Employees, shareholders, and many other stakeholders are beginning to see pay equity as a fundamental expectation among public and private companies, and for good reason. A more equitable pay practice drives better attraction and retention of talent, a more diverse culture, and through that, better financial performance over the long term.
Governments around the world have passed, or are proposing, legislation requiring companies to establish and maintain certain pay standards, and a number of states have already passed “equal pay for equal work” laws across gender and other demographics. Some have gone even further: preventing employers from asking for salary or compensation history, and using demographics besides gender to define pay equity.
As pay equity becomes more standard within corporate cultures, a number of companies are instituting a new process or revisiting their old process to ensure it meets these increasingly complex requirements. Here are five important considerations to keep in mind when addressing pay equity within your organization.
1. Establish and Maintain the Right Structure and Data
A well-defined job structure or career leveling guide, important demographic data (where legally allowable), company-specific data (i.e., team, department or business unit, location, hire date, time-in-role), and career-specific information (i.e., time-in-career) will allow for a much more robust pay equity audit and allow you to find and fix issues or implicit biases that may creep into your pay practices. A few additional tips on how to prep your job structure for an effective analysis:
Startups might not have a formal job structure or defined job tiers just yet. Setting up a basic structure is relatively quick. Consider using compensation survey providers like Radford, Willis Towers Watson, or Mercer to leverage their already established levels and definitions as a starting point.
Some larger organizations that have grown significantly might have merged together multiple structures, levels, or job titles, or acquired an organization and imported their job structures “as is,” creating inconsistencies. In this case, conduct a job leveling audit using an agreed-upon leveling guide to help create a more consistent definition and eliminate noise in the analysis.
If your organization doesn’t have career-specific data, consider implementing a talent profile with your human resources information system (HRIS), where you can capture your employees’ digital resumes. Many of the more modern HRIS tools allow importing from LinkedIn or other hiring platforms to make this simple and easy.
2. Make Pay Equity a Regular Part of Ongoing, Established Pay Programs
Conducting a regular pay audit can prevent small issues from becoming severe and increasingly expensive, or introducing further legal and compliance risks to your organization. This means running the audit after every major “people cycle” such as annual salary increases, bonus awards, and equity grant cycles. Additional guidance for running the analysis:
Complete your analysis not just on one element of compensation (e.g., salary) but on total compensation as well — salary + bonus + long-term incentives combined. Sometimes only when the entire picture is considered are you able to see where disparities are appearing and develop the right solutions to remedy for the future.
Consider utilizing a professional third party who is experienced in multivariate regression analysis to help conduct the analysis, and properly identify the variances you may want to consider. Leverage their experience to analyze your data set, and provide suggestions on how to approach the analysis given the particularities of your organization.
Have conversations with senior leadership around the philosophy behind the approach: will we conduct the analysis globally or just in jurisdictions where the legal requirements exist? What groups are distinct enough in approach, financial results, and management structure or levels of autonomy that they should be analyzed separately?
When completing your analysis, work with internal and/or external counsel to help direct the work and ensure the analysis can be properly privileged as you consider the findings and potential remedies.
3. Tackle Potential Issues From the Start
Pay equity issues often occur as new hires are brought on board because new hires are at higher rates than internal staff with similar experience or skills. Or, the opposite may occur, new hires are brought in at lower rates because hiring teams or recruiting teams are looking at a new hire’s previous compensation (if disclosed), and offering just enough to get the person in the door. Special attention should also be taken with human resources and your recruiting team to hire people at what the job is worth, not simply what they make today.
4. Consider How to Make Your Process and Outcomes Transparent
Trust is built with your employees and your other stakeholders when they understand fair and equal pay is important to the company, how your pay equity process works and how the analysis is conducted, and what outcomes you are shooting for and have achieved. Where you're short of your goals, communicate your action plan clearly and openly and hold your leadership teams accountable to address them.
Special attention should also be taken with human resources and your recruiting team to hire people at what the job is worth, not simply what they make today.
5. Audit Other Drivers of Pay Equity
Performance ratings in particular often drive pay outcomes such as merit increases or incentive awards. If your performance ratings have implicit biases, so too will your pay levels. Conduct regular audits of your ratings overall and by other factors such as job level, team or department, and tenure to ensure they are equitable and fair before the pay process begins.
Creating a fair and equitable pay program is now imperative for today’s organizations. By approaching the process thoughtfully and methodically, nearly all organizations can accomplish their equity goals, reduce risk, and help create a more diverse, high-performing organization.