The social optics of equity and inclusion have placed pressure on how fair and equal pay is administered amongst employees. Beyond standard compliance, companies that implement fair pay policies create a work environment that is conducive to attracting and retaining talented employees, while also building a relationship of trust and transparency between companies and their employees.  

As equitable compensation is a crucial pillar to an organization’s long-term success, ensuring that an organization is appropriately compensating their employees with fair and competitive pay requires that they regularly conduct pay equity analyses. A pay equity analysis allows HR and compensation coordinators to identify and address the pay inequities that may have gone unidentified for multiple reasons, including the following: 

  • Market misalignment: The labor market is dynamic, constantly shifting and fluctuating due to multiple factors, such as the supply and demand for local labor, economic conditions, changing demographics, and government policies. HR and compensations professionals must stay on top of evolving trends by benchmarking internal salary data against the market to ensure that employee compensation stays fair and competitive.  
  • Insufficient data analysis: Without access to the most current and accurate salary survey data, organizations may inadvertently face issues with pay disparity. Regularly analyzing compensation data to compare internal pay practices against the market is crucial to maintaining consistent fair pay.  
  • Ineffective pay structures: HR and compensation coordinators must ensure that their pay structures are not outdated or poorly designed. Otherwise, this could potentially lead to unequal pay that does not accurately reflect the diverse jobs being performed at an organization. 

 

Conducting a pay equity analysis allows coordinators to examine any gaps in pay and rectify the factors that may have contributed to the oversight. ERI’s Salary Assessor provides a comprehensive compensation management solution and pay equity analysis tool that HR and compensation professionals rely on to identify, address, and manage pay inequities within an organization.  

To conduct a pay equity analysis thoroughly and competently, it is essential to understand why pay equity is important in the first place.  

Understanding What Pay Equity Is and Why It Matters 

Everyone deserves the pay that is commensurate with the value of the work that they perform. Although this fact is indisputable, companies must examine how they administer equitable pay.  

By definition, pay equity is fair, consistent pay without discrimination based on gender, race, or other protected categories that also considers job-related factors, such as education, work experience, and tenure. 

In general, pay equity may be examined at two levels: internal equity and external equity.

Internal equity pertains to an organization’s internal compensation program and is accomplished when current employees who perform similar job functions within the same organization are paid fairly. Employee compensation should be delivered based on fair and objective criteria, such as merit, seniority, education, experience, performance, skills, and knowledge, to ensure the attainment of internal equity.  

External equity is the measure of an organization’s pay rates compared to the compensation paid by similar companies competing for labor in the same market. External equity indicates that a company’s pay levels are comparable to market rates.  

Understanding how internal and external equity impact a company’s compensation strategy affects fair pay and how it can be measured. Taking both into consideration will allow coordinators to contextualize their internal pay structures and inform the parameters by which they measure and benchmark the effectiveness of their fair pay practices. Pay equity is not only an essential practice to implement within an organization, but it is also strategically imperative to maintaining employee satisfaction and company longevity. When pay equity is implemented properly, it ensures that a number of objectives are met: 

  • Compliance: In addition to state laws, there are two federal laws that specifically govern pay equity. The Equal Pay Act of 1963 (which amended the Fair Labor Standards Act of 1938) prohibits wage discrimination based on the sex of workers performing the same tasks at the same organization. Title VII of the Civil Rights Act of 1964 takes the Equal Pay Act of 1963 further by not only prohibiting sex discrimination, but also discrimination based on race, color, religion, and national origin. Proper pay equity practices ensure that an organization stays legally compliant, avoiding potential lawsuits or penalties.  
  • Company Reputation: Achieving pay equity contributes to a company’s reputation among job seekers, current employees, competitors, and clients. How a company distributes and designs its pay structures can ultimately affect outside perspectives on employee treatment, priorities, and overall business interactions. Pay equity, in addition to pay transparency, can influence how important parties, specifically clients, perceive a company, impacting growth and even company profits.  
  • Employee Retention: Pay equity is also one of the leading factors that contribute to long-term employee retention and motivation. When employees know and feel that they are fairly compensated, their confidence in their work and productivity increases. In addition, specifically among historically marginalized groups who are at higher risk of facing pay inequities, being paid commensurate to their skills and experience is one of the leading contributors to how they view their professional value at work.  

Pay equity matters. Conducting a regular pay equity analysis is crucial to not only a company’s reputation and profitability, but also the retention and motivation of valuable talent in an organization.  

How to Conduct a Pay Equity Analysis 

Conducting a consistent pay equity analysis is a crucial best practice to ensure that a company is compensating employees fairly, both internally and externally. Regularly analyzing and updating salary practices creates a better understanding of how a company is navigating pay, informs budgets, and ensures that a company’s compensation strategy is equitable and competitive.  

Step 1: Define company goals and objectives  

Before anything, it is always important to understand and define a company’s goals and objectives. What are the main motivations that compel coordinators to conduct a pay equity analysis? Is it to restructure pay practices, ensure compliance, or eliminate pay inequities that have been overlooked? Because these types of processes should be conducted regularly to ensure consistency, efficacy, and fairness in pay structures, identifying and defining goals every time a pay equity analysis is done will shape the process, perspective, and methodology of the analysis. 

Step 2: Understand current pay structures and policies 

Next, HR and compensation professionals must understand the pay structures and policies in place in their organization. This contextualizes the analysis in an existing framework that allows coordinators to restructure pay, as needed, to reflect the unique circumstances of each organization and identify any discrepancies that may arise. 

Step 3: Determine what is “comparable work”  

One of the most important tasks in conducting a pay equity audit is the evaluation of similar roles performed by different employees within an organization. Through job evaluation, coordinators can determine whether various positions in a single organization are comparable. For instance, using ERI’s Salary Assessor, coordinators can determine whether two different positions, even from varying departments, are quantifiably comparable. It is crucial to look at a job in its entirety because job titles and descriptions alone do not specifically determine comparability.  

Step 4: Gather relevant data  

Next, gathering relevant and accurate data on an organization’s employee list is crucial. Although data are dependent on the scope and purpose of the analysis, these pertinent factors will usually be included: 

  • Current salary information (base salary, bonuses, etc.) 
  • Education and qualifications 
  • Job title and descriptions 
  • Tenure 
  • Performance evaluations 
  • Demographics and protected characteristics, such as gender, race, sex, age, etc. 
  • Market data 

It is crucial to recognize that the selection of factors to integrate into a pay equity audit should be tailored to a specific organization’s size, prioritizing the factors and variables that are the most relevant to the organization, employees, and analysis goals.

Step 5: Analyze employee data for pay equity

ERI’s Salary Assessor has a unique Pay Equity feature in the Compensation Management solution that helps HR and compensation coordinators comb through their entire employee list and compare compensation between protected groups. Coordinators can utilize this solution to complete pay equity audits and make sure that total compensation remains fair and competitive. 

To get started:   

  • First, in ERI’s Salary Assessor, enter employee data into the Compensation Management platform. This can be accomplished manually, by uploading data, or via secure HRIS integration.  
  • Next, navigate to the Workplace Insights feature to take a deep dive into internal and external pay equity. 

In Workplace Insights, coordinators can easily and accurately identify any pay gaps and plan the next course of action to tackle pay discrepancies. Beyond examining pay equity for employees in protected groups, coordinators may face other types of pay disparities while conducting a pay equity audit, such as pay compression and variance from peers. In addition to the Pay Equity feature used to compare compensation between two groups of a protected group, such as age range, disability, gender, national origin, race, religion, and sexual orientation, ERI’s Salary Assessor includes the following tools to identify issues at the job and employee level: 

  • Compression Check 
  • Peer Analysis 
  • Variance from Market 

Using ERI’s Compensation Management solution in the Salary Assessor, HR and compensation professionals can run in-depth analyses that ensure both internal and external pay equity. In addition to the features described above to examine internal pay equity, ERI’s Assessor Platform provides a robust database with current salary survey data and an array of benchmarking tools to compare pay for internal jobs against market rates, an essential step in ensuring external pay equity. ERI’s Assessor Platform is the solution for HR and compensation professionals to streamline and optimize essential organizational tasks, such as pay equity audits.  

Step 6: Determine when to make salary adjustments 

When conducting a pay equity analysis, the easiest part is identifying the pay gaps. What is arguably the most difficult part is determining when to apply changes. After identifying any pay gaps, coordinators must conclude whether pay gaps are justified. In the case of seniority, educational and professional qualifications, or even merit, a pay difference could indeed be justified.  

Alternatively, what if an HR coordinator discovers a pay discrepancy that is not justified? For example, employee A is a Latina American woman, 39 years old, with a bachelor’s degree and 15 years of relevant professional experience. Employee B is an Asian American man, 40 years old, with a bachelor’s degree and 16 years of relevant experience. However, employee A makes $7,000 less per year than employee B, even though they perform comparable tasks with roughly similar backgrounds. 

Now, how should coordinators approach resolving this pay gap?  

Similar to conducting a pay equity analysis, implementing salary adjustments requires several crucial steps. First, share the findings of your pay equity analysis with the relevant individuals within the organization that are involved in the process. Besides the HR coordinator, stakeholders could include others on the HR team, department managers, and admin. From there, coordinators can best determine when to make these salary adjustments. Here are some things to consider when adjusting compensation based on a pay equity analysis: 

  • Ensure that an HR budget is established that considers the organization’s financial constraints 
  • Verify that changes are compliant with state and federal pay equity laws 
  • Communicate the adjustments clearly and thoroughly with the HR team, relevant department managers, admin, and involved employees to ensure confidentiality 

Every organization is different, so consider the unique circumstances that influence when salary adjustments are made. 

ERI Is the Solution to Resolving Pay Inequities 

ERI’s Salary Assessor includes current salary survey data and an array of features in the Compensation Management platform to address pay equity. Using Workforce Insights, fair employee compensation may be analyzed from three perspectives: pay equity for employees in protected groups, job-focused internal equity, and employee-focused internal equity, including checks for pay compression, peer analysis, and variance from the market. ERI provides an essential Compensation Management platform that HR and compensation professionals in organizations of all sizes rely on to ensure both internal and external pay equity. Using ERI’s Assessor Platform, coordinators will not only be able to swiftly conduct an accurate pay equity analysis but also optimize salary survey data to accurately benchmark compensation against the market. Ensure that your organization stays competitive, remains legally compliant, and maintains pay equity, promoting a more inclusive and diverse workplace built on trust and transparency. Begin optimizing your compensation planning today—try a free demo to get started!