- Consider pay equity implications. As organizations work through 2024 salary budget planning, internal pay equity considerations should be factored in.
- Conduct a pay equity analysis before pay decisions are announced. Conducting an analysis after an employer has determined its budget for pay adjustments and just before annual pay decisions are announced is a best practice.
- Expect complications during an analysis. Budget constraints and adjustments required to address pay disparities may require a multi-step salary plan to re-align salaries organization-wide.
- Communicate results. Communicating pay equity analysis results to leadership matters, even if the findings are less than positive. Leaders who champion the process increase trust and transparency across the enterprise.
Despite ongoing efforts by organizations to maintain pay equity among their employees, hitting that mark remains a challenge.
Whether your organization is still in the throes of 2024 salary budget planning, or has recently wrapped up, there are proactive measures to take to ensure compensation remains equitable in the coming year.
“Pay equity laws require employers to conduct a good faith audit of their pay practices and address any identified pay issues within a reasonable timeframe,” said Liz Bernaiche, regional compensation practice leader, OneDigital New England. “It’s recommended that a plan be in place within six months of identifying the inequity.”
Bernaiche said depending on budget constraints and the size of the adjustments that are needed to address pay disparities, employers may need to create a multi-step salary plan to re-align salaries across the organization.
“This may take more than the current planning year,” she said. “The goal is to ensure all issues have been identified, a plan has been developed and the process to rectify pay disparities is applied consistently across the organization.”
Conducting a Pay Equity Analysis
Consuela Pinto, a partner at the FordHarrison law firm, said employers should be strategic when they conduct a pay equity analysis. She said the best time to conduct the analysis is after an employer has determined its budget for pay adjustments and just before annual pay decisions are announced.
“Keep in mind that an effective pay equity analysis takes time to complete,” Pinto said. “If the period between budget planning and the announcement of annual pay decisions is limited, I recommend running the analysis in advance of budget planning.”
Bernaiche noted that if an audit has not been conducted in the past, prior to budget planning is the ideal time as there may be a cost to address any pay inequities identified through the initial audit process.
“Once the first audit has been conducted, performing future audits on a more frequent basis, for example, quarterly, will ensure compliance,” she said
Both Pinto and Bernaiche agree that at a minimum, an organizational equity analysis should be done annually, but each offered a caveat.
Pinto said annual companywide pay equity analyses, when coupled with root cause assessments, remain the most effective tool for identifying unexplained pay gaps and implementing effective strategies to close those gaps at the individual employee level.
“It is a best practice is to conduct a pay equity analysis annually,” she said. “However, for some employers that may be cost-prohibitive. In that case, I recommend conducting a full pay equity analysis at least every two years with baseline pay assessment in the off years.”
Bernaiche also said pay equity audits should be an ongoing process. For example, every time an employee is hired, promoted or transfers to another position within the organization, an analysis should be conducted to ensure the employee’s salary is equitable with others in comparable jobs.
“Pay issues caused due to movement within the organization should be identified immediately and a salary plan should be put in place to resolve any discrepancies,” she said.
Planning for a Pay Equity Analysis
Pinto said organizations should be thorough in the planning process for a pay equity analysis and provided the following framework from which to work off in the planning phase:
- Engage external legal counsel in advance of beginning the analysis to ensure that all communications and the analysis are protected by the attorney/client and attorney work product privileges.
- Before launching an equal pay analysis, employers must take a close look at their data and fill in gaps and correct errors. If the data is incomplete or incorrect, the results of the analysis will be as well, Pinto said.
- Check for employees above or below the pay range and confirm that there is a legitimate documented reason for why they are not within a pay range. Also, discuss how to treat these employees with outside counsel and a statistical expert in advance of running the analysis.
- Finally, give careful thought to who should be included on the pay equity team, and ensure that the internal members of the team are well versed in the compensation program such they can be active participants in the process and engage effectively with outside counsel and statistical experts.
Resource: Pay Equity Laws by State: Are You in Compliance?
Bernaiche said it’s also critical to communicate the results of the pay equity analysis to leadership, even if the findings are less than positive. Having leaders to champion the process will increase trust and transparency across the organization.
Pinto added that employers should keep in mind that not all pay differences are problematic, and that those that are an issue will not be resolved with a one-time pay adjustment. She said employers should build in time to investigate the root cause of any problematic pay differences.
In some instances, there will be a legitimate cause for the pay difference, while others could be the result of biased decision making in the performance evaluation or promotion processes.
“Once employers know what is driving the pay disparity, they can take appropriate action to eliminate the problem,” Pinto said.
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