Conducting an Accurate Pay Equity Analysis

The term “pay equity” has been bandied about for so long, it’s a wonder it’s not just a catch phrase. Still, however elusive the goal, both within society and your organization, it’s a worthy one. For one thing, largely due to the ongoing pandemic, people are reconsidering where they want to work, and why. And they have choices. So, gender and racial pay equity is important for employee recruitment and retention, as well as motivation. It’s also important in terms of avoiding lawsuits and accelerating workplace diversity.

Keep reading for what you need to know about conducting an accurate pay equity analysis at your company.

What is Pay Equity?

In essence, pay equity means compensating your employees the same or comparably when they perform the same or similar work. The aim is to shed sex and race discrimination in the workplace.

What is a Pay Equity Analysis?

In general, a pay equity analysis compares compensation for employees who perform similar work, accounting for legit reasons for any differences. Those can include experience and seniority.

What Steps are Involved in Conducting a Pay Audit?

A successful pay equity analysis, also called a pay audit, comprises the following steps:

  • Determine the “why.” What is your chief aim? Is it to, say, make sure you’re in line with state or federal regulations, or is it to address possible issues within your company? The answer will inform your analysis methodology, timeline, budget, etc.
  • Examine your pay policies. Determine how you set your pay rates. This will help you understand the basis for any existing pay equity.
  • Gather compensation rates. The data you’ll need will vary depending on the breadth of, and reason for, your audit. You’ll usually need job titles, departments, hire dates, and gender. Depending on the scope of your exercise, you also may need info on race, starting pay, age, education levels, and overtime pay and bonuses. After that, you can begin pulling together other data such as performance evaluations, and any punitive actions.
  • Learn what “comparable work” means in your state. Why? Because while federal law is clear when it comes to equal work, state laws have more requirements for determining comparable work.
  • Look at the data. Here, you want to see whether there are any pay differences that you can legitimately link to race, gender, age, etc. This exercise may be complex, since it’s easier to, say, compare hourly pay among entry-level employees than it is to look at potential gaps among managers with disparate education levels and the like.
  • See whether pay differences can be legitimately explained. Just because you learned that employees that perform comparable work aren’t paid comparably doesn’t automatically mean you’re breaking the law. As we’ve discussed, such differences are legal if they are based on factors such as merit, seniority, or work production.
  • Address issues. If you can’t justify pay differences, it’s time to act. Note, though, that in remedying issues, you’re not legally permitted to lower employee wages. So, you’ll have to find a way to give a raise to one or multiple employees. After that, it’s important that you take what you’ve learned in this whole exercise and make sure it informs future wage or hiring decisions.

Conducting an accurate pay equity analysis is important for society, of course, but also for the ongoing viability of your organization. If you’d prefer to have outside experts handle such a crucial exercise, without the day-to-day distractions of running a business, then we recommend the consultant Mercer for its broad experience and expertise.

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