Pay equity continues to be top of mind for organizations. As the year begins, this is a good time to reflect on how organizations might refine their pay equity processes. The benefits of effective pay equity practices are numerous, including compliance with regulations, reduced risk of discrimination lawsuits, enhancement of the organization’s brand, improved attraction and retention of top talent, and higher rates of employee engagement.
However, organizations make various mistakes that limit the impact of their efforts. To improve results and drive efficiencies, here are six common mistakes we have seen, as well as guidance on how organizations can do better.
Mistake #1: Responding only to legal requirements
Countries have different legal requirements around pay equity, as do different U.S. jurisdictions. While companies need to comply with local regulations, those regulations themselves do not constitute a strategy, nor do they guarantee a similar level of due diligence across an organization’s footprint, leading to, at least, employee concerns. To do better, align on an equity standard for the entire workforce and implement that standard globally. Communicate and commit to that standard.
Mistake #2: Siloing performance management processes
Performance evaluations suffer from bias, and because of that, some employers have looked to limit the link between performance ratings and pay. However, an important rationale for performance management is to force managers to thoughtfully evaluate employee contributions against a standard, reducing bias that would otherwise occur.
It is best to continue to link pay and performance ratings but also ensure regular training on both performance management processes and unconscious bias. Our research shows that unconscious bias training, in close proximity to evaluations, reduces bias in ratings. Also, regularly review performance rating outcomes by managers, test for potential bias and ensure sufficiency of documentation related to the final ratings.
Mistake #3: Not carving out a budget to address issues
Companies embark on their pay equity analysis not knowing what they will find but hoping for the best. When inequities are discovered, the budget may not be available to support the remediation strategy. To drive efficiencies, allocate a central budget to address any issues discovered, ensuring unit-level executives do not face a sudden, unplanned expense. Typically, the rule of thumb for an initial analysis is 0.5% of payroll, which can at least ensure some significant momentum, even if it is insufficient to solve issues in one phase of work.
Mistake #4: Playing whack-a-mole
Sequential analyses are often sub-optimal. For example, reducing gender inequity can increase racial inequity when white women receive pay increases. Solving one issue at a time can lead to a long, never-ending cycle of analyses and budgets that are artificially high. Some organizations run through multiple cycles—only to find that gaps thought closed are suddenly reopened.
Solving for gender, race and intersectional inequities simultaneously by testing the impact of potential adjustment “sets” on all gaps can help alleviate this problem.
Mistake #5: Processing adjustments for all the “outliers” in the interest of fairness
Even in cases in which women or people of color are paid less than men and whites, they are not necessarily overrepresented among the most extremely underpaid employees. Because of that, adjusting pay for all groups will not generally close gaps. Consider a broader set of outliers to capture more employees in the classes revealed to be underpaid—or simply focus adjustments on those underpaid classes. The pattern of unexplained pay differences can point to an optimal remediation strategy.
Mistake #6: Solutioning too narrowly
In cases where Asians appear to be paid better than whites, some might argue to increase pay for white employees. But whites might be paid more than other groups (e.g., Blacks). Further, in cases where Asians appear to be paid more than other race groups, they might actually be disadvantaged—facing advancement ceilings that have led them to stall out at higher pay levels in their grades.
To avoid solutioning too narrowly, expand the scope of the equity assessment beyond pay. For example, include career opportunities, inclusion and engagement. Tracking measures related to this broader set of outcomes by business leaders can create effective momentum for change.
An ongoing commitment to pay equity and transparency is essential. While taking accountability requires effort, it will reduce risks, attract top talent and improve corporate culture. Importantly, pay equity is now essential to business success, and it should continue to be a priority for organizations in 2024.