Pay equity has become one of the hottest topics around compensation in the past few years, for good reason. Increased legislation and a super-charged social justice movement have pulled back the curtain on equities. As a result, employees, consumers and shareholders alike are starting to take a long, hard look at a company’s pay practices before working for or supporting that organization.
In response, companies are getting more proactive, assessing their own pay practices and closing the gaps, instead of waiting to respond to employee claims.
Today, pay equity is more than the right thing to do. It is quickly becoming a matter of business survival.
What is pay equity?
Pay equity is equal pay for work of equal value, while still taking into account things like experience, performance and tenure. The goal is to ensure employees are compensated fairly, regardless of race, gender or demographic status.
To achieve pay equity, companies have to analyse both their controlled pay gap and their uncontrolled pay gap.
The controlled pay gap compares pay after accounting for variables like job level, skills and years of experience. The uncontrolled pay gap, or opportunity pay gap, takes the ratio of the median earnings of one group to another without controlling for those variables, to identify the inequities caused by systemic or structural issues.
Why is pay equity important for a business?
Pay equity is critical for recruitment, retention and employee satisfaction—as well as sales. Job candidates are increasingly researching their prospective company’s fair pay records before applying for a job with that firm.
Research shows that consumers, particularly females, are less likely to buy from companies with large gender pay gaps. Investors are also looking deep into company pay practices, adding pay equity as a metric in their vetting process.
So, actively driving equitable pay practices—and correcting existing inequities—is good for business and the reputation of the brand.
The legality of pay equity
If those business reasons aren’t motivation enough, then consider the legal implications, and resulting fines, if an employee files a claim and the company is found at fault. Any inequity compounds year over year, which increases any settlement resulting from a claim—not to mention the reputational damage.
The two most prominent federal laws governing pay equity have their roots in the social justice movement of the 1960s.
The Equal Pay Act of 1963 prohibits unequal pay for equal or “substantially equal” work performed by men and women at the same place of business. It emphasizes job function over job title.
Title VII of the Civil Rights Act of 1964 prohibits wage discrimination on the basis of race, color, sex, religion or national origin. Title VII is broader than the Equal Pay Act in that prohibits wage discrimination, even when the jobs aren’t exactly the same.
In addition, almost all states have some type of equal pay law, as well.
What is the difference between pay equity and pay equality?
As similar as they may sound, pay equity and pay equality are not exactly the same thing.
Pay equality is centered on the belief that equal work should be given equal pay, regardless of the identities of the people performing the work.
Pay equity takes this belief one step further, looking into the systemic issues, biases, social norms and educational opportunities (or lack thereof) that bring about those wage discrepancies.
Where to begin
The best way to begin a pay equity initiative is to assess where your organization is today. Conduct an analysis of the current state to understand where, and how pervasive the pay gaps are.
This doesn’t have to be—and shouldn’t be—a manual process. A variety of software tools and services are available to help with initial assessment, predict budgets for salary remediation, and set up dashboards and reporting for more effective monitoring and management.
Finally, remember that achieving and maintaining pay equity is an ongoing process, and a commitment that has to be continuously monitored, transparently communicated and engrained in the company culture.
That’s when the true transformation begins. That’s when companies start seeing the benefits.
