What Is a Pay Equity Analysis?

Pay gaps are the discrepancies that exist between the earnings of different groups of employees in an organization. Unfortunately, these gaps often occur along lines of race, gender, and ethnicity, and have persisted for decades. 

The gender pay gap in the U.S. remains an issue, according to the Pew Research Center, with the average working woman often earning 82 cents for every dollar earned by a man as of 2022. This disparity is even greater for women of color, with Black and Hispanic women who work full-time, year-round making only 56 cents for every dollar earned by white, non-Hispanic men. These pay gaps cannot be fully explained by differences in education and occupation, leading to concerns about hiring bias and other types of discrimination in the workplace.

Pay gaps are understandably a concern for employers — not only are individual employees affected by unfair compensation, but also their families and communities. If you want to ensure that your compensation to your employees is fair, read on to learn more about pay gaps, the importance of transparency in the workplace, and how to conduct a pay equity analysis.

Why Are Pay Gaps So Prevalent?

Pay gaps occur due to systemic biases in compensation practices that favor certain groups of employees over others. Such biases are often deeply entrenched in organizational cultures and are reinforced by social norms and expectations. These biases can manifest in various ways, such as through the undervaluation of work traditionally done by women, the exclusion of certain groups from high-paying jobs, and the underrepresentation of certain groups in leadership positions.

Why Is Workplace Transparency so Important, Particularly When it Comes to Pay?

Transparency in the workplace is crucial to promoting fairness and equity, and transparency regarding wages is especially vital. Employees who understand how their compensation is determined are more likely to feel valued and motivated to perform at their best. 

Transparency also reduces the likelihood of discriminatory practices and fosters a culture of accountability. When it comes to pay, transparency can help to address pay gaps by highlighting areas where there are discrepancies and providing a basis for companies to take corrective action, often through the conducting of a pay equity analysis.

What Is Pay Equity Analysis?

In a nutshell, the concept of “pay equity” is simply the idea of “equal pay for equal work.” This means that any number of individuals who perform the same job, with the same skills, education, and experience, should receive the same compensation, regardless of their identity.

A pay equity analysis is a process that can be used to effectively evaluate the compensation practices within an organization and identify any areas where controlled pay gaps exist. To account for uncontrolled pay gaps — which are just the result of different positions and levels of skill — pay equity analyses stick to comparing the compensation of employees who perform similar work, are in similar roles, and have similar qualifications and experience. 

The end goal of a successful pay equity analysis is to ensure that all employees are compensated fairly for the work they do, regardless of demographic characteristics like age, gender, race, or sexual orientation.

Why Perform a Pay Equity Analysis?

Performing a pay equity analysis can have several benefits for any organization, especially if you want to:

• Promote fairness and equity in your compensation practices.
• Improve your employees’ morale and retention.
• Reduce your risk of lawsuits and regulatory action.
• Enhance your organization’s reputation as an equitable employer.
• Foster a culture of accountability and transparency.

While any organization can enjoy these benefits when they perform a pay equity analysis, some circumstances may require one. Situations that may necessitate a full pay equity analysis include:

• Changes in organizational structure or compensation practices.
• A merger or acquisition.
• A complaint or lawsuit alleging discriminatory compensation practices.
• A review of the organization’s diversity, equity, and inclusion (DEI) efforts.

The dangers of not having pay equity in a business can be serious. Failure to address pay gaps may result in decreased productivity, employee dissatisfaction, and high turnover rates. It can also lead to legal and reputational risks that can be costly and difficult to manage, so be mindful of when you need to conduct a pay equity analysis and make necessary changes.

How Do You Conduct a Pay Equity Analysis?

Whether your company is restructuring or you would just like to ensure more transparency in your compensation practices, conducting a pay equity analysis requires a systematic approach. This will help ensure that the results are accurate, relevant, and actionable. Here are the five essential steps to follow.

1. Involve Management in Setting Goals

The first step is to establish the objectives of your analysis and ensure that key stakeholders are involved. This process should include individuals in senior management, your HR department, and any legal counsel you may have. 

The goals of your pay equity analysis should be specific, measurable, and achievable. For instance, if your aim is to improve employee morale and retention, you’ll need to keep track of turnover rates and levels of employee satisfaction and engagement.

2. Assess Current Compensation Practices

The second step is to evaluate your organization’s current compensation practices and policies. This involves reviewing factors that may affect your compensation strategy, such as job descriptions, pay scales, and performance evaluation criteria. It may also involve analyzing compensation data within a certain time frame to identify any patterns or discrepancies.

3. Define “Equal Work” 

The third step is to define the “equal work” part of the “equal work for equal pay” concept by identifying the factors that determine job similarities in your organization —  such as skills, responsibilities, and experience. This will help you gather the right data and ensure that employees are compared based on relevant factors.

4. Gather and Analyze Data 

The fourth step is to gather and analyze data on employee compensation. Whatever data you gather should then be analyzed to identify any discrepancies and patterns that exist within your organization. 

This may involve collecting quantitative data on job titles, salaries, bonuses, and benefits, and then running your pay equity analysis in Excel or equivalent programs to determine whether you are paying your employees at competitive rates for the right positions.

It could also involve collecting and analyzing more qualitative data. For example, if you are focusing on improving employee morale and retention through improved compensation practices, you’ll need to gather data through methods such as surveys and exit interviews to find out what is working with compensation and what is not.

5. Implement Change 

The final step is to implement any necessary changes to your compensation practices and policies. This may involve adjusting pay scales, revising job descriptions, or implementing new performance evaluation criteria. 

As you make improvements, be sure to communicate any changes to employees and stakeholders so that there are no surprises or misunderstandings, and so that those you are trying to benefit understand that you are taking transparency and pay equity seriously.

Also be sure to monitor the effectiveness of the changes you make over time. If you are making changes to pay scale and bonuses in order to improve morale and retention, for instance, make sure that you get periodic feedback from your employees to ascertain whether those changes are working as intended.

Pay Equity is Foundational to Employee Wellbeing

At the end of the day, pay equity can make the difference between a fair and ethical organization and an unethical one. Fortunately, pay equity can be deliberately introduced and maintained in your organization through pay equity analysis and transparency about compensation practices. 

As you evaluate your compensation practices, identify areas where pay gaps exist, and implement corrective actions where necessary, you can improve employee morale. This reduces the risk of legal and reputational harm, and fosters a culture of transparency and accountability. After all, everyone feels better when they work for a company they trust will look after them. 

And what goes around comes around — employees that feel their organization is looking out for their employees’ wellbeing are better employees. Departments with workers are more profitable than those with miserable workers, and organizations with effective wellbeing programs are more than twice likely to exceed financial targets.

If you are interested in improving the wellness of your organization, talk to a Wellbeing Specialist from Wellhub today. We can provide you with other strategies to benefit your employees and increase your standing as a fair and equitable employer.

Resources

• Gallup (2022, June 13). State of the Global Workplace: 2022 Report. Gallup.com. Retrieved April 21, 2023, from https://www.gallup.com/workplace/349484/state-of-the-global-workplace.aspx
• The Josh Bersin Company (2021, October 26). The Definitive Guide to Wellbeing: The Healthy Organization. JoshBersin.com. Retrieved April 21, 2023, from https://joshbersin.com/wp-content/uploads/2021/10/HW-21_10-DefGuide-The-Healthy-Organization-Defintive-Guide-.pdf
• Kochhar, Rakesh. (2023, March 1). The Enduring Grip of the Gender Pay Gap. Pew Research. Retrieved April 20, 2023 from https://www.pewresearch.org/social-trends/2023/03/01/the-enduring-grip-of-the-gender-pay-gap