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Pay Equity: A Challenging, but Essential Issue

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Many studies show that pay equity is a problem. Women on average make 79 cents for every dollar paid to men, black women make 63 cents for every dollar white men are paid and black women make 17 cents less per hour than white women.

At an economic level, these are striking disparities in the workforce. People in these disaffected groups are left behind by the economy, discriminated against with pay, and have the hardest time catching up. While new laws now prevent employers from asking candidates for their pay history, this information is easy to find, so such gaps become institutionalized and very difficult to change.

What can organizations do to address this issue? The most important thing you can do now is to manage this problem internally, making sure that your organization has the most fair and equal pay possible. But this is harder than it looks.

Suppose you have a white male engineer with 10 years of experience who makes $150,000 a year, competing with a black female engineer with five years of different experience?  If the job is the same level and the same scope of work, should the pay be the same?

Most companies would say no. Pay practices are usually driven by “market wage,” meaning companies pay what the market will bear. Just like people shop for the lowest price for commodity products, many human resources departments shop for the best value when looking for candidates.

The problem with this, of course, is that it institutionalizes gender and racial bias, and eventually leads to an organization with vast inequities in pay. So, you must recalibrate and rebalance pay on a regular basis.

Today, if you want to address this issue directly, you should regularly (annually is best) conduct a pay equity analysis and try to statistically root out any bias in your system. This means creating a database of all employees and including data like job level, tenure, experience, certifications and other non-discriminating characteristics to see what the differences are. You’ll be surprised at what you find. Bias creeps in everywhere.

Today, HR software vendors like Visier, ADP, SAP, Oracle and Workday offer gender and racial pay analysis tools that make this easier. But even after using these tools, organizations tell me they find problems that need to be fixed. What we need to do in IR is look for “systemic bias,” by creating an “unadjusted pay gap analysis,” eliminating all variations due to tenure, job role and experience.

Once you find these disparities, there’s more work to do. Many organizations offer pay adjustments — Salesforce gave women an 11% raise several years ago to fix its gender pay gap — and the organization continues to audit its pay every year. Remember that when you acquire a company, merge or open a new office, these problems may reappear, so this audit capability should become a regular practice in your organization.

Then, there’s the issue of teaching managers how to set pay well. Many organizations (IBM, for example) now give managers AI-driven tools that recommend pay levels that are statistically fair and unbiased. But if you don’t have one of these in-house, it’s important to set standards, create rules and give managers clear pay guidelines so they don’t fall out of date.

Pay equity is a problem we’ve had in the United States since the 1800s, when the country first started hiring various forms of labor and discriminated heavily on race and gender. Today, as the workforce has become more diverse (more women graduate from college than men, for instance), fair pay is more important than ever.

While the problem is not solved, we’re all getting better at dealing with the issue. I strongly recommend you take this issue seriously in your organization — it will energize your workforce and, of course, it’s just the right thing to do.

About the Author

Josh Bersin is an analyst, author, educator and thought leader focusing on the global talent market and the challenges and trends impacting business workforces around the world.


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