3 ways to make pay equity central to your compensation strategy

Racial and gender pay gaps likely will worsen because of COVID, but HR leaders can take steps to prevent that.
By: | April 26, 2021 • 6 min read

Despite a rising crescendo for social justice that includes the #MeToo, #TimesUp and #BlackLivesMatter movements, gender and racial pay gaps likely will worsen because of the COVID-19 recession.

The challenge for employers is that employees are fed up with pay inequity. These movements have shown us that regardless of economic conditions, employees expect more from their employers. Leading companies are taking actions today to ensure they are retaining diverse top talent and creating a competitive advantage. In fact, a rise in pay equity legislation may also soon require lagging organizations to demonstrate that they don’t have pay gaps, whether they want to or not.

Co-author Shelly Holt

Countless research reports have shown that diversity drives innovation. In addition, PayScale’s State of the Gender Pay Gap Report for 2021 shows that the gender pay gap now sits at 82 cents on the dollar and has closed only one cent since last year. Given the disproportional impact of COVID-19 on women’s unemployment, this slow and frustrating progress may be superficial—meaning the pay gap may widen when women get back to work.

Related: Why HR needs to stop the clock on the women’s recession

Advertisement

Putting pay equity at the forefront of compensation strategy is therefore both the right thing to do and the smart thing to do. In today’s world, businesses–regardless of size or industry–have access to the data, technology, and services to make pay equity achievable. And, indeed, PayScale’s Compensation Best Practices Report shows that intention to conduct pay equity analysis is on the rise—increasing 8% over last year.

Here are three ways to make pay equity a central pillar of compensation at your organization.

1) Build a culture of pay equity.

Conducting pay equity analysis as an ad hoc project every two to five years is no longer a best practice. The new era is technology-led and data-driven. Monitoring pay equity should be continuous, influencing every job offer, every promotion and every merit increase cycle.

Because pay equity affects every employee, you need strong partnerships across the organization to make it a central strategy. Although HR leaders are most likely to drive a pay equity initiative, you need participation from everyone involved in pay approvals, such as the CEO, COO, CFO or the board. You should also anticipate working closely with your legal team as they will help guide your organization through compliance with the law and any relevant risks associated with remediation.

Advertisement

In addition to getting leadership to buy in, you will want to think about how to disseminate your holistic compensation strategy to your employees. If pay equity is truly a central pillar of your overall approach, this should be something you are proud to share. Minimally, you will need manager training on pay communications to explain your approach to pay, why it is a competitive advantage, and how to handle difficult conversations with employees about pay.

2) Leverage data and technology to ease the continuous process.

When it comes to measuring pay gaps, you can’t rely on assumptions. Many organizations think that they do not have a gender or racial pay gap because they are an equal opportunity employer, they have a Diversity, Equity, and Inclusion (DEI) program, or they have many examples of women and people of color in prominent positions. But anecdotes don’t tell the whole story. The truth is that if you are not measuring your pay data, you simply do not know.

Co-author Amy Stewart

Fortunately, the technology available today eases the burden of pay equity analysis considerably. Although you still need to have a formal compensation strategy and structure, compensation technology lets you build statistical models around factors that influence pay differentials at your organization such as years of experience, location, skills or performance. You can apply these filters to your employees’ pay data to offset legitimate reasons that some employees with the same job are paid more than others and then measure whether there is still a gender or racial pay gap for specific positions, and generally across the organization. You can also refresh your pay equity dashboard as often as needed to show your status and use modeling tools to explore how changes to employee pay will impact pay equity across your organization.

3) Share the burden with consultative services.

You do not have to do pay equity analysis alone. If you have an in-house compensation team along with the data, technology and processes to continuously monitor pay equity yourself, you are well-positioned for the future. However, according to PayScale’s Compensation Best Practices Report, just over half of organizations have a dedicated compensation resource. Fortunately, for those who do not have an in-house team, there are services to help conduct pay equity.

You can also work with outside advisories such as the USC Race and Equity Center to conduct pay equity analysis on your behalf as part of a broader DEI initiative. This type of service can include both quantitative and qualitative analysis, measuring both the uncontrolled and controlled gender/racial pay gaps within your specific organization and conducting focus groups with employees to learn how they perceive the organization’s efforts. This evaluation extends to organizational cultural norms to certify that business practices and processes are not impacted by unconscious bias and ensures inequities are corrected at the source.

Why pay equity is an ongoing effort

Ultimately, pay equity should be viewed as a strategic, ongoing and business-critical best practice. Organizations are constantly hiring and promoting people. This fluidity means that pay equity is not something that happens at a specific point in time but rather something that must be incorporated into day-to-day compensation practices and reviewed whenever there is rapid growth. In other words, pay equity is not something you achieve; it is a commitment that you make.

Good examples of organizations that have made public commitments to pay equity effectively include Salesforce and Nestle USA. Salesforce very famously did not believe it had a pay equity problem when leaders committed to conducting an analysis. Using data, they discovered they had a pay gap and chose to lead with annual published updates on remediation. Nestle USA made a commitment to gender balance in the workplace that was as much about diversity and inclusion as it was about equity, with regular pay equity audits demonstrating that salaries for male and female employees are equal. In both cases, continuous monitoring was needed to stick to their commitment and prevent drifting. Another takeaway is that corrections to pay may occur over time or in waves.

Regardless, continuous pay equity strategies are essential to get pay right. With data-driven tools, there is no excuse for not ensuring your organization retains and attracts the right talent fair and equitably.

 

Shelly Holt is the chief people officer of PayScale, where she is responsible for talent management, recruitment, learning and development, workforce planning, total rewards and all HR programs and services. Amy Stewart is a senior content marketer and analyst who writes research reports and articles for PayScale on a variety of topics related to compensation, pay equity, employee engagement, and talent acquisition and retention.