Ensuring pay equity within an organization is not only important for fostering a fair and equitable workplace but also as a competitive advantage for attracting and retaining employees. By conducting a systematic pay equity analysis, you can identify and address potential disparities, improve employee morale, and enhance your employer brand. These essential steps will guide you through a pay equity analysis, from defining your goals to ongoing monitoring.
Step 1: Define Your Goals and Reasons
Prior to beginning a pay equity analysis, clearly define your objectives. Consider the following questions:
- Are you looking to identify, and address pay gaps?
- Do you want to improve your organization’s reputation for fairness?
- Are you seeking to comply with legal requirements?
- Do you want to be prepared for adjustments as part of the annual increase cycle?
Step 2: Develop a Methodology
Define an approach for the analysis with the following key elements:
- Data Collection: Consider what data is important, such as employee demographics, job description, compensation ranges, performance ratings, to ensure you have it available for the analysis
- Data Analysis: Define which statistical methods, such as regression analysis, will be used to identify potential disparities
- Benchmarking: If considered an allowable factor by state, figure out what market data you have available so a comparison to employee pay levels can be conducted
- Comparable Job Grouping (cohort): Classify jobs into groups with similar responsibilities, skills, and working conditions
- Variance Analysis: Decide what are acceptable variances in pay based on job level and category of job (manager, individual contributor, etc.). For example, is a 90% to 110% range of pay differences considered to be “similar pay” at your company?
Step 3: Analyze Total Compensation
Consider all forms of compensation, including base pay, bonuses, overtime, benefits, and other perks. Look for discrepancies that may indicate pay inequity. Dig into the potential reasons why your outliers are higher/lower than the bulk of the applicable cohort such as:
- Are they new or have they been in the role for an extended period?
- Do they have a knowledge/skill set that your company was willing to pay a premium for?
- Are they unicorns (have skills that are rare or difficult to find)?
Step 4: Identify Outliers and Finalize Analysis
Identify employees who deviate significantly from the expected pay range, e.g., 90% – 110%, considering factors like performance, experience, and tenure. Finalize your analysis and document your findings. Part of the process is going through various configurations of cohorts or comparable job groupings to best represent jobs with similar skills, level and responsibilities.
Step 5: Determine Pay Actions, Cost, and Process for Remediation
Develop strategies to address any identified pay gaps. Consider factors such as the magnitude of the gap, the cost of remediation, and the potential impact on employee morale. The strategy should also include the timing of any increases and desired degree of transparency. For example, if you want to quietly update pay behind the scenes, adjust compensation at the same time the annual pay cycle is in process. Otherwise, a separate pay adjustment cycle is an opportunity to point out that the company is always looking at ways to maintain equity that can easily become out of sync when the employee population changes due to new hires and terminations.
Step 6: Gain Leadership Support for Remediation
Develop and present adjustment recommendations to senior leadership and managers that are made based on that analysis and identified issues. If leaders disagree with your recommendations, understand why they’re resistant, making sure they feel comfortable with the analysis/process
Step 7: Confirm Ongoing Process and Tools
Establish systems and procedures to monitor pay equity on an ongoing basis. For example, this could be done during every annual increase cycle or could be a separate adjustment cycle. Consider using software tools or consulting with experts to find the most effective approaches for your organization to comply and maintain a fair workplace such as:
- Excel/Power BI/Tableau
- Salary.com
- PayScale
- Trusiac
- HCM providers, such as Workday and Oracle
Conclusion
Conducting a pay equity analysis is essential for creating internally fair compensation that is also externally competitive. By following these steps and leveraging the tools and resources available, you can identify and address pay gaps, enhance employee morale and therefore your organization’s reputation. If you set a consistent cycle for analysis, either as part of or separate from the annual increase cycle, and leaders trust that human resources will provide quality analysis and guidance, you can put any battle about pay equity behind you and collaborate with leadership to monitor and adjust pay on a regular basis.
