HOW TO

5 Tips for Achieving Pay Equity

5 Tips for Achieving Pay Equity

If you are an HR professional, there is no escaping the topic of pay equity. It is front and center, from a talent retention and recruitment perspective, and from Main Street to Wall Street. In fact, 65% of HR professionals recently told us that they are feeling more pressure than ever to address pay equity, with 20% of them calling the pressure “tremendous.”

The pay equity movement is demanding that companies take a hard look at where they are currently and devise a plan to get to where they need to be. While taking an honest look in a mirror and taking action may seem a daunting task, it’s important to recognize that achieving pay equity can be a tackled by taking achievable steps.

Keep in mind that the rewards of taking the steps to achieve pay equity journey are many, not the least of which is fostering an engaged and high-performing workforce.

Pay Equity Definition

Before diving into how best to achieve pay equity, it’s important to step back and consider what pay equity actually is: often viewed as equal pay for equal work, the reality is that pay equity has more layers than that.

Taking a holistic view, pay equity is equal pay for comparable jobs that is internally equitable, externally competitive, and transparently communicated.

When making systemic changes inspired by the pay equity movement, it’s paramount for companies to take conscious measures to provide structure around their compensation policies and establish a pay equity philosophy. This will serve as a guidepost for your pay equity journey.

To get you started now, we have compiled five useful tips for addressing pay equity that will prove beneficial as you pursue this worthwhile workplace initiative.

Tip 1: Establish a pay equity philosophy

Transition from a pay philosophy to a pay equity philosophy. What’s the difference, you may ask? A traditional pay philosophy relies on market pricing and where pay falls relative to the market. A pay equity philosophy addresses both internal pay equity and external competitiveness and incorporates the all-important element of transparent communication. Because you can’t achieve pay equity without pay transparency.

In developing your pay equity philosophy with your leadership team, you must all reach a consensus on what pay equity means to your organization. Your pay philosophy will explain the “how and why” behind employee compensation and create a framework for consistency that helps you attract, retain, and motivate employees.

A clear understanding of how current salaries compare with those in relevant external and internal labor markets will inform your pay equity philosophy. This knowledge will guide you to a pay equity philosophy that is consistent with your business objectives and sustainable given the current and future financial strength of your organization.

Tip 2: Conduct a pay equity audit

To get to where you need to be, you first need to understand where you are at. That means conducting a pay equity audit of your pay practices so you can identify and correct any internal pay gaps. Through this process you will understand how gender, race, and other socio-demographic factors may be affecting your total rewards package.

The goal of a modern pay equity analysis is to identify pay differences in your organization that are large enough to be statistically significant and can’t be reasonably explained by permitted job-related factors.

In smaller organizations the HR department will typically conduct the internal pay equity audit, while medium and enterprise-sized organizations will often retain an outside compensation consulting firm to do the work.

Group comparable jobs

To begin your pay equity analysis, you will need to group comparable jobs – those positions in your organization where the skills and work are similar regardless of what department or what job families they belong to in your organization.

Collect and validate data

Generally, the baseline categories used to analyze compensation are employee demographics, compensation, and job content:

  • Employee demographics (gender, ethnicity, race, tenure, time in position, etc.)
  • Compensation (salary or pay rates, bonuses, commissions, pay additions, or other forms of incentive pay)
  • Job descriptions
  • Employee-related data elements
    • Performance rating
    • Years of relevant job-related experience
    • Education
    • Age (as an indicator of experience)
    • Qualifications (employee education, certifications, skills data, etc.)

Reliable data is essential. Your pay equity analysis is only as good as the data it’s based on, so you need to review and validate the collected data for accuracy and correct any inaccuracies or fill in any missing information that could result in flawed decision-making.

Analyze and document jobs 

A pay equity analysis requires conducting a job analysis that incorporates market data into your general salary structure. Jobs of comparable value are assigned to the same grade range, and the range of pay is the same for those jobs. This ensures that employees within an organization are paid fairly compared to one another.

The process involves collecting the job content and details for all jobs within your organization, including skills, duties and responsibilities, training and certifications, technical proficiency, years of experience, education, management competencies and physical requirements.

Evaluate jobs

The next step is to determine the relative worth of jobs so you can create an internally aligned job structure. The value of a job is based on what a person performing the jobs can produce when performing the job successfully. Aligning the compensation of each job with its contributions to the organization helps set pay for new or changing jobs.

Build job structures

Your job analysis, documentation and evaluation process are what lead you to the creation of a job structure. This job structure ranks your jobs based on how the skills, duties, responsibilities, and compensable factors contribute to your organization’s goals. Similar jobs are typically assigned to the same grade or level but it’s important to define job-leveling criteria for your organization and apply those criteria to assign levels and ensure consistency in applying your pay equity philosophy.

Assess pay gaps

To achieve internal pay equity, you need to understand where and why pay gaps exist. This equity analysis typically focuses on gender and race across an entire organization, but it’s wise to expand your analysis to include all dimensions and variables that could influence pay. That means evaluating the demographic distribution and pay levels of incumbents across your compensation tiers. The equity analysis will help you evaluate your compensation practices and pay levels and determine if they’re aligned with your business goals and DE&I initiatives. When assessing pay gaps, employers should look at all the variables that could influence pay, including gender, race, ethnicity, age, union status, disability, tenure, veteran status, and a slightly newer category, remote work status.

Leverage statistical tools

Statistical tools can be employed to reveal factors that impact pay at your organization and identify potential pay equity issues. Running a multivariate regression analysis can identify where pay disparities exist. If you have fewer than 30 employees, a simple, single regression analysis will suffice, or you can go directly to a cohort analysis. This is an incumbent-level analysis, and it’s run if there are any red flags or pay disparities identified from the statistical models, disparities cannot be adequately explained or there is insufficient data to conduct statistical analysis, such as having too few employees.

Benchmark external competitiveness

Internal equity alone is not enough to achieve pay equity. Having completed your internal equity analysis and set internally equitable salary structure bands, you need to benchmark those new ranges against the external market to understand your ability to attract and retain talent.

To accurately market price, you’ll want to choose the compensation survey data relevant to your jobs and follow the principal tenet that to market price a job based on the minimum requirements of the job itself and not the qualifications of a particular employee. You’ll also want to work to avoid wage compression issues by reviewing and adjusting salary ranges whenever a new job is created, or a new employee is added to your organization.

Tip 3: Remediate pay equity issues

Once the pay equity analysis is conducted, it cannot be placed into a drawer, remaining unopened until the next year. If there are pay differences that cannot be reasonably explained by defensible, job-related factors, and if they are large enough to be statistically significant, you must act. Not only is it a legal imperative – it’s also the right thing to do.

Now is the time to enlist legal counsel to establish attorney-client privilege and develop a remediation plan that reflects your pay equity philosophy.

Model various potential adjustments and re-run the multivariate regression analyses to measure their impact. You need to evaluate the overall cost of the total adjustment for the affected employees and determine how much to give each employee without negatively affecting other groups or employees. You don’t want your solution to, in turn, create more issues so take the time needed to get this right, reviewing individual salaries and job-related factors. Some organizations spread out compensation adjustments over several years to create a more affordable plan. Once you’ve determined the adjustments you need to make to achieve internal pay equity, work with your legal counsel and members of your leadership team to determine your process and timeline for implementing the adjustments.

Other important elements of the pay equity remediation process:

Establish pay transparency

  • When an organization is transparent about pay equity, the positive impact on culture, employee engagement, productivity, and innovation can be profound. You need to effectively communicate your compensation philosophy, training managers how to talk about compensationwith employees. This transparency will help you earn the trust, and loyalty, of your employees.

Be vigilant

  • You need to assess internal equity and external competitiveness on an ongoing basis to maintain pay equity. When there is an event tied to compensation such as a new hire, performance review, promotion, or termination, you must pay attention to how it can impact the balance of pay equity at your organization.

Develop a communication plan 

  • It is critical to communicate pay equity changes transparently and develop consistent messaging that manages employee and stakeholder expectations, while minimizing risk and disruption.

Tip 4: Monitor progress and reap the benefits of pay equity

Monitor progress and reap the benefits of pay equity

After you have established your pay equity philosophy and conducted your pay equity analysis, making any necessary compensation adjustments, it’s critical to continue ongoing monitoring, identifying periodic changes in your workforce.

It’s also necessary to identify the goals of your ongoing pay equity program, whether that be to reduce the likelihood of future litigation or turnover, or to increase employee engagement and productivity, or to forge a strong employer brand aligned with DE&I values that attracts and retains the best talent. Or all of the above.

Create metrics that will help you measure your success. For example, you can monitor voluntary turnover rates, and measure win/loss rates and how often candidates decline job offers due to pay. You can also define compensation targets across foundational salary metrics and monitor them closely for signs of wage compression.

Tip 5: Rely on Pay equity experts and tools

Addressing equity in the workplace will not only amplify your company’s values to internal and external stakeholders it will, ultimately, strengthen the foundation of your organization from the inside-out. It’s a team effort, one that requires support, vigilance, and transparency, particularly from senior management, human resources, finance, and compensation personnel. It often also requires the expertise of external professionals in the legal and data analysis fields, and can be supported by pay equity tools to ensure a robust analysis that serves to mitigate legal risk.

Salary.com provides the tools and expertise to help organizations wherever they are at in the pay equity journey. The CompAnalyst® Pay Equity Suite powers a comprehensive approach to pay equity, including:

  • Compensation survey sources
  • Pay equity audits
  • Competitive compensation design and salary structures
  • Tools and expertise to effectively communicate a compensation philosophy

For more information on pay equity analysis and achieving pay equity for your organization, visit www.salary.com/pay-equity.

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