Clearly, organizations must strive to comply with all regulations to mitigate the risk of potentially costly lawsuits. And this approach is also good business. Fairness, real and perceived, helps organizations attract and retain the best talent possible regardless of personal characteristics such as gender, ethnicity and age.
An objective pay program, free from discrimination, will also help build the foundation for a destination workplace. A basic sense of fairness around pay decisions and employment actions makes it easier to engage employees and achieve maximum effectiveness from rewards programs.
Pay equity, then and now
The first pay equity law in the U.S. was the Equal Pay Act of 1963. Since then, legislation at both the federal and state levels has targeted pay equity, especially with regard to gender. A number of countries across the world have similar legislation.
Beginning in 2018 (based on 2017 data), the Equal Employment Opportunity Commission (EEOC) is requiring U.S. organizations with more than 100 employees to provide employee W-2 pay data by EEO job category, gender, ethnicity and 12 compensation groupings.There’s no question that a gender pay gap exists in the U.S. While the size of the gap depends on the methodology and the statistics used, it’s generally cited that women’s earnings are 80% of men’s. According to the Census Bureau, the full-time yearround earnings of women were 79.6% of men’s pay in 2015.1 The Bureau of Labor Statistics estimates that the wage difference in 2014 for full-time workers was 82.5%.2
Pay equity implications
Beyond the compliance requirements of pay equity, there’s the potential to establish an objective and integrated approach not just for compensation, but for total rewards and the employee experience overall. Creating a culture of fair treatment will help engender a destination workplace and enable successful recruiting from an increasingly diverse talent pool.
Improving diversity means bringing in different views, ideas and innovations. Diversity will also appeal to many millennials, now the largest generation in the workforce. Millennials tend to appreciate transparent management and a focus on corporate social responsibility, both of which are improved by treating employees and candidates fairly and communicating openly with them. These characteristics are also likely to be well received by customers and investors.
Identifying pay equity gaps and opportunities
There are a number of ways to approach pay equity. Actions taken throughout the employment cycle will impact pay, including decisions about hiring, starting salaries, merit increases, promotions, training and development, and performance scores.
Subjectivity — and potentially discrimination — can be introduced through any of these actions and others. Once an organization makes pay equity a priority, there are many ways to improve any observed pay gap, including:
- Conducting a pay equity analysis — Conduct a statistical analysis to compare the pay of men and women or any other demographic. An organization may review base salary and total compensation by location, grade, EEO job category, manager, department or other criteria. Similar analyses can be done for annual performance scores and to determine the number of women in various higher- and lower-paying roles and grade levels.
- Using an objective job evaluation methodology — Combine job evaluation and market pricing to ensure objective and accurate internal and external valuations for organizational roles, an approach that may serve employers especially well in the context of pay equity.
- Analyzing the data thoroughly — Dig deeper where there are differences by reviewing employee education, experience within a role, performance and other legitimate, objective factors that may offer an explanation. Because workforce demographics change and data on the impact of any pay equity interventions is valuable, it may help to repeat the analysis every one or two years.
- Conducting employee engagement surveys — Use surveys to test the engagement levels of the workforce. Among their many benefits, these surveys can track changes in engagement over time, including before and after organizational and HR initiatives, and may sound a warning bell about any negative trends or sudden concerns.
- Documenting and communicating employment decisions — Document how, why and when employment decisions are made, and be transparent with employees about how compensation is determined.
The real downside to ignoring pay equity is the risk of a disengaged, less productive workforce that’s more difficult to retain. As organizations continue to optimize their investment in employees, the true cost of disengagement is likely to exceed any lawsuits and penalties from noncompliance.
1. U.S. Department of Labor Women's Bureau, "Issue Brief: Women's Earnings and the Wage Gap," January 2017
2. Bureau of Labor Statistics, "TED" The Economics Daily - Women's earnings compared to men's earnings in 2014," November 2015