How to Find (and fix) Salary Gaps with a Pay Equity Audit
August 26th is Women's Equality Day, which is an excellent time to reflect on the progress we've made on issues like the Gender Wage Gap.
Unfortunately, the news isn't that good. According to Pew Research, the gender wage gap has barely moved in the last twenty years, with women still earning $0.82 for each $1 earned by their male counterparts. For women of color, the gap is even bigger.
This is an increasingly urgent issue for employers. Around 79% of employees want to see greater transparency around salaries, while a spate of municipal, state and federal Pay Transparency laws means that companies will have to be open about salaries—and possibly reveal any internal inequalities.
So, what should employers do?
What is the difference between pay equality and pay equity?
To understand the gender wage gap, we need to discuss the difference between pay equality and pay equity. Put simply:
- Pay equality is when people receive equal pay for equal work
- Pay equity is when people have the opportunity to move into higher-paying roles
For example, imagine a company that pays sales managers a flat salary of $85,000. Everyone receives the same basic wage, regardless of factors like race, gender, or disability. This company has achieved pay equality.
But if you look closer at this issue, you might find some deeper issues. The sales team may hire men in client-facing roles and women in support positions, which means that men are more likely to progress to a management role. Or maybe the company offers limited maternity leave or childcare support—two things that disproportionately affect career progress for women.
In this hypothetical company, women earn the same as men in comparable roles, but women rarely get promoted into high-paying positions. Therefore, this company has not achieved pay equity.
How do pay equity problems emerge?
Pay equity problems can creep into any organization—even those with a strong commitment to diversity, equity and inclusion. As consultants, we see problems emerge at all stages of the employee lifecycle, including:
- Hiring: A lack of diversity in your hiring team could affect your team's composition. For example, an all-male hiring team is more likely to recruit a male candidate due to an effect known as the similarity attraction bias.
- Salary negotiation: Male candidates are more likely to negotiate raises and salary offers than women, and women who negotiate usually ask for 30% less than men. This can lead to men consistently earning more than their female counterparts.
- Organization demographics: Pay equity issues are easier to detect in a diverse organization. When a group is skewed in one direction, the data becomes less clear. For example, non-profit organizations generally tend to have a majority female workforce, meaning there's limited data for gender-related salary benchmarking.
- Poor data: Accurate data is crucial for monitoring pay equity issues. Many organizations either fail to track relevant DEI data or don't keep accurate records. For example, unclear job descriptions and pay codes make it hard to perform like-for-like comparisons between employees.
- Lack of salary guidelines: Each company should have a clear pay philosophy available to all hiring managers. Companies should also have salary guidelines that help define upper and lower limits for each position.
- Organizational culture: Culture can sometimes prevent people from moving along their career path. Sometimes, this means a toxic culture with discrimination and bias. It can also mean cultures where employees are expected to stay in the office beyond their contracted hours, which can discriminate against people with disabilities or childcare commitments.
- Staff turnover: When people feel their careers have stalled, they're likely to quit and look for opportunities elsewhere. If people from a particular demographic have a high turnover rate, this might indicate a DEI issue that will ultimately impact your ability to achieve pay equity.
Pay equity is also affected by bigger social issues, like the fact that women are generally encouraged into lower-paying career paths. Despite this, there are still plenty of steps that employers can take to close the gaps.
How to identify and fix pay equity issues
Pay equity is a complex issue, meaning you must look at the whole organization to identify problems. Here are some steps to help you ensure that everyone is being paid fairly.
1. Conduct a pay equity audit
The first step is to review current employee salaries and identify any discrepancies. Not everyone will receive the same pay, and this is often due to legitimate factors such as performance and experience. But you may have a problem if you find egregious differences with no explanation, such as two comparable employees whose salaries vary by more than 3%.
Data-gathering is often the most challenging part of a pay equity audit. You might find it easier to work with a compensation consultant and get their independent expertise.
2. Review job descriptions
Accurate job descriptions are an essential part of fair pay. For instance, you might have two employees with comparable responsibilities, but one is classified as a "consultant" while the other is classed as a "technician", with each role receiving a different salary.
Years of experience required is one issue that deserves scrutiny. Misjudging this can cause some employees to become unfairly trapped on a lower salary rating. It can also dissuade people from applying for a better-paying job. For example, a manager with five years' experience might miss out on a suitable opportunity if the job description requires ten years.
3. Update salary structure and pay philosophy
A pay philosophy helps hiring managers make tough decisions about salary, like whether to offer starting salaries around the bottom, middle or top of the market average. Pay philosophy statements can also help employees understand their opportunities to earn bonuses and raises.
A well-defined salary structure also helps avoid problems like pay compression, where salaries for low-level jobs are almost as high as wages for higher-level positions. By sticking to the salary structure, you'll be able to keep increasing employee compensation as they move along their career paths.
4. Make adjustments to salaries
If you have an egregious salary gap, you may need to adjust salaries. Doing so can be difficult, as it puts pressure on your overall labor budget. It can also lead to claims of unfairness, as some people might ask why their colleagues are getting a raise when they're not. It's essential to have transparent communications about all pay decisions.
One strategy is to include any increases in merit cycles. When employees are eligible for their next raise, you can offer a higher percentage and bring them one step closer to pay parity with their colleagues. In this case, it's a good idea to use different pay codes to track merit increases and equity increases, as this will make it easier to analyze salary data.
5. Introduce pay transparency measures
If your locale has pay transparency laws, you may already be forced to share salary data. If not, then employees still have access to a lot of salary information through public websites like Glassdoor and salary.com.
Pay transparency can benefit your company, often leading to higher engagement and retention. If you're starting from zero, you may want to take small steps toward transparency, such as sharing your pay philosophy with the team. Pay administration guidelines are a great tool for transparency. They assist managers with pay decisions and help communicate pay practices to employees.
6. Build a pay equity team
Pay equity shouldn't be the responsibility of just one person or team. A compensation specialist or HR consultant can offer some insight, but they may not be able to provide the full picture.
Instead, build a team with representatives from your DEI group and any Employee Representation Groups. This team will be able to offer ongoing insight into your progress on pay equity and make recommendations when new problems arise.
7. Monitor and review
Pay inequity can still occur, even when you try your best to prevent it. The only solution is ongoing monitoring, regular reviews, and listening to feedback from your pay equity team.
All of this requires having accurate data, so make sure that you're capturing information at every stage of the employee lifecycle, from candidate applications to staff turnover. If you identify any imbalance, act as early as possible.
Pay equity is not an easy fix. It may take a lot of time and effort to resolve issues within your team. But employees will appreciate transparency about salaries, and they'll support your efforts to close the gap.
Need help with your Diversity, Equity and Inclusion program? Book a call with a Helios HR consultant, and let's talk about how you can build a winning team!