What we're talking about
Pay equity is all about making sure that people are being paid fairly across your business. At its most basic level, it means that two people doing the same work are compensated equally. But speaking more broadly, it’s about making sure there aren't company-wide pay gaps across gender or race – so men aren't paid more overall than women, or white people aren't paid more on average than people of colour.
A lot of companies think that their standard hiring and promoting policies will organically ensure it happens, but pay gaps are a systematic issue. In the US, white women earn $0.79 for every dollar earned by white men, and black women earn $0.63 for every dollar earned by white men, according to the US Census Bureau. So, if you're committed to achieving pay equity and eliminating pay gaps for your business, you need to be intentional about it.
Why it's important
Having clear goals and policies around pay equity indicates you're putting your money where your mouth is when it comes to rooting out discrimination and creating an inclusive culture at your company. It matters to customers, but it really matters to employees – both current and future. Fair and equal pay can boost internal morale and community among your employees because they feel as though they're on an equal footing with their colleagues. And the promise of pay equity can help attract great new talent, too, as people want to work where they're valued and paid what they're worth.
Things to note
There are plenty of different pay gaps. Though most businesses focus on gender and ethnicity pay gaps, they may occur among any minority or under-represented group. Once you’re tracking and tackling these pay gaps, check to see if any others apply: look for pay gaps between people with and without disabilities, between parents and non-parents, across ages, and across sexual orientations.
There is a difference between an adjusted pay gap and an unadjusted pay gap. The adjusted number means you're only comparing the pay for people in similar roles who perform similar work. The unadjusted is when you compare pay for all people at a company, regardless of their function or level of seniority. Most companies start by addressing adjusted pay gaps using salary bands and a compensation framework, and then look at eliminating unadjusted pay gaps by making sure women or other minorities are represented across all levels of the organisation (which evens out the average pay for different groups across the business).
Pay equity is about equal compensation, not just equal salaries. Make sure you're working any equity compensation or bonus opportunities into your compensation frameworks and audits as well as looking at information about salary.
Pay equity requires leaders to commit. Ultimately, pay equity involves paying people what they deserve, not the minimum amount you can get away with. This might require spending more money on salaries collectively, and an investment of time and energy to uncover any issues and correct them. Leaders have to be truly committed to building an equitable business to make these investments.
How to achieve pay equity
(1) Create a compensation framework. The starting point for achieving adjusted pay equity is a clear set of guidelines that informs you how to pay people across your business. This could be a salary formula that is used to calculate everyone's salary in the same way, or a set of salary bands that every role can fit into. Whatever the format, you'll want to do some research to understand what the market rates are for the roles, and take a position on how you want to stack up against those. You’ll also want to make sure your framework can be used to determine total compensation, not just base salary. Once you have your standards, make sure they are consistently used and applied the same way to everyone – no exceptions.
(2) Collect data needed for a pay analysis. When it comes to reviewing and analysing compensation, you’ll likely want to compile information about each employee's job title, department, job level, hire date, gender (and – depending on the scope of the audit – other demographic indicators like race or ethnicity), job location, hours worked, base wage or salary, overtime pay and bonuses or other forms of compensation. If readily available, it's worth also including performance scores, level of education and years of relevant experience.
(3) Remedy any adjusted pay gaps. Once you have a structured compensation framework, review the collected data and check your framework correctly applies to all your current employees. If it doesn’t, make pay adjustments (up or down) to ensure people in similar roles are being paid the same way as per your framework. This process will help you eliminate your adjusted pay gap.
(4) Conduct a pay equity analysis. To check for any systematic bias in how different groups (eg, men vs women) are paid, you need to conduct a pay equity analysis. This isn’t as simple as comparing the average of what men make with the average of what women make – you need to make sure you’re comparing apples to apples. If you’re in a small business, you could spot discrepancies by checking individual compensation data to confirm whether minority employees are paid the same as white male colleagues in similar roles. If you’re in a larger company, however, you’ll need to run a statistical regression analysis (see learn more, below) to spot pay gaps between different groups of people.
(5) Make things transparent. Transparency is key when it comes to pay equity. At a bare minimum, make sure you’re sharing your compensation framework with all employees internally. The most progressive businesses go a step further and make all salaries transparent, too – if your compensation is fair and equitable for everyone, there should be nothing to hide. Finally, you’ll also want to be open about any pay gaps you’ve found within your organisation. Many companies are now making this information publicly available to hold themselves accountable, but sharing internally is a great first step.
(6) Track and set targets. Adhering to this process doesn't mean you won't have to monitor how you pay people. You'll want to regularly review your compensation framework and adjust pay accordingly if it's updated. You'll also want to set targets and track progress against those targets by regularly measuring any pay gaps using a pay equity analysis.
(7) Develop inclusive hiring and promoting processes. The reality is that most businesses do have a pay gap. So, once you've calculated yours and set some targets, it's time to introduce policies and processes that help weed out systematic differences in compensation. For example, think about how much negotiation is allowed when you’re hiring someone (as that can mean compensation will vary based on how much candidates push for more), or whether your compensation or performance frameworks involve variables that might be more subjective – and therefore more susceptible to bias (for example, assessing how much potential a candidate has instead of how many years of relevant experience).
Pay equity is about equal pay for equal work.
Systemic differences in pay between different demographic groups in an organisation – pay gaps – often exist between men and women, and white people and people of colour.
Achieving pay equity requires a structured compensation structure that applies to everyone, and regular analysis of compensation data to identify and resolve pay gaps.
Review high-level overviews of pay equity legislation around the world with this summary from CloudPay.
Develop structured salary bands using this step-by-step process from Salary.com.
Get advice around compensation data and analysis using this webinar from PayScale.
Learn how to run a regression analysis to calculate pay gaps using this guide from Visier.