Identifying and Correcting Pay Inequality

Pay equity as an issue is on the national front burner … and it’s demanding your attention. States have been passing laws about it, and there’s just no getting around identifying and correcting pay inequality at your workplace. Here’s how to achieve that.

The Issue

Employee compensation is usually one of a company’s largest expenses. It’s not hard to figure out why: pay fuels financial performance, productivity, and efficiency, and helps in luring and keeping top talent. In addition, having a diverse workforce can markedly enhance the bottom line.

Yet, companies continue to pay females and people from diverse backgrounds less than white males for similar work. It’s estimated that, over the course of their careers, black and Latina women lose up to $1 million in earnings.

Pay Equity Audit

To ensure that your company is paying your workers fairly, you need to perform a pay equity analysis. While doing so is a no-brainer, a survey of the 922 biggest public U.S. companies found that just 22% conducted such an audit between 2016 and last year.

In any case, a pay audit, or analysis, consists of comparing the pay of employees in an organization who do “like for like” labor, and looking into situations where any pay differences cannot be justified by such factors as experience, job performance, or credentials.

At small companies, such audits are typically led by human resources professionals. Larger organizations, meanwhile, typically hire consulting firms such as Mercer US.

Here’s how to perform a pay equity audit:

  • Make sure you’re working with a clean set of worker data. You need every employee’s job classification, length of time on the job, and gender, race, and age.
  • Next, you’ll need to conduct what’s called a regression analysis to account for income disparities that are due to legit variables like training and education. What usually happens is that organizations learn that their pay policies are not consistently followed and that subjective assessments are more of the rule.
  • Remediation is next. A recent study found that most organizations discover that as much as 5% of workers are due a raise, with the average salary adjustment coming to between 4% and 6%.
  • The last measure is pinpointing operational issues that led to the pay gaps in the first place. Such gaps may be caused by, say, inaccurate job classifications or decentralized hiring authority. After the company is made aware of the issues, human resources should, with help from the legal department, monitor on an ongoing basis the hiring, promotion, and compensation processes.

Vigilance Required

Note that it’s normal for pay programs to require a regular exam. After all, pay inequities may begin to resurface as companies undergo worker turnover, job duty changes, and reorganizations. The best thing to do is to conduct a quick check each year, with a close look every few years.

Companies that are pro-pay equity but don’t know where to start may perform a smaller-scale test run. For instance, you can sample six job classifications and compare employee pay. After that, get top execs, HR, and members of the legal team together to establish next steps.

Don’t Be Scared

Even if you don’t have the best of data, that’s not a great excuse to put off conducting an analysis. The real issue is usually that companies fear they’re going to find a problem and have to correct it. But isn’t that what managing a business effectively is about?

Identifying and correcting pay inequality isn’t easy, but the consequences of doing nothing are too much for your company – and society – to bear. Get going on your organization today.

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