What is pay equity & 6 steps to achieve it in your organization

There is a growing movement across organizations of all sizes to address pay equity. From Wall Street to Main Street, to legislative offices and C-suites, the issue of pay equity is front and center. As with any complex issue that has a broad social and economic impact, there are a lot of questions around what exactly pay equity is, what factors influence it, and how to achieve it.

Salary.com talks to hundreds of HR and compensation professionals every day and during these conversations we field many questions related to pay equity. To help generate a broader understanding around this important topic, we've compiled these questions and related answers here for easy reference.

What is Pay Equity?

Salary.com defines modern pay equity as equal pay for comparable jobs that is internally equitable, externally competitive, and transparently communicated.

How we define pay equity has evolved over recent years. From the employee perspective, we're seeing them view pay equity through a broader lens. Yes, employees want to know that they are being paid fairly, but now they also want assurances that everyone else in their company is paid fairly, too.

Because of this, companies must look beyond market salaries, and they need to focus on overall fairness to build a pay system that supports long-term business success.

This includes reviewing comparable work. Comparable jobs are roles that need similar effort, skills, responsibility, and working conditions.

Platforms like the Pay Equity Suite help companies keep pay fair. They provide software, real-time market data, and tools to find wage gaps, test pay solutions and keep checking pay fairness as the workforce changes.

Why is pay equity important?

Paying equitably has both ethical and business-related benefits. Employees that are paid equitably often have increased productivity and innovation. Moreover, employers who ensure pay equity create an environment that helps attract and retain top talent.

Pay equity also helps build trust and a sense of safety at work. When employees feel fairly paid, there is less confusion, fewer conflicts, and better overall performance.

Today, pay equity is a company improvement effort, and an important part of staying competitive in the global market.

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What Steps Can I Take to Help Achieve Pay Equity?

Salary.com offers the software, real-time data and expertise needed to effectively achieve and sustain pay equity and build trust among employees and recruits.

Our Plunkett Pay Equity Framework prescribes a six-step methodology, backed by data analytics, for attaining and sustaining pay equity. Here are the steps:

Step 1: Secure a leadership mandate

Achieving pay equity needs strong support from the CEO and the board of directors. It is not just simple approval. Leaders must make fair pay a clear priority.

They also need to provide the right resources, including people and budget, to fix any pay disparities or unfair pay differences that are found.

Step 2: Group comparable jobs

Because no two jobs are exactly the same, organizations need to review each role by looking at its parts. This includes skills, effort, responsibility, and working conditions.

It is important to compare the real work being done instead of relying on current pay levels, since existing pay structures may already include bias.

Step 3: Model internal equity

This step uses multivariate regression analysis to compare pay and job information with employee data like gender, race, and age. This type of analysis helps find pay gaps and checks if the differences are linked to protected personal factors.

After that, a cohort analysis is done to check if the pay differences are fair and explained by valid business reasons, such as experience or job performance.

Step 4: Benchmark external competitiveness

After reviewing pay inside the company, organizations also compare their pay with the outside market.

This makes sure pay is fair inside the company and also competitive with other companies. It supports hiring new employees and keeping current employees in different industries and locations.

Step 5: Communicate employee compensation transparently

Organizations must share the results of pay equity analysis with employees. This includes giving Total Compensation Statements that explain base pay, benefits, and how an employee's pay compares with others in the company.

Managers should also be trained to talk about pay in a clear and helpful way, and these conversations should happen regularly.

Step 6: Update continuously

Pay equity is not a one-time project. In fact, it keeps changing over time. Pay differences can happen when someone is hired, promoted, or leaves the company.

Organizations should check pay equity at least every few months. They should also review it during major changes like mergers or acquisitions to make sure pay stays fair and follows the rules.

What's more, Salary.com recommends completing a Pay Equity Audit and Certification to assess where your company currently stands when it comes to pay equity.

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FAQs

Here are some common questions and answers on pay equity:

What is pay transparency?

Pay transparency is critical to achieving pay equity. Being transparent about pay means that employees (or job candidates) understand why they are paid what they are paid. Developing a clear compensation philosophy allows an organization to properly communicate with their employees and become more transparent about pay.

What is pay discrimination?

Pay discrimination occurs when individuals with comparable skill sets and experience perform similar jobs yet are paid differently. Pay discrimination becomes a pay equity issue when individuals are favored or discriminated against relative to their protected class status such as gender, ethnicity, age, etc.

Where is the push for pay equity coming from?

Salary.com's Pay Equity Pulse Survey showed that the push for organizations to address pay equity is on the rise. HR professionals reported the top sources of pressure to address pay equity came from current employees, job candidates, organization leadership, and society at large. With interest coming from all sides, organizations who ignore pay equity do so at their own risk.

How big is the gender pay gap?

On average, in the U.S., women make 83 cents for every dollar men earn. The gender wealth gap is even worse, as women have only 32% of the wealth men have accumulated. The gender pay gap compounds over time as companies give raises as a percentage of existing wages. Based on recent rates of change, the pay gap is projected to close in the year 2111.

What is the US Equal Pay Act?

According to the US Equal Employment Opportunity Commission, "The US Equal Pay Act requires that men and women in the same workplace be given equal pay for equal work. The jobs do not need to be identical, but they must be comparable. Job content (not job titles) determines whether jobs are substantially equal. All forms of pay are covered by this law, including salary, overtime pay, bonuses, stock options, profit sharing & bonus plans, life insurance, vacation & holiday pay, allowances, hotel accommodations, benefits, and so on."

Are there state laws demanding pay equity?

On a state level, currently, over 35 states have some form of pay equity, pay transparency, and/or pay discrimination laws to regulate pay practices.

These pay transparency laws or equal pay regulations generally prohibit employers from restricting employees from discussing or disclosing wages or from discriminating against protected classes, such as gender or race.

They also include salary history bans to limit how past compensation paid is used when setting up pay.

Check with your state's Department of Labor to see what laws apply in your area and help your organization avoid alleged unlawful compensation practices.