Employee pay is one of the largest expenses on an organization’s income statement. It fuels productivity, efficiency and financial performance even while it helps attract and retain a diverse workforce. But when there’s a bias or even discrimination in compensation practices, there’s a disruption of the talent pool that can lead to disengagement, lower productivity and financial losses.
Pay equity is the idea that employees will be compensated at the same level when they perform the same or similar jobs. According to a study by Payscale, the gender pay gap is currently $0.82 cents on the dollar, closing only one cent since 2019. This means that women receive only$0.82 cents for every dollar their male colleagues get for doing the same work. However, because of the COVID-19 pandemic and stay-at-home policies, the report found there’s been a disruption of various female-dominated occupations and industries, so the actual disparity is skewed. When women are back working at full capacity, the pay gap may be even wider.
However, the pay equity gap isn’t just about comparing men to women. Payscale found a racial wage gap showing that women of all races and ethnic groups earn less than white men. While men of color earn less than white men, “all men out-earn the women within their racial-ethnic group.” Native Americans and Alaska Natives see the largest uncontrolled pay gaps relative to white men, the study found. Women earn $0.69 and men $0.86 for every dollar earned by a white man.
Wage gaps between genders and races aren’t always easy to identify, but their causes typically boil down to one of four general causes:
- Differences in Jobs: This is usually based on categorizing women and men into different types of industries and jobs based on gender norms and expectations. For example, women work in healthcare and men in construction.
- Differences in Experience: Because historically women were pushed out of the workforce and into child care and housekeeping, men received more time on the job and thus greater experience.
- Differences in Hours Worked: Women worked more part-time jobs so they could take care of the home while men took on in full-time positions.
- Discrimination: Although equal pay became law in 1963, it’s still violated in almost every industry in the U.S.
Steps to Ensure You’re Paying Employees Fairly
The best way to ensure your organization is paying employees fairly is to start with a pay equity audit (PEA). According to the Harvard Business Review, a PEA simply compares the pay of employees doing “like for like” work. When comparing like jobs, there must be an accounting for reasonable differentials, such as credentials, work experience and even job performance.
After the initial analysis comes an investigation of the causes behind any pay differences that can’t be justified. In the past, it was recommended that pay audits be conducted every two to five years. With today’s advanced technology, however, running PEAs should be a continual proactive process rather than a reactive undertaking. However, a recent survey of large public U.S. companies found that only 22% performed a salary audit between 2016 and 2020.
Once you’ve completed a PEA and resolved any pay discrepancies, consider implementing these six strategies to help close the pay equity gap:
- Review Job Descriptions: Some of them may no longer apply or may open up the organization to liability. Keeping job descriptions up-to-date ensures that the work being done and the skills required are accurately reflected.
- Revamp Current Compensation System: If it’s discovered that your company’s system is creating a gap, consider making changes, such as implementing standard pay ranges or guidelines for each position or job classification.
- Build a Culture of Pay Equity: Ensure everyone – including the legal team, CEO, CFO and COO – are included in the pay approval process. Having multiple sets of eyes on the process helps to catch compensation mistakes and biases.
- Open Your Books: Create transparent objective metrics and systems around recruitment, performance, advancement and compensation. Making these systems open to everyone helps ensure consistency and accountability.
- Communicate: One of the most under-utilized business skills is consistent communication with team members. Regularly communicating with employees about the metrics and their progress builds trust within the entire organization.
- Train Leaders, Managers, and Supervisors: Make sure all decision-makers understand the organization’s compensation system. Be sure to train them on how to properly communicate and document all compensation decisions.
Finally, compensation professionals should keep pay equity in mind as they develop workplace policies and procedures. And, they should take a close look at how the business determines starting pay, merit increases, promotions, and bonuses.
Closing the Gap for the Right Reasons
Recognizing and understanding a pay equity gap is the obvious first step toward eliminating the issue and preventing it from happening again. But just like other ideas and concepts that look good on paper, an organization has to first understand why it’s taking action. Affirmative action initiatives have worked for organizations that understood why they were needed. They failed in companies that were motivated primarily by a desire to avoid liability and litigation.
Disparity in pay isn’t wrong if it can be justified. For obvious reasons, a receptionist probably isn’t compensated at the same as the CEO. But if there’s a pay equity gap between two positions with the same job description, and that perform at the same level with the same skills, talent, and experience, then there’s an issue that must be addressed.
Bias and discrimination in a company’s compensation practices hinder performance and growth and also puts a company at legal or regulatory risk. Without question, addressing pay gaps is “the right thing to do.” By enhancing performance and minimizing risk, it’s also smart business.