The Benefits of a Pay Equity Analysis

If you haven’t conducted a pay equity analysis lately, or ever, you must know that now is the time. Stakeholders are making demands, and a growing number of states are proposing or passing pay equity measures.

Perhaps you just haven’t gotten around to an analysis, and that’s okay, so long as you’re making earnest plans to do so. After all, conducting one can help your organization attract and retain talent during a time in which the labor market has tightened, with no change in sight.

There are other benefits to doing a pay equity analysis as well. Let’s examine those – and more.

Explain Pay Equity

In the main, pay equity is paying your employees for “like-for-like” work. In other words, it’s compensating your people for carrying out the same or comparable job duties while considering factors such as tenure, education, experience level, or performance.

Pay Equity Analysis

Also called a pay parity audit, a pay equity analysis is the process of analyzing pay rates within an organization and checking for any disparities relative to criteria such as ethnicity, gender, age, title, duties, seniority, and other factors.

Components of an Effective Pay Equity Analysis

Gathering data. You’ll have to collect data by ethnicity, gender, base salary, total pay, and other factors that could prospectively drive compensating differences. Such factors should reflect the organization’s pay philosophy.
Employing statistical models. The U.S. labor force is divided into classifications of employees who are subject to comparable pay practices. For each classification, auditors estimate regression models that include justifiable reasoning for any disparities. Legal counsel, compensation leaders, and other key stakeholders must validate the models to make sure they align with pay norms that the organization aims to build upon. These norms may include compensating for experience at some organizations as opposed to general work experience, pay for performance, and pay that’s driven by geographic variable.
Risk and remediation. Employing the regression models, organizations can figure out systemic pay variations across employee classifications such as gender, regions, specific jobs, and for the employer overall.

The Benefits of Conducting a Pay Equity Analysis

The ability to recruit and retain employees. Thanks in large part to the pandemic, we’re amid one of the tightest labor markets in recent history, with no sign of abatement. This means that organizations must do everything in their power to edge out the competition, including paying employees equitably. Word does get around, after all.
Fulfillment of stakeholder demands. Now more than ever, gender and ethnic pay equity is a top priority for executive and HR leaders, as the pressure on employers to report on pay equity has increased markedly.
Drives innovation. Employees are simply more innovative, productive, and creative in an inclusive environment. That will ultimately help your bottom line.

Limits legal risk. Intense media scrutiny will catch up with you if you aren’t in the clear. Make sure you are so that you aren’t distracted from your core business.
Accelerates workforce diversity. As we say, word gets around. So, if you aren’t paying women or people of color equitably, this will hurt your brand. The good new is that the opposite is also true.

As you can see, there are distinct benefits to conducting a pay equity analysis. And many organizations are taking notice. In fact, according to Payscale, 66 percent of employers said such an analysis was in the works for this year – a 20 percent hike over last year. It’s needed, since just 36 percent of those surveyed were aware of their gender pay gap, and only 29 percent knew their ethnicity pay gap.

However, you will need outside help to properly pull such an analysis off. We recommend the leading pay and benefits consultant Mercer for its breadth of experience and expertise.