Top 5 ways a pay equity analysis can help close wage gaps

By Emily Sweet, Jun 21, 2022 7:00:00 AM

As your hiring activity ramps up and your organization grows, pay inequities can silently creep in, leading to wage gaps throughout your workforce. If these wage gaps persist, you risk creating a culture based on unfair pay practices, potentially damaging morale, hurting employee retention, and exposing your company to discrimination claims.

 

By conducting a pay equity audit and using available pay equity analysis tools, you can identify potential inequities in your pay practices and access the data you need to make adjustments.


The importance of pay equity

In just about every industry, wage gaps across gender and race persist. According to the Pew Research Center, the gender gap in pay has endured over the past 15 years, with women earning roughly 84 percent of what men earn. A similar gap exists for people of color, according to a Society for Human Resources Management (SHRM) compilation of recent research.

 

Besides creating more fairness in your pay practices, there are many other reasons to understand and correct pay inequities in your organization, including:

  • Creating a culture in which individuals performing similar work are paid equitably.
  • Building trust among employees and demonstrating that your organization is committed to equality.
  • Developing a stronger employer brand.

5 Ways to use a pay equity analysis to identify and close wage gaps

The federal Equal Pay Act and state pay equity laws play a role in narrowing the wage gap. But thus far, federal and state laws alone have not closed those gaps. The onus is on company leaders to take action — and prioritize outcomes over intentions. This is especially true today, as underrepresented groups are often adversely affected by layoffs, budget cuts, and so on.

 

To take action, you need to understand where gaps exist within your company and then develop a plan to address them.

 

As your organization grows or scales back and you begin to hire multiple people to fill similar roles, it can become more difficult to identify and correct pay inequities. For this reason, it’s essential to have the right tools to understand how your comp decisions impact employee pay equity. A modern pay equity analysis tool allows you to identify differences in pay that aren’t explained by factors such as experience, geographic location, and position type. With the right tools, you can pinpoint pay inequities across every function of your company.

 

Here are five ways a pay equity analysis can make a difference in your organization:

 

1. Maintain overall compliance with federal and state pay equity laws.

The Equal Pay Act, which requires that men and women be given equal pay for equal work, has been in effect since 1963. However, new pay equity laws have cropped up in several states. For example, salary history bans prohibit employers from using candidates’ current or previous compensation to set pay. Thus far, 21 states and several local municipalities have enacted salary history bans.

 

Some states also require employers to provide salary range information to candidates upon request. By learning how to conduct a pay equity analysis and addressing pay inequities, you are taking critical steps to comply with federal and state pay equity laws and pay all employees equitably based on their roles and contributions. 

 

2. See your current pay practices and policies through the lens of racial and gender equity.

It’s never wise to set employee compensation in a vacuum. In addition to considerations related to market competitiveness, geography, and the impact on your burn rate, you also need to know how your pay practices affect internal pay equity. 

 

Using a pay equity audit tool allows you to see the impact of each hire and pay decision on your internal pay equity metrics. Instead of suddenly discovering months or even years later that you have race and gender pay inequities in your organization, having access to real-time compensation intelligence gives you an accurate picture of where there may be issues so you can quickly take action.

 

3. Drive a more detailed comparison of similar roles within your company.

It can be difficult to identify pay inequities with a casual review of company positions, for example, by comparing positions with the same job title. Moreover, unless you employ a team of statisticians, you probably don’t have the internal skill set to conduct a complex pay equity regression analysis. Gender segregation also sometimes exists within certain departments that pay less than others. However, with the help of a modern pay equity analysis tool, it’s possible to conduct a deeper analysis of similar roles and determine if pay inequities exist. 

 

4. Deepen your commitment to diversity, equity, and inclusion (DEI).

Like many companies, you may have a diversity, equity, and inclusion (DEI) strategy supported by specific goals. Meeting your DEI goals requires several actions, including creating a culture in which all employees feel valued and taking steps to hire diverse talent. From a compensation standpoint, building greater pay equity is one of the most critical ways to demonstrate your commitment to DEI. Identifying and correcting any pay inequities in your organization sends a clear message to your workforce and investors that you are committed to fairness and equity.

 

5. Improve your ability to attract and retain talent.

Having a strong employer brand can help you attract and retain talent in today’s competitive market. Developing your company’s brand requires demonstrating your actions to deliver pay fairly. If you don’t, you could risk pushing great candidates away. A Glassdoor survey found that 67 percent of candidates would not apply for a job at an organization where they believed a gender pay gap existed.

 

Conducting a pay equity audit periodically and making corrections where necessary allows you to build a reputation for fairness and equality—two key characteristics candidates and employees expect from employers today.

 

Pay equity analysis best practices

Given all the benefits of conducting a pay equity analysis in your organization, it’s critical to follow some best practices to make the most of the data. That way, you can make well-informed decisions to correct pay gaps before they grow.

 

Keep in mind that understanding the value of pay equity and making it happen aren’t the same thing. A recent OpenComp survey of executives at high-growth companies found that while most CEOs (73 percent) said pay equity is a top priority in their organization, many (61 percent) also said they lack the resources to address it properly.

 

To make pay equity a reality in your organization, follow these best practices for obtaining, analyzing, and using pay equity analysis data:

 

  • Develop a compensation philosophy that describes your commitment to pay equity and how you plan to achieve it.
  • Use reliable market compensation data to understand the competitive landscape for company positions.
  • Compare employee compensation in similar jobs, including relevant parameters such as job function, level, responsibilities, years of experience, and geographic location.
  • Develop a clear policy and define the repeatable practices your company uses to address and correct pay inequities.

 

Close wage gaps with an in-depth pay equity analysis

As you continue to build your business, you want to do the right thing and access the information needed to make data-driven decisions. With the tools to conduct a thorough audit of your employee pay packages, you can pinpoint pay inequities and close wage gaps wherever they exist. 

 

One of the first steps to building pay equity in your company is having a compensation philosophy that guides future comp decisions. With a solid philosophy at the foundation of your compensation program, you can build consistency and stability into your existing pay practices and make steady progress in closing employee wage gaps. 

 

For more insights, read our guide to compensation philosophy for growing companies, Compensation Philosophy 101, or sign up for free to see how Opencomp’s compensation benchmarking tool can help you close wage gaps.

 


Emily Sweet is the vice president of social impact. Previously, she was OpenComp’s executive in residence and OPEN Imperative lead. A board member of the National Council of Jewish Women, Emily was a 2013 Leadership Greater Chicago Fellow and the 2013 recipient of the Jewish Federation of Chicago’s Samuel A. Goldsmith Award. Connect with Emily on LinkedIn here.