Why Pay Equity Is More Than a Once-a-Year Statistical Analysis
Workspan Daily
March 30, 2023
Key Takeaways

  • Assess your job architecture. Placing employees in the correct job codes and pay ranges, based on a well-structured job architecture, can improve the accuracy of your pay equity analysis.    
  • Ensure pay policies minimize bias and discourage exceptions. Pay policies should be standardized to mitigate undesired bias.  
  • Educate employees on how pay is determined.  If employees understand the mechanics of your pay programs, they’re more likely to believe they’re being paid fairly.  
  • Focus on progress. Similar to other diversity and inclusion initiatives, the focus should continually be on progress over perfection, with a thoughtful review of policies and programs being a precursor to any statistical analysis. 

Achieving pay equity means ensuring employees who are performing similar work are paid the same, and it’s become a focus of organizations in recent years.  

In fact, according to WorldatWork’s 2022 “Pay Equity Study,” nearly 70% of organizations reported taking action on pay equity in 2022, a 10% increase from 2019.     

For many companies, acting on pay equity involves conducting a once-a-year analysis, typically during or after the annual salary planning cycle. During this analysis, employees in similar roles doing “substantially similar work” are grouped together to determine statistical pay differences across categories such as gender and ethnicity. If discrepancies are found, cash and/or equity adjustments may be made to address the gaps. 

While these analyses are well-intended, the significant financial investments poured into them aren’t sustainable if companies haven’t first ensured that their underlying HR policies and programs are sound.  

If you do the heavy lifting of analyzing your pay throughout the year rather than just once a year, you can save your company significant dollars when remediating pay inequity.  

A few important steps should be taken on an ongoing basis.  

Evaluate the Soundness of Your Job Architecture  

Job architecture refers to the hierarchy of jobs and job levels present in your organization. Having a well-structured job architecture helps ensure you’re placing employees into the correct job codes; this is important because the job code an employee is in drives their eligibility for compensation ranges and incentive programs such as annual bonuses. Assuming you have “Technical” and “Non-Technical” job families that pay very differently, you should be confident that employees are properly mapped to the correct family.  

Recruiters, hiring managers and HR business partners should be trained on your organization’s job architecture so they don’t hire employees into the wrong compensation range and introduce unintended pay discrepancies. Pay equity cannot be achieved without data integrity, which is the responsibility of every HR professional involved in the employee life cycle. 

If your organization lacks a formal career framework, you can leverage job descriptions and leveling guidelines from third-party compensation surveys, such as those produced by Aon Radford and WTW. It’s important to note, however, that these third-party resources are intended to be illustrative rather than prescriptive when it comes to defining role expectations in an organization. 

Ensure Pay Policies Minimize Potential Bias   

While making compensation decisions is both an art and a science, managers should have limited discretion in such decisions to minimize bias. Training  should include clearly articulated guidelines on the following items: 

  • What’s the standard range for a promotional increase?     
  • What methodology is used to calculate internal comparator pay (e.g., average versus 50th percentile)?  
  • How are lateral increases defined, and under what circumstances can employees receive an increase if moving laterally?  
  • If employees move to a location with a lower cost of living, is their pay reduced? What if they move to a higher-cost location? 
  • When differentiating pay based on performance, are increases determined by a specific formula? What level of discretion do managers have to deviate from these guidelines? 
  • Do you target a specific compa-ratio in the new compensation range for promoted employees? 

Humans typically struggle to make good decisions when given more options, so standardizing pay guidance as much as possible can help reduce unconscious bias.   

Discourage Exceptions  

Allowing exceptions to your standard pay policies affects your internal pay statistics and can set an undesired precedent for what’s acceptable.  

Examples of exceptions include:  

  • Increasing someone’s pay because they received an external offer and they’re viewed as critical talent. 
  • Offering pay above the range maximum, because an individual’s skills and experience significantly exceed what’s required for the role. 
  • Inflating a candidate’s job level to ensure they get the compensation they’ve requested (e.g., making a senior manager a director). 
  • Allowing promoted employees to fall below or at the low end of the range of their new level due to budget constraints.  

If employees hear that exceptions to your pay practices are common, they may wonder if they’re being treated fairly. 

Educate Employees on Compensation Programs 

Multiple studies show that knowing how their salary was determined is more important to employees’ job satisfaction and trust in management than the actual value of their salary. For example, a Payscale study found that even when they were paid lower than market average, 82% of employees were satisfied with their pay as long as they understood the rationale for how it was determined.  

This notion may explain why even companies such as Google and Oracle, known to pay at or near the top of the market, have recently been sued by employees over alleged pay disparities despite their commitments to pay equity. It’s possible these organizations haven’t adequately educated their employees about how compensation decisions are made. 

People managers, in particular, should be knowledgeable enough about their organization’s compensation programs that they feel confident answering the following questions from their direct reports:  

  • What factors went into determining my salary (e.g., do advanced education degrees matter)? 
  • How often are individual salaries and compensation ranges reviewed?  
  • How did you calculate my bonus amount? 
  • How can I get a higher merit increase next time?  
  • Why is my increase lower than expected? 
  • Why am I at the compa-ratio I’m currently at?  
  • Why are my co-workers making more than I am? 
  • Why do third-party sites like Glassdoor.com suggest that I’m underpaid?  

At the end of the day, employees want to feel that they’re being compensated fairly. Offering multimodal learning platforms — such as a list of frequently asked questions, e-learning videos and live Q&A sessions — can help build trust. In a culture of high transparency, employees would feel comfortable asking their managers and HR partners questions about their pay, and leaders would have the expertise to provide an accurate response.  

Focus on Progress  

Achieving full pay equity isn’t as black-and-white as many leaders may think. A wide variety of factors — from variations in gender and ethnic representation across job levels to complexities introduced by a merger or acquisition — can affect the analysis.  

Similar to other diversity and inclusion initiatives, however, the focus should continually be on progress over perfection, with a thoughtful review of policies and programs being a precursor to any statistical analysis.  

Editor's Note: Additional Content 

For more information and resources related to this article see the pages below, which offer quick access to all WorldatWork content on these topics: 

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