It’s a hot topic, pay equity. In fact, many states have either passed or are mulling a host of related measures. Lest your company is ensnarled in legal woes and takes a reputational hit, you should be all about identifying and fixing your company’s gender pay gap.
Yes, compensation is at the root of your company’s bottom line, efficiency and productivity. If you pay equitably, you can attract and keep the best talent. Still, it’s a fact that women and people of color are paid less for the same work. Over a 40-year career, Black and Latina women sustain lifetime earnings losses of up to $1 million.
That’s a lot.
Pay Equity Audit
This is a good place for companies to start, although a recent study showed that, of the 922 largest U.S. companies, just 22% reported conducting a pay audit between 2016 and 2020.
What is a Pay Equity Audit?
It’s basically comparing the pay of employees in an organization performing “like for like” work and looking into the causes of any pay disparities that can’t be justified. At small companies, the audit is led by HR pros, while larger organizations typically hire firms to do it.
How to Conduct an Audit
Before you begin, be certain auditors are using correct and up-to-date info. You should have every worker’s length of service, job classification, gender, race, and age.
After that, auditors conduct what’s called a regression analysis to take into account compensation disparities based on legit factors like experience, education, and training. That way, you can subsequently identify anomalies based on gender, race, and age. What organizations typically learn is their pay policies aren’t consistently followed and subjective assessments are often the culprit.
Then there’s remediation – or fixing the gender pay gap problem. A recent Korn Ferry study found most companies that perform audits discover up to 5% of workers are eligible for a raise, and the average increase due ranges from 4% to 6%. Be mindful that the overall remediation cost to companies comes to 0.1% to 0.3% of their total salary budget.
Depending on budget flexibility, organizations can increase an employee’s salary incrementally until it hits the target amount. Unless it pertains to a lawsuit, back pay is not usually part of the equation.
Finally, you need to pinpoint operational gaps that caused the pay disparities in the first place. Such gaps can include improper job classifications or decentralized hiring authority.
This should lead to the ongoing monitoring of hiring, promotion, and compensation processes – kind of like tune ups. If you aren’t careful, pay gaps could arise again as employees change jobs or job duties, reorganizations occur and subjective bias creeps in. Annual spot checks are a good idea, followed by a serious exam every few years.
Don’t Let Fear Block Progress
Even if you don’t have good data to immediately launch a pay equity audit, start anyway. Companies often fear they’re going to find a problem and do nothing. The best attitude to take is the audit needs to be done because it’s the right thing to do.
Yes, you may fear threat of litigation, but focusing on that will cause you to miss out on the chance to fully engage employees in a discussion about values and the benefits of a diverse, equitable, and inclusive workforce.
Identifying and fixing your company’s gender pay gap is the No. 1 thing an employer can do to build trust.And if you don’t handle it ethically, pay disparities can become a legal and reputational issue. Get going on your audit today.