Perks of a Pay Equity Assessment

What is a Pay Equity Assessment?

Pay equity is the practice of providing equal pay to individuals performing in similar job positions under similar circumstances regardless of their race, ethnicity, gender or sexual orientation. In other words, demographic data should not influence an employee’s total compensation.

A pay equity assessment is an exercise companies can undergo to understand the current landscape of their pay structure. It is a “point-in-time” snapshot of a how a company’s total compensation by employee is developed, and whether demographic data may have an influence on the total compensation equation. The assessment uses data typically already being collected by the human resources department within an organization to develop data-driven insights into the way organizations are paying their employees. Typically, pay equity assessments will look at total compensation, not just salary.

How is a Pay Equity Assessment Conducted?

There are several different statistical methodologies that can be deployed to conduct a pay equity analysis. Across all methodologies, however, one of the most important pieces to conducting a pay equity assessment is ensuring that you control for variables that are legitimate reasons for a difference in total pay. If you were to pick two people, a male and a female, at random from your company and determine that the male is being paid more than the female, this doesn’t necessarily mean there is a discriminatory pay equity issue at hand. What if they were serving different roles, had different position titles or job levels, or one of them had earned industry specific credentials while the other had not? Conducting a pay equity assessment takes these legitimate factors for differences in pay (job title/level, years of experience, tenure, credentials) out of the equation, then analyzes if there are still differences in pay when comparing based on demographic factors (gender, race, ethnicity, sexual orientation).

Robust statistical modeling techniques can be used based on the data provided to develop a “total compensation predictor” based on legitimate factors. Total compensation as determined by the predictive model can then be compared to actual pay across different demographic groups. Are women on average showing a lower actual salary than the predictive model returned? Are white employees showing a higher actual salary than the predictive model returned, while people of color are showing lower than predicted? If the answer is yes, you may have a pay inequity issue on your hands.

What do the results of a pay equity assessment suggest?

A fully developed pay equity assessment will combine quantitative insights with qualitative knowledge to understand the systemic issues behind a company’s inequitable pay. Based on the example above, we would be led to believe that there is a disparity in pay between males and females at the organization, as well as between white employees and people of color. But is it really their gender or race that is causing the inequity in pay, or some confounding variables related to gender and race? For example, are white males being promoted at a faster rate than females and minority groups within the company? Are white males typically negotiating harder for higher salaries than females and minority groups who are joining the organization?

Adjusting pay on an individual basis as a result of disparities uncovered in a pay equity assessment is only the first step. While it is a good first step, adjusting pay does not tackle those systemic issues causing pay inequity as described above. It takes a deeper dive into an organization’s processes and procedures to understand some of the qualitative factors at play that may cause systemic pay inequity issues by demographic groups within your organization. A pay equity assessment can help zero in on the places within your organization to assess and remediate.

Why is a pay equity assessment a critical component of the overall DEI strategy?

As we mentioned in our previous blog post highlighting equity in the workplace, equity is a crucial component to the overall Diversity, Equity, and Inclusion (DEI) strategy. Equity is the fair treatment of all, regardless of individuals’ differences and unique backgrounds. In order to foster a truly equitable and inclusive employee environment, organizations need to pay employees fairly, regardless of gender, race, ethnicity, and sexual orientation.

Pay inequity is typically not intentional. Pay equity audits should be an annual exercise to proactively identify and remediate pay equity issues. You can’t fix what you don’t know – conducting a pay equity assessment provides organizations with the insights needed to incite real change and demonstrate a true commitment to DEI in the workplace.

Not only is it ethically advantageous in the eyes of your employees to conduct annual pay equity audits, but it’s also becoming necessary to maintain a competitive advantage in the marketplace. Employees are increasingly evaluating companies based on their commitment to DEI. During this “Great Resignation”, companies who show how they care about employees’ well-being and DEI initiatives are likely to attract and retain employees far better than companies who just say they are committed to DEI.

Finally, there are legal risks involved when organizations do not act to ensure they are paying ALL employees equitably. Recent legislation at the federal and municipal levels has shifted the burden of proof to the employer when it comes to pay inequity. Companies can suffer both financial and reputational harm if pay inequities are not preemptively identified and resolved. Pay equity assessments are the best way to understand and identify any potential flaws in an organization’s pay structure.

Ensuring pay equity is an obligation of an employer – it mitigates risk, increases retention and improves reputation. Ready to take the next step? Book a FREE discovery call to get started.

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