- Improvement is needed. Nearly half of respondents in a Trusaic survey said they use an “unsophisticated” analysis approach by looking only at average or median pay. This can overlook relevant factors that drive pay differences and can lead to misidentified pay inequities.
- Correct mistakes. Using available pay data and meaningful analysis tools can help organizations avoid costly pay discrimination lawsuits.
- Mitigate potential risks. Pay discrimination lawsuits can be brought if any protected group believes they are being paid unequally due to a protected characteristic.
Pay inequity, just like the interest on a savings account, can accumulate.
When organizations fail to identify and correct pay inequities before they grow, it can expose those employers to legal risk, damage the corporate brand, and make it more difficult to attract and retain top talent. And while organizations are becoming more diligent about monitoring the fairness of base pay, a new Trusaic report found their vigilance generally has not extended to one often-overlooked form of compensation: equity awards.
Learn: Performing a Pay Equity Analysis
Indeed, organizations within many industries use long-term incentives (i.e., restricted stock and stock options) as an important part of their compensation strategy, but the Trusaic report showed only 13% of surveyed organizations consider these incentives when doing pay equity analysis.
The survey also found 45% of respondents use an “unsophisticated” approach to analysis by looking only at average or median pay, which can overlook relevant factors that drive pay differences and can lead to misidentified pay inequities.
Meanwhile, multiple regression — the “gold standard” approach, according to Trusaic – is used by only 40% of the survey respondents.
“Failure to include short- and long-term incentives in pay equity analysis creates risk for an organization,” said Gail Greenfield, executive vice president of pay equity and total rewards strategy and solutions at Trusaic. “An organization may have hidden pay inequities that can grow over time and become both expensive to fix and damage the organization’s reputation.”
Here’s what your organization likely needs to consider to more quickly and efficiently close pay gaps.
Mind the Gap
Just how wide is the pay gap these days?
According to data from the U.S. Department of Labor’s Bureau of Labor Statistics, on average, women working full-time, year-round earn 84% of what men earn.
Moreover, according to the Institute for Women’s Policy Research, Latina women face the largest pay gap, earning 59% of what white men earn. The figure for Black women is 66%.
Overcoming Obstacles
When organizations first set out on their own pay gap hunts, they often make the same common yet easy-to-correct mistakes. Nearly half of the organizations Trusaic surveyed, for example, only use basic statistics to analyze pay equity.
“The primary reason basic statistics are inadequate is that looking at average or median pay does not account for relevant drivers of pay differences, such as career level, job function, performance rating and company tenure,” Greenfield said.
Regression analysis, on the other hand, accounts for these “wage-influencing factors,” and is the more preferred pay equity methodology, she added.
Another mistake organizations make while correcting pay gaps is adjusting one component of pay upward when total compensation nets out any issues.
“Managers might have already eliminated inequities in looking at the total package,” said Brian Levine, pay equity leader and partner at Merit Analytics Group. “Looking holistically across different rewards can ensure that adjustments, element by element, are properly aligned.”
Weighing the Potential Costs
According to Trusaic’s report, nearly two-thirds of surveyed organizations stated the potential cost of addressing inequities is the most significant obstacle to achieving pay equity.
Evaluating a pay equity analysis can also be a difficult sell to executives if an organization doesn’t know how to compare the results from one job to another, said Lulu Seikaly, senior corporate attorney at Payscale.
“Without established pay structures or job architectures, leadership may feel it would be very costly to get the necessary data before conducting a pay equity analysis,” Seikaly said.
The availability of quality pay data is another obstacle to any equity analysis.
“Organizations with incomplete or inaccurate data on employee compensation and performance can impede efforts to analyze and address pay disparities,” Seikaly said. “Ensuring accurate and comprehensive data is essential but it can also be expensive and resource intensive.”
The longer pay discrepancies go unattended, however, the more expensive that issue likely gets year over year, she added.
“By fixing pay structures and conducting a pay equity analysis, organizations may also uncover implicit or unconscious biases in pay decisions that may have inadvertently led to those pay disparities,” Seikaly said.
Prioritization and Protected Groups
A valuable first step in any pay equity analysis, Seikaly said, is to focus on the most prominent demographic group within an organization.
“For instance, if your organization includes a large population of a particular gender, race, ethnicity or other protected group, it could be beneficial to prioritize this group in your analysis,” she said.
However, it’s crucial that organizations don’t just look at one protected group. “Pay discrimination lawsuits can be brought if any protected group believes they are being paid unequally due to a protected characteristic,” Seikaly said.
Regardless, any earnest pursuit of pay equity should not end with a simple examination of pay, said Levine.
“The goal should be equity in opportunity,” he said, “which includes the opportunity to get into higher-paying roles.”
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