Published: Nov 21, 2022Time to read: 7mins Category: Compensation
How to Drive Your Compensation and Pay Equity Planning Forward With People Analytics
Despite improving compensation practices, earnings disparities continue to exist between different gender and ethnic groupings. The United States Office of Federal Contract Compliance Programs (OFCCP) estimates that women earn only 76 cents for every dollar earned by men performing similar roles. The OFCCP also estimates Hispanic/Latino workers earn just 73 cents for every dollar earned by White workers, and there are additional gaps existing for other minority groups.
No business wants to be known for its compensation disparities. Conducting pay equity analyses can help encourage transparent compensation practices in your organization. Proactive analyses allow you to identify potential salary inconsistencies occurring in your business so you have an opportunity to make corrections and close pay gaps.
You’ll need a significant amount of internal data to accurately perform these analyses and begin to make more equitable salary decisions. Fortunately, compensation planning software with embedded people analytics pulls all of your pertinent employee and organizational data into one convenient place to offer you the actionable insights necessary to enact change.
Read on to learn how you can leverage your compensation software to make more equitable payment decisions.
Determine Your Purpose and Gather Your Data
It’s important to understand your organization’s goals before attempting any sort of analysis, as those goals will dictate the kind of data you’ll need to collect internally. The scope of your study is also important. You’ll need to decide whether you’re concerned about pay gaps across the entire organization, or if there are specific departments causing some concern.
Once you’ve determined the scope of your analysis, you’ll need to consider the demographic information you want to assess. Maybe you’re concerned that a wage gap exists between people of different genders. You’ll need to have that demographic data easily accessible, and you may choose to drill down even further to see if there are significant correlations with employees’ ethnicity, disability, or veteran status.
After you’ve determined the purpose for your analysis, you can begin to collect and review your people analytics information. Most of your data will be internal, although it’s usually important to include some benchmark data from your region and/or industry.
Below are some common employee and organizational data points you may choose to review:
Employee and Organizational Data Points
|Employee Data Points:||Organizational Data Points:|
|Base salary rates, overtime, and bonuses||Salary grade range benchmarks and market data|
|Compa-ratio, range penetration, market percentile||Compa-ratio, range penetration, market percentiles of other similar organizations|
|Job descriptions and required skills||Job descriptions and required skills|
|Hire dates and time spent in a role||Former compensation practices and initiatives|
|Performance ratings and disciplinary actions||Recent acquisition or merger history|
|Demographic information||Geodifferential information|
You may need to normalize some of your data to ensure you’re getting a true picture of your compensation practices. For example, organizations using geographic pay differentials to account for varying costs of living for their employees should remove these from the employees’ base salaries in order to conduct a more accurate analysis. If different departments use different performance ratings, such as a three-star and five-star scale, these will need to be normalized as well.
Once you’ve honed in on which data is most pertinent to your purpose, it’s helpful to dig into the “why” behind each person’s salary and benefits package. You may find that gaps exist between certain employees performing the same job, but those gaps could be due to differences in an employee’s experience level or time with your organization. Mergers and acquisitions also impact compensation and could explain certain disparities. You’ll want to make these determinations as you conduct your internal reviews.
After you have your data, you can review various aspects of pay equity in your organization. With people analytics embedded in your compensation software, you can use data you already have to create charts and graphs for planning managers to review. You also have the ability to export data to Excel spreadsheets or other reporting tools. This comes in especially handy for organizations performing pay equity analyses as required by OFCCP or the US Equal Employment Opportunity Commission (EEOC).
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Leverage People Analytics in Your Compensation Planning System
Once you have a clearly defined analysis purpose and have chosen your data points, it’s time to review the information you’ve gathered. Different sets of reports are available for various levels of leadership to review. For example, managers can look at how compa-ratios are distributed across different roles in their departments. This data may assist them in making informed decisions regarding compensation or merit increases that fall within their purview, but the information managers can access is intentionally limited based on what it’s appropriate for them to know.
Alternative reports featuring demographic information about employees are available to approved personnel such as HR and other business leaders. This additional detail will help these key stakeholders perform and act on their pay equity analysis activities. Additionally, further report types are focused on helping you determine if there are significant compensation gaps that need correcting. For example, a pay inversion report will show you whether salaries are equitable between managers and their subordinates.
You may also find that some employees who have remained with your organization for many years aren’t progressing through their pay grade as quickly as newer hires. In these cases, a steep wage increase often isn’t a viable option for your organization’s bottom line. With a software solution like PeopleFluent Compensation, you can configure your system to limit pay increase increments. This will let your employees progress toward an equitable salary at a rate that’s also fiscally responsible.
Gain a Clearer Understanding With Data Visualizations
Using an analytics tool also provides a more holistic review of your overall compensation strategy. Combining data visualizations with people analytics makes it easier to digest your compensation data and discover actionable insights, helping you address any pay equity concerns.
These data insights show you information at the department, position, and employee levels. Using them, you can quickly get answers to your toughest questions, such as:
- Which roles are being compensated significantly above or below the expected range?
- Which areas within the organization have pay gaps?
- Do existing pay gaps have implications for diversity, equity, and inclusion initiatives?
- What risks are related to these pay gaps?
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Additionally, data visualizations help you determine to what degree your compensation initiatives are working to close pay gaps among different groups. Let’s say your pay equity analysis shows that women are progressing through their salary grades at a higher rate than men in the same role. After putting initiatives in place to close this gap, you can run another pay equity analysis and compare your new data with your older reports to see if there is a correlation between your initiatives and pay gaps.
Embedding pay equity into your compensation planning tool gives you the ability to run higher-level statistical analyses. Advanced compensation analysis tools in the software—T-tests, rank sum analysis, and pay gap analysis, to name a few—are designed specifically for senior leadership teams to take a deeper look at payment practices.
These analytical tools allow you to drill down by department, demographic, or across the organization to identify potential patterns of disparity in:
- Salary and starting pay rates
- Hourly or overtime pay
- Promotions, commissions, bonuses, and merit increases
- Performance ratings
- Location assignments
PeopleFluent Compensation includes a pay difference estimator tool to determine the amount of back pay an employee would need to receive to bring their salary to an equitable state. These reporting capabilities put you in the best position to make well-informed decisions.
Pay Equity Is the Key to Your Compensation Strategy
While none of us want to see pay disparities in our workforce, sometimes things fall through the cracks. Luckily, pay equity analyses help you identify any gaps so you can assess the best approach to closing them. When you include people analytics, you get even more actionable insights helping you make positive strides toward eliminating compensation gaps in your organization.
Pay equity reports and data visualizations are key elements of your compensation strategy. Planning software with these tools embedded makes it easier to achieve your payment goals.
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