In recent years, the topic of compensation has extended beyond the expert community of compensation managers and HR to become a cultural conversation. It’s headline news in the United States and Europe—from competitive sports and Hollywood actors to Google and big tech to the financial services sector. And while recent headlines have highlighted gender differences, pay equity goes well beyond gender alone.

Pay inequity has been described as “unconscionable” and “shocking,” and for good reason. Over a career, the differences between what men and women are paid add up to a loss of $430,000 for white women, $877,000 for Black women, and more than $1M for Latina women.

Shocking is right.

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A Perfect Storm of Business and Market Forces

But it’s not just the media talking:

• As of March 2018, seven states and six local governments have enacted legislation barring employers from requesting information about an applicant’s pay history.
• Activist investors are pressuring companies to disclose gender equity data.
• Resources like Glassdoor and PayScale give employees and job seekers greater access to salary information.
• Iceland has vowed to close the pay gap by 2022 and the UK’s Equality Act requires employers with more than 250 employees to publicly disclose their gender pay gaps.

With all this public and legislative attention, it’s a veritable certainty that pay equity lawsuits—including collective actions—will increase. So clearly, the pressure is on for companies to ensure employees, regardless of gender or race, are paid equitably, based on the value of the work they perform.

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The Business Benefits of Pay Equity

Companies that commit to achieving pay equity have much to gain. And that's not just the avoidance of negative press, regulatory penalties, and legal action.

Put simply, pay equity makes good business sense.

When employees feel they’re being rewarded fairly, they are more engaged and motivated. This, in turn, boosts retention and productivity. And a transparent pay equity strategy sends a powerful message that attracts the diverse talent that drives business success up by 15-35%.

The Path to a Pay Equity Strategy

A pay equity strategy ensures the right rewards are going to the right people. It’s a long-term approach—not a quick fix. And it should be grounded in company values and led from the top.

The path to developing and adopting a pay equity strategy may not be easy. But it will get you where your company needs to be.

Conduct Pay Analyses During your Reward Cycles

You can’t fix what you can’t see. So start by gathering and analyzing data on employee compensation and performance. It’s important to conduct and correlate data during the performance or compensation cycles. Doing so after the process will indicate adverse impact, but it’ll be too late to correct it.

Look beyond base pay and factor in incentives, bonuses, and total compensation. Similarly, look beyond performance ratings to include factors that are less prone to bias such as time in position, relevant experience, education, and loss impact.

A comparator or multiple regression analysis of these data will identify factors correlate with compensation. It'll also reveal whether you have gender disparities in certain roles, departments, locations, or company-wide.

Learn more about pay equity studies conducted by Affirmity's team of PhD statisticians.

Create a Structured Process for Hiring and Compensation Decisions to Eliminate Bias

A structured process means documentation, consistency, and continual review. For example:

• Create accurate, well-written job descriptions that clarify similarities and differences between roles
• Review questions on your job applications
• Establish a process for maintaining market research records
• Analyze and review promotions, performance ratings, and other personnel decisions that influence pay
• Examine variables that can help eliminate unconscientious biases—including time in company, grade, or job, education, certifications, years of relevant experience, market data, promotion history, geographic location, and loss impact
• Continually review pay, recruiting, and performance processes and systems to maintain equity.

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Build a Culture of Transparency and Trust

Structured processes can put an organization in a rigid mindset, and it’s easy to get paralyzed by the sheer volume of employee data. So try not to overthink it. Your HR team should know which pay variables employees value the most. That’s where you should begin the documentation and data collection and analysis.

Remember that what you really need is a culture in which employees are comfortable coming to you—the organization—with concerns about pay equity rather than going to a federal agency, a lawyer’s office, or a business beat reporter.

Your efforts will not only mitigate the significant risks looming for companies who are slow to adopt a strategic approach to pay equity, but they will also bolster your employer brand and drive tangible business results.

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