How Can You Improve Pay Equity in Your Company?
Providing the same compensation to workers who perform the same or similar jobs — while accounting for differences in experience and tenure — is both required by law and good business. Here are some steps that can help you assess and, if necessary, improve, pay equity within your organization.
A primer
The federal Equal Pay Act requires employers to provide men and women with equal pay for equal work in the same establishment. The jobs don’t need to be identical, but should be “substantially equal.” Moreover, it’s not job titles, but job content — including skill, effort and responsibility — that determine whether jobs are substantially equal.
Many states have enacted their own equal pay laws, some of which are more stringent than the federal legislation. California, for example, requires employers to pay employees the same wage rates for “substantially similar work,” a larger umbrella than “same or similar jobs.”
Some other countries have also introduced laws around pay equity. The United Kingdom, for instance, requires some public companies to annually disclose the ratio of their chief executive officers’ pay to the lower, median and upper quartile of their employees’ pay.
In addition to preventing legal woes, pay equity offers bottom-line benefits. A company’s commitment to equitable pay can boost employee morale and performance, while reducing the risk of lawsuits and negative publicity.
An audit
So how can your company uncover pay disparities, identify the drivers behind them and develop ways to address them? Undergo a pay equity audit. Although the process can be quite involved, it’s typically worth the effort.
First, assemble representatives from multiple departments — including human resources, legal, and finance or accounting — to collect data on employee compensation, job classifications and demographics. This cross-section of participants also will help ensure buy-in across the organization.
The next step is determining how to group employees. That is, which employees will be considered to have substantially similar roles and, thus, should fall within the same pay range?
Some number crunching will come into play. For smaller employee groups, an analysis of, for instance, differences in median pay between groups of employees may be enough to identify any unwarranted disparities. With larger groups, you may have to conduct more rigorous statistical analyses. For example, regression analysis can help control for variables, such as employees’ experience levels, when examining disparities.
A correction
To help correct any instances of pay inequity that can’t be traced to legitimate factors:
Consider using only initials or random ID numbers during early screenings of job candidates. Minimizing the ability to distinguish candidates by ethnicity or gender can reduce the likelihood any biases influence hiring and compensation decisions.
Refrain from asking candidates their pay histories. Women and people of color are more likely to have been paid less in their previous positions. Using historical compensation to set their current salaries only compounds pay disparities.
Try to use objective criteria when recruiting, hiring, compensating, evaluating and promoting workers. Implement standard pay ranges that reflect each position’s value to the organization.
Limit managers’ ability to singlehandedly adjust pay for specific individuals. Such one-off decisions can lead to pay inequities.
Help managers understand pay equity. Training will help them understand how best to develop a culture that embraces pay equity.
Communicate with employees. Let employees know how you set compensation and reassure them that they can discuss pay with their co-workers without fear of retaliation. More transparency tends to foster greater pay equity.
A process
Developing and sustaining a culture with accompanying processes that promote pay equity is an important, ongoing process. Your accounting professional can help your organization work toward this goal.
This material is generic in nature. Before relying on the material in any important matter, users should note date of publication and carefully evaluate its accuracy, currency, completeness, and relevance for their purposes, and should obtain any appropriate professional advice relevant to their particular circumstances.
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