two conducted a salary audit between 2016 and 2020.
What is a Pay Equity Audit?
In essence, a pay equity audit means comparing the compensation of employees who perform what’s often called “like-for-like” work. This is after accounting for reasonable explanations such as qualifications, work experience, and job performance.
The aim is to uncover any pay differences that can’t be justified, then delve into the cause. You may need to hire a consulting firm that specializes in compensation to help you so that you can focus on your core business.
Conducting a Pay Equity Audit
Before getting into a pay equity audit, you must make sure an accurate set of employee data is in play. Make certain that you have every employee’s position, length of service, gender, age, and ethnicity.
You want to be sure you have current data so that you can effectively compare “like to like” jobs.
After that, you must conduct what’s called regression analysis to rule out pay discrepancies that can be pinned on allowable factors such as education, experience, and training. After that, you can pinpoint any pay differences that are based on gender, race, or age.
Then, remediation is in order. A Korn Ferry study found that most organizations learn that as much as 5% of employees are in line for a pay hike — typically from 4 to 6 percent.
If your budget doesn’t allow for an immediate raise, you may raise an employee’s compensation incrementally until the target amount is met. Lastly, you must unroot what caused the inequities in the first place.
Perhaps you need to take a fresh look at job classifications or make sure there’s more oversight in hiring. Once that’s figured out, you must, on an ongoing basis, monitor the hiring, promotion, and pay processes.
It’s wide to perform a quick check each year to make certain, due to reorganizations, changes in responsibilities, or whatever, that pay issues begin to re-emerge. Every few years you should take a close look
As you can see, reviewing and resolving pay inequities takes careful, deliberate action. And to make sure things are handled properly, you also need outside assistance.
We recommend the leading global consultant Mercer, which offers top-notch pay equity analysis and remediation.
Remember, besides being the right thing to do, making sure your people are paid equitably goes to the heart of your ability to attract, engage, motivate, and recruit, as well as to lessen risk.