How Organizations Can Take a Systematic Approach to Pay Equity

Why do companies continue to struggle with pay equity, more than 60 years after the passage of the federal Equal Pay Act (EPA)? In 2022, U.S. women had median annual earnings that were only 84 percent as much as those for U.S. men, according to the U.S. Department of Labor. Meanwhile, a 2022 study sponsored by UKG found that less than half of employees (41 percent) believe their employers have successfully achieved pay equity, even though 74 percent of executives consider pay equity a moderate or high strategic priority.

Perhaps the problem isn’t a lack of awareness or support among business leaders. Instead, the issue may be that organizations are trying to solve the issue on a tactical level when a more strategic, systemic approach is needed.

Starting with Pay Equity Reviews and Audits

Understanding an organization’s pay equity challenges begins with data. Yet new SHRM research finds only 70 percent of employers conduct pay equity reviews/audits to identify possible pay differences between employees performing similar work that cannot be explained by job-related factors. These reviews may examine a variety of characteristics that might affect pay differences:

• 80 percent examine gender.
• 68 percent examine race.
• 62 percent examine age.
• 27 percent examine disability status.
• 19 percent examine sexual orientation.
• 30 percent examine other characteristics, such as education, experience, job responsibilities and length of service.

A wide variety of pay equity tools are available to help organizations identify and address gender pay gaps within their workforce, but SHRM research finds just 46 percent of employers are familiar with these tools. Half of those familiar with pay equity tools agree that these tools provide trustworthy and accurate measures of the gender pay gap at their respective organizations. Of those familiar with the tools, 45 percent say they’ve either used the tools themselves or someone else in their organization has.

Going Deeper to Prevent Gaps

Collecting data is important, but closing the pay gap requires more than just measuring the scope of an organization’s pay equity issues. Pay equity is about paying people the same amount for the same work. But pay gaps are also created through inequities in hiring practices, performance management, and promotions.

“Doing a pay equity analysis and then correcting and remediating issues is a fix to an illness,” said Diego Rivera, a Washington, D.C.-based senior pay equity consultant and domain expert at Syndio , a pay analytics platform. “Be proactive. Avoid having the illness in the first place. Ask yourself, ‘What can I do so that I don’t have a pay equity problem?’ ”

“If you want to get at the root issue of pay gap issues, it’s a combination of activities. It’s holistic,” said Joanna Colosimo, vice president of workforce equity and compliance strategy at DCI Consulting Group in Washington, D.C. “It’s not just pay equity, it’s recruitment, how talent is distributed, promotional activities. Are we putting women or minorities in higher-paying positions? Are we funneling them through the system?”

There are several proactive things organizations can do to help close pay gaps, but each requires long-term strategic focus and leadership buy-in.

• Addressing Implicit Bias: Individual biases can affect a variety of pay-related decisions, including hiring, raises, bonuses and promotions, potentially creating additional barriers that candidates must clear to demonstrate that they are qualified. These biases should be treated as an organizational issue, rather than a personal failing.
• Reviewing Policies: Organizations should create checks and balances in their policies that account for bias without relying on individuals to recognize it in themselves. Make sure policies are reviewed regularly. Consider each policy in its broader organizational context to identify how different rules and regulations can reinforce or undermine one another.
• Creating Opportunities: As important as fair compensation policies are, they can’t take the place of mentorship and other resources that create opportunities for employees to advance in their careers and advance their earning potential. Find ways to provide systemic access to opportunities to learn, grow and be mentored on the job.

Understanding the Benefits

Pay equity is often treated as a compliance measure in HR, but it can also increase efficiency, creativity and productivity by improving recruitment, retention and engagement, leading to a stronger organization and a healthier bottom line. According to a study by Indeed, 81 percent of workers are more productive and engaged when they perceive themselves as being paid fairly. Pay equity also helps with recruitment, attracting top talent, and increasing diversity and innovation. That same study from Indeed found that 75 percent of employees are more likely to apply for a job when the employer is known for pay transparency.

“How do we gain from that diversity—not just degrees and skill sets, but perspectives?” said Rivera. “Pay equity allows all of those different perspectives to sit at the same table and for those synergies to start evolving. And that’s where great ideas emerge.”