Pay equity compensates employees similarly and fairly for the work they do without considering gender, race, age, and other discriminatory factors.
The Equal Pay Act specifically covers pay equity for men and women, requiring that both are paid equally for similar roles. Several states also have their own equal pay laws in place. While many of them focus solely on pay equity between sexes, some states, like Alabama, California, and Hawaii, also include other factors, like race and religion.
While the concept of pay equity is straightforward, many companies continue to struggle to make equal pay come to fruition. This isn’t usually intentional but instead stems from a lack of guardrails for managing compensation appropriately.
Seemingly small compensation issues, like not having a set structure for bonuses or not being fully transparent with employees about pay, can compound over time, putting the company at risk of overpaying the wrong people, losing great workers, or even facing a lawsuit.
Safeguards That We Know Promote Pay Equity
Salary compression and pay inequity can substantially hinder companies when they go unnoticed. Having safeguards in place can prevent pay inequities before they happen.
Many companies use the following safeguards because they work. Although they don’t highlight everything you have to do to ensure pay equity, they can significantly reduce the likelihood of problems in the future.
Market-Based Salary Ranges
Salary ranges define the minimum and maximum amount of pay a company allows for a role.
Basing salary ranges off what a company thinks is fair pay for the role may not lead to truly fair pay. Instead, companies should use market data to determine actual fair pay based on what competitors offer for that role.
If, for example, you’re paying a budget analyst $60,000, but the midpoint for market data sits at $70,000, you’re paying a lower-than-average salary for that position.
What many companies get wrong is that they wait to create a salary range for a position until they have several people in that role or similar roles. After all, why would you need a range for just one or two people?
Pay must be consistent across a company to be fair and equal. Having set market-based salary ranges throughout the organization lets you fit every employee’s salary into their respective ranges, leaving no room for confusion.
And, when those salary ranges are based on market data, you can ensure that you’re offering fair compensation across the board.
The most critical piece to remember when working with market-based salary ranges is to use updated market data to refresh salary ranges annually. With accurate and relevant data, you can avoid falling into the potential trap of lagging the market.
Using the right compensation benchmarking tools can help you accomplish this. Ideally, use a tool based on HR data with an easy-to-use UI and excellent support and onboarding.
Every year, conduct job analyses to help you group similar roles together for salary ranges. Then, determine what factors place people into higher steps within each salary range, like completing a new degree or consistently excellent performance. You can use this information to delineate ranks within each salary range, offering clear guidance for raises.
Updated Job Descriptions
Job descriptions are for much more than explaining what a job entails to applicants. They’re also necessary for HR to accurately define jobs to determine accurate job groupings and salary ranges.
When job descriptions become outdated, they no longer describe the nuances of a job accurately. A person in that role might be doing different types of tasks than the job description includes. In some cases, they might have taken on several more responsibilities since the job description’s last update, leading to unfair current wages.
Loose descriptions lacking enough detail to describe a job can also be problematic. What you don’t want with job descriptions is room for interpretation. Detailed and correct job descriptions determine whether an employee’s pay is appropriate for their work.
HR is responsible for taking the reins on this. Employees and managers don’t necessarily notice inaccuracies when completing their jobs day in and day out. HR becomes the crucial third party that can step in, notice when a job’s responsibilities have shifted, and update that job’s description accordingly.
Like salary ranges, job descriptions should be refreshed annually. Observing employees completing their daily tasks can be the best way to ensure accuracy, especially when mixing that data with competitors’ job descriptions and industry standards.
HR can also send out surveys to employees and managers to get their perspectives on what should be included in their job descriptions.
While some companies prevent employees from discussing their wages with one another, others are more transparent about their pay practices. Which type of company would you rather work for?
Most would say the latter. To workers, it might feel like a company has something to hide if they halt pay discussions. In many cases, that could be true.
Conversely, companies that not only allow but also welcome discussions about pay are likely more open to having productive talks about pay equity. These companies want to know if something isn’t working well so they can fix it.
Wage transparency encourages open discussions between employees, employees and managers, employees and HR, etc., to ensure pay equity across the board. Workers feel empowered to discuss their pay, ask questions, or request raises.
Wage transparency practices vary among companies.
Publishing salary ranges and other compensation metrics in an employee handbook, sending out annual or biannual pay surveys to employees, or having managers discuss raise considerations with their teams as a group can all work.
Unbiased Hiring Process
Having underlying biases in place—even if they’re subconscious biases—can affect pay equity with new hires. Unbiased hiring allows new hires to have an equal shot at fair pay by having their starting pay based solely on the skills they bring to the table rather than other factors like their race, gender, ethnicity, or religion.
One way to do this is to have a multi-step hiring process that keeps candidates anonymous until the interview. Ideally, key questions needing to be answered for an initial pay offer should be asked before an in-person interview, removing potential biases from the picture.
You can also increase diversity in your hiring team, if possible. Include a mix of women and men representing different cultures to participate in interviews and hiring decisions.
Also, consider removing any questions pertaining to a candidate’s prior salary from the hiring process. For true pay equity, you want to stick to your company’s compensation philosophy and salary ranges without being influenced by a person’s former pay.
Clear and structured guidelines for bonuses, raises, and other incentives are essential to pay equity. When the factors leading to these incentives are open to interpretation, your company risks over or under-incentivizing workers.
For example, say you have a budget of $10,000 for quarterly bonuses for your marketing team. The marketing manager has worked with two people from his team for over five years, forming a close relationship with them. He chooses to give each of them $3,000, for a total of $6,000 from that budget.
Four other workers are newer members of the team and don’t have as close-knit of a relationship with the manager. However, two of them have consistently proven to be key members of the team, creating highly successful social media campaigns for the past six months.
Still, the marketing manager divides the rest of the bonus evenly between the remaining four team members, giving them each $1,000.
If the company had structured guidelines and factors for receiving a specific amount, those two team members might have received the highest bonuses on their team. Instead, relationships with the manager played a more important role than performance.
An employer is responsible for setting the stage for bonuses, raises, and other incentives. What qualifies a worker to receive one? What benchmarks do they need to hit to get a full or partial bonus?
Outline these must-haves clearly so that employees can reference them. In addition to helping prevent pay inequities, you’ll also make it easier for workers to know exactly how to improve their performance to earn incentives.
When Is a Pay Equity Audit Necessary?
A pay equity audit (PEA)—also referred to as a pay equity analysis—analyzes employee pay to determine if pay inequalities exist and, if so, why they exist.
PEAs take time, commitment, and resources, but they’re almost always necessary for companies with 50 or more employees. With a company of this size, there’s a very slim chance that no pay equity issues exist.
Companies using PEAs typically perform them once a year. Guess what the usual recommendations are to fix those inequalities a PEA identifies? The safeguards mentioned above.
Now is the time to get ahead by putting these pay equity safeguards in place.