Managing Pay Equity

Achieving pay equity is crucial for fostering a fair and inclusive workplace. To effectively recruit and retain employees, an organization must have internal equity, where employees feel they are being rewarded impartially based on performance, skills, and other job requirements.

Pay transparency and pay equity go hand in hand. Research indicates employers with transparent pay practices can attract more potential employees. According to a report from ResumeLab, a career advice website, 4 out of 5 workers said they are unlikely to apply to a job that doesn’t provide a pay range. See SHRM’s  Pay Transparency Express Request.

Some state legislatures have passed laws to achieve pay equity by prohibiting employers from asking about a job candidate’s salary history due to concerns that this practice may perpetuate a gender-based salary gap if employers base a new employee’s pay on their previous salary. Employers should consult with legal counsel for guidance on pay equity laws in their states.

Pay inequity is most often associated with the gender pay gap, in which women earn less money than men who work the same job and possess the same amount of experience and skills. Federal data from January 2024 showed that in 2023, the gender pay gap in the U.S. narrowed to the smallest on record, but little progress was made in the previous two decades after the pay gap narrowed in the 1980s and 1990s.

Why does the gap still endure? A variety of reasons factor in. The Center for American Progress pointed to the fact that jobs that have historically been consigned to women or that are female-dominated fields tend to offer lower pay than those that have historically been dominated by men. Caregiving and parenting responsibilities, which often fall more on women’s shoulders, also play a big role, a Pew Research Center analysis found.

For federal guidance, see the Equal Pay/Compensation Discrimination page on the U.S. Equal Employment Opportunity Commission website.

This five-step plan outlines a structured approach to achieving pay equity with the primary goal of ensuring that all employees are compensated justly for their roles.

Step 1: Gather Information  

New data shows a majority of employers are addressing wage discrepancies and promoting fair compensation, but a third don’t yet have a pay equity strategy in place.

To establish a robust pay equity strategy, you’ll need to gather information on job levels, salary ranges, individual employee profiles/experience, performance evaluation histories, and promotion data. Review your pay structures, including those for starting pay, merit increases, and promotional pay. Eliminate gender, race, and other biases in your pay scales.

Determine what you want to prioritize in your effort to achieve pay equity. Employers should conduct a statistical self-audit of recent pay decisions. The period chosen for the audit should be long enough to provide a sufficient number of decisions to produce a meaningful analysis but short enough so that turnover of employees does not create unnecessary complications in analyzing the data.

Step 2: Collect and Analyze Data

Understanding an organization’s pay equity challenges begins with an analysis of its compensation data. Yet, new SHRM research found only 70% of employers conduct pay equity reviews or audits to identify possible pay differences between employees performing similar work that cannot be explained by job-related factors. Here are tips from SHRM’s Executive Network on how organizations can take a systematic approach to pay equity.

Break down total compensation data by gender, role, department, and tenure. Include base salary, bonuses, and benefits. Use statistical methods to identify any significant pay disparities between men and women in similar roles.

Every organization’s human resource information system (HRIS) is different. Nevertheless, HR professionals can begin with a general search and gather as much information as is readily available in electronic form.

Gathering data from hard-copy personnel files may prove too time-consuming to be productive, at least initially. SHRM partners with Salary.com to offer compensation solutions through the SHRM Compensation Data Center. The service provides users with trusted HR-reported data, intuitive software, and insights needed to make smart decisions and get pay right.

To guard against future systemic pay discrimination problems, employers should be certain to implement any changes suggested by the review of organizational policies. In addition, employers should consider adopting a formal schedule for future statistical reviews.

Step 3: Conduct Pay Equity Audits

Promoting transparency in compensation practices can build trust among employees. Employee compensation has traditionally been shrouded in secrecy, but a series of rapidly expanding laws requiring employers to post salary ranges and prohibiting questions about salary history are offering more pay transparency than ever, creating a foundational challenge—and opportunity—for company leaders.

Pay equity audits should occur at least annually. Compare pay across similar roles, considering factors such as experience, education, and performance. Prepare detailed reports highlighting areas of concern and recommended actions for addressing disparities.  About 3 in 4 organizations regularly audit for pay equity.

In 2024, women earned 83 cents for every dollar earned by men. The gap is even worse for women who work remotely (79 cents) compared to women who work in person (89 cents). It’s also worse for working mothers, with a new Payscale report finding that working mothers make 75 cents for every dollar a working father earns.

“SHRM research has shown that fair and equitable pay practices can lead to improved employee satisfaction and engagement, which results in lower turnover, which leads to benefits to an organization’s bottom line,” said Annemarie Schaefer, vice president of research at SHRM.

Step 4: Take Corrective Actions

If you’ve identified statistically significant pay disparities in your initial analysis, examine the data one layer at a time.

Drilling down to identify potentially relevant information that was excluded usually requires a professional who is skilled in pay discrimination issues. To obtain such expertise, most organizations will require outside assistance, even if they were able to do the initial analysis in-house.

If significant disparities remain, the organization has identified a likely problem of systemic pay discrimination, thus allowing it to take corrective action before a legal challenge is made. It’s important to adjust salaries and total compensation packages to ensure equitable pay for comparable roles.

Provide training for managers and HR personnel on pay equity principles and practices. Meanwhile, you might want to reduce the amount of managerial discretion in the process. Keep a complete written record of decisions.

See How to Avoid Unintended Consequences When Raising Pay.

Step 5: Monitor and Maintain Pay Equity

Regularly review compensation data to detect and address any emerging pay disparities. Beyond the data, in-house feedback can be enlightening. Maintain transparent reporting on pay equity progress, and hold leadership accountable for upholding pay equity standards.

Implement policies that promote transparency and fairness in compensation decisions. One way is to develop detailed compensation bands and ensure they are accessible to all employees. Be sure to clearly communicate the criteria for moving within or between pay bands. This how-to-guide from SHRM can help you establish salary ranges.

Achieving and maintaining pay equity requires a dedicated and systematic approach. By following this five-step plan, organizations can ensure that employees are compensated fairly, fostering a more inclusive and equitable workplace.

Related Resources

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