How to Build Employee Trust by Addressing Internal Equity Issues

The battle for top talent has become more challenging as employees are now open to discussing their wages with their peers. Their knowledge about how much their colleague is getting paid equips them with the confidence to look for organizations that can compensate them competitively for the value that they can provide. This makes it crucial for employers to prioritize fair pay in implementing pay policies for their organization so they can retain their employees. To ensure that the company is consistent in paying the right price for their employees across departments, internal pay equity needs to be enforced.

Defining Internal Equity

Internal Equity is a state where employees who perform similar jobs within a company receive similar compensation. This means that employees with similar skills, experience, and education doing similar jobs are rewarded with the same compensation in the form of salary, bonuses, and non-monetary benefits. This increases employee engagement and reduces turnover.

Knowing the Difference

Internal equity differs from external equity in that internal equity involves looking at the data within the organization to make sure all employees are valued and treated fairly when it comes to their compensation. External equity, on the other hand, deals with comparing your organization’s pay levels to relevant market data and exploring how much your competitors are paying for comparable work. Internal equity is focused on seeing fair and just pay among employees within a company, while external equity will tell you if you are paying competitive wages to your employees.

Diagnose Internal Equity Issues

Companies should budget time and resources to calculate internal equity. Identifying internal equity issues early on can save the company costs. Here are steps to calculate internal equity:

1. Step 1: Perform an Internal Audit

   The stepping stone to ensuring fair pay is to conduct an internal audit. This allows you to see what you are currently paying each employee and compare employees with similar roles. This must be done at least once a year to maintain pay equity.

   Management must gather accurate, relevant, and complete data on its employees and their jobs as well as the salary structure of the organization. Managers should be able to reconcile the actual pay practices to their compensation philosophy to determine the efficacy of their pay system. Ideally, employees with the same levels of education, experience, and skill set doing similar jobs must be compensated the same pay regardless of what department of the company they are in. If there is any difference in pay, the management must conduct a deeper analysis to spot biases stemming from the personal characteristics of an employee.

   The CompAnalyst Pay Equity Suite brings in experts to help you manage your internal data and get important insights about your organization’s internal equity. Through our systemic process of audit, our consultants will determine the extent to which your employees are receiving fair compensation and recommend actions to achieve internal equity.

2. Step 2: Spot Discrepancies

   A complete data set of an organization’s employees should not only have information on their educational background, skills, and years of experience in their work, but it should also include personal information about their demographics such as gender, race, age, ethnicity, and nationality. When there is a difference in pay between employees doing similar jobs, HR should look at employee data to determine if wage discrepancies are warranted. Let’s say, that if an employee with higher pay has a master’s degree related to his field of work and the other employee does not, this can justify higher compensation.

3. Step 3: Identify Areas of Discrimination

   When there is a difference in pay between employees with similar roles and who have the same skill sets, the pay gap could be a result of a bias based on the personal characteristics of the employee. Look at the gender of the employee paid less, is she female? This can reveal your organization’s bias in pay based on gender and you are at risk for discrimination lawsuits.

   While there are laws protecting employees from gender discrimination in the workplace, the gender pay gap persists. A 2020 report by the Bureau of Labor Statistics shows that women’s annual earnings were only 82.3 percent of men’s, this is even worse when you intersect gender data with race. It is estimated that Black and Latina women will experience earning losses of over $1 million across a 40-year career. Assessing the pay gap will help you identify areas of discrimination so you can take steps to mitigate its effect and avoid costs from lawsuits and turnover. Taking serious steps to eliminate gender and racial pay gaps strengthens your organization’s commitment to diversity and boosts employee morale.

4. Step 4: Make Necessary Adjustments

   CWhen there is no explanation for the discrepancies that exist in your pay, necessary adjustments must take place to mitigate the pay gap. A remediation plan such as reevaluating salary ranges can be done to prevent inequalities from occurring in the future.

5. Step 5: Communicate Transparently

   Throughout the process, open communication with employees is imperative for them to understand the essence of conducting the internal audit. They must be informed of the salary structure of the company, the pay inequities discovered during the audit, and the changes to be made to resolve the problem. When your employees know that the internal audit is to achieve fair pay within the organization, they will trust the management more and will not resist the changes you might apply.

Be on the Frontline of Internal Pay Equity

Conducting an internal audit can be costly and time-consuming, and the leadership of your organization might initially hesitate to support this. HR professionals need to educate their leaders about the benefits of internal equity to avoid larger expenses arising from legal cases and turnover costs. Internal Equity is a continuous process, thus, it has to be done regularly to avoid inequalities in pay. Before conducting the audit, a thorough job analysis in grouping comparable jobs and an effective salary structure have to be in place. JobArchitect is a tool to level your jobs that will make sense to your organization and creates a framework of job functions that can serve as the basis for a fair pay structure. Internal pay equity can only be achieved when compensation is based on the qualifications related to performing a job and not on the personal characteristics of an employee. Being on the frontline of achieving pay equity also means being on the frontline of fighting against pay gaps. An organization that pursues internal pay equity will have happy, loyal, and productive employees.