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5 reasons to prioritize pay equity — especially while cutting costs

, , , | Jul 14, 2022 4:00:00 AM | By

Where does pay equity fall on your startup's list of priorities in today’s turbulent economy?

During economic downturns, it’s easy for growth companies in survival mode to pause pay equity and diversity, equity, and inclusion (DEI) practices. If that rings true for your organization, reconsider.

While it might be prudent to prioritize cost-saving measures, rolling back or even deprioritizing pay equity practices can have immediate and long-term consequences that can harm companies, employees, and the communities where they play an important role. It doesn’t need to be a zero sum gain.

Here are five reasons why it’s important to maintain pay equity practices — including pay equity analysis — even if you don’t have the budget to make adjustments now. Plus, learn best practices you can implement in any economic climate.

 

1. Make the most of limited resources and plan for the future

Despite the economic downturn, some companies are still likely to have a finite amount of resources to make salary adjustments. Knowing where to target those resources will enable you to address the most critical pay gaps before they lead to major consequences for your finances, employee morale, and reputation.

And even if you can’t afford to make significant adjustments right away, it’s important to know your priorities when you’re in a position to grow again. Ultimately, it’s less expensive to address inequities as they arise instead of ignoring them and letting them fester within an organization. Take it from Google.

 

2. Build a culture of trust among employees

Healthy company cultures are built on trust and transparency. Prioritizing pay equity — and communicating your processes — helps employees understand that pay isn’t random. This helps support employee retention and, in better times, attraction in tight job markets.

In a recent survey by SHRM, 91% of employees who believe their employers are transparent about pay decisions said they also trust that their employers pay equally regardless of gender, race, and ethnicity.

In a time where workers are openly sharing salaries, SHRM’s survey also found that one in five workers who learned they were being paid less than a colleague of a different race or gender talked to other employees about it. And more than one in four started looking for a new job.

 

3. Protect your most vulnerable employees

Data shows that employees from traditionally underrepresented communities are often most impacted by cuts and layoffs, contributing to wider inequality across companies.

The U.S. saw this as the COVID-19 pandemic forced companies to scale back, and unemployment soared. In September of 2020, white men had an unemployment rate of 6.9%, compared to 9.7% for Asian women, 11.4% for Black women, and 11.5% for Latina women.

Pair that data with the fact that women have been paid just $0.84 cents for every dollar earned by men for the past 15 years and the potential impact of cutbacks on women can be tremendous.

 

4. You can’t manage what you don’t measure

During any kind of economy, it’s important to track and measure how your company is performing across DEI metrics so you can spot problems early and take action before they become systemic to the organization, leading to problems with attraction, retention, engagement, and internal equity.

Track this information not just companywide but within departments, roles, and job levels.

Internal assessments of pay equity allow your organization to:

  • Stay current on how employees are faring
  • Identify gaps that may exist that can’t be explained by factors other than unintentional bias during the hiring or promotion process

5. Make more mindful decisions with data

With data, companies who must lay off employees can take a holistic look at positions that need to be cut and the demographics of the people in those positions who will be most impacted.

It’s important to be mindful of how your company’s demographic composition will look after the proposed cuts are made. This can help avoid situations like recent layoffs at Netflix that largely impacted contractors from marginalized backgrounds who worked for channels that focused on Black, LGBTQ+, Latinx and Asian audiences.

 

Pay equity best practices to maintain during economic downturns

Despite economic downturns, there are meaningful ways companies can still prioritize pay equity that will help prevent problems from sprouting and growing:

  • Create and publish pay ranges with job listings

Pay ranges have multiple benefits. First, they’re key to recruitment – 63% of U.S. employees said they prefer to work at a company that discloses pay information.

During the hiring and promotion processes, pay ranges help reduce unintentional bias, keeping the focus on a person’s abilities and competencies.

And in an increasing number of states and localities, sharing pay ranges is a legal requirement.

While building pay ranges is notoriously cumbersome, teams can now build professional-grade pay ranges in 3 clicks - for free - with OpenComp Range Builder.

  • Don’t ask about previous salary history or salary expectations

Basing pay on salary history or salary expectations can compound the mistakes of previous employers, keeping some people perpetually underpaid.

It’s no secret that men have an easier time advocating for themselves. And women are more likely than men to say they asked for only 1 to 10 percent more than their current pay during salary negotiations.

To level the field, set pay using reputable and relevant market data. Since workers rarely have access to the same market data as employers, the onus is on employers to pay fairly.

  • Track when it’s time for raises and promotions

Even if raises and promotions aren’t in the budget, track who you need to prioritize when the funds return.


In the meantime, look for creative ways to acknowledge milestones and achievements while conserving cash.

  • Ensure equity in opportunities

Equity isn’t just about compensation. It’s also about equal access to career development and opportunities for advancement.

To uncover opportunity gaps, begin by measuring the gender and racial makeup of people in senior and leadership roles. As your company grows, software like OpenComp’s DEI evaluation tools can help you get a nuanced view of the racial and gender makeup across job levels, roles, and departments.

Once you have this data, ask yourself:

    • Which roles are most lacking in diversity?
    • Do all employees have the same access to opportunities for career growth?
    • Do all employees receive the same messages and communications about opportunities?
    • Is the criteria the same for everyone?
    • Are there exceptions and why?
  • Train managers on pay equity best practices

Hiring managers and managers responsible for promotions and pay increases must understand a company’s pay ranges and how to place people in those ranges based on competencies. They must also understand, and be able to explain to workers, a company’s compensation philosophy, the formal statement that explains how a company plans to pay and reward its employees.

Without a framework, it’s easy for managers to make decisions based on unconscious bias, unintentionally creating inequities within the company.

 

You don’t have to do it alone

Identifying pay gaps and their causes requires more than a casual review.

Let us help you track and measure your employee data, figure out your starting point, and uncover vulnerabilities.

With our tools and expertise, we can provide tips and guidance around how and when you might think about course corrections.

OPEN Imperative members can get free pay equity reports that provide a nuanced look at gender and racial equity at their companies.

And you’ll join a community of like-minded business leaders who are grappling with the same challenges and thinking about innovative solutions to maintain good practices.

Join us!

 


Emily Sweet is VP of Social Impact and OPEN Imperative Lead at OpenComp. She writes about topics including pay equity and diversity, equity & inclusion (DEI). A board member of the National Council of Jewish Women, Emily is a veteran philanthropic leader and policy advisor with more than 20 years experience advancing bold solutions to big problems that drive impact and inspire collective action.  Connect with her on LinkedIn here.