WTF is pay equity?

The word equity came into heightened focus recently when the largest human resources organization dropped the term from its diversity and inclusion messaging. But movements toward equity in the workplace are still happening through pay equity initiatives aiming to close pay gaps within companies. 

How is pay equity defined?

While pay equality means everyone is paid the same for the same work, pay equity digs deeper and takes more factors into consideration. Pay equity means staff are paid varying rates depending on things like tenure, experience and education level. Pay equity audits attempt to identify gaps in pay based on those factors and others like race or gender and remedy them. Ultimately, the goal of pay equity is to close pay gaps within organizations and achieve more fair pay processes.

What’s driving this?

Employers are facing several different pressures driving them to address pay equity.

The first is more legislation regarding pay transparency. New laws in the EU and a range of states in the U.S. now require employers to include pay scales in job postings and, in some cases, also publicly report pay gaps found in pay equity audits. In California, companies must report median and mean pay gaps under a law that went into effect last year.

Added pressure is also coming from investors and shareholders who favor more transparency about the work organizations are doing on this and how committed they are, said Katie Bardaro, CCO at Syndio, a pay equity software company.

"This is not a one month, two month, three month thing. This is like shifting the Titanic."

Anessa Fike, a fractional HR professional.

“Whether it be employees or even just the general consumers of a business, they want to ensure that those organizations are applying equal pay for equal work and that they’re a fair organization, if that’s who they’re going to be spending their time with as an employee, who they’re going to invest in, or if they’re going to be spending their money as a consumer,” Bardaro said. 

One sector leading the charge is the financial services industry. Large financial services companies are 54% more likely to disclose their pay equity analysis results compared to other industries, according to a report from Syndio. And over the last year, the number of large financial services companies that disclosed their unadjusted pay gaps nearly doubled, according to that report.

What do HR leaders need to know?

Ultimately, thorough pay equity analyses can provide valuable data to identify systemic biases in pay within organizations. “One example we often see is that companies are rewarding for tenure, but men receive additional pay well above what women do,” said Gudrun Thorgeirsdottir, chief business development officer for pay equity at beqom, a compensation management software company. 

“Another example – and it is all too common – is higher salary for good performance for men, while the women within the organization even when receiving a higher salary, are not being paid to the same level as the high performing men,” Thorgeirsdottir said, adding that “When working with companies we almost always have an “aha!” moment when analyzing salaries where they detect areas for improvement that they had not seen before,” Thorgeirsdottir said. 

But it’s not an easy undertaking. “It takes a lot of things to happen in the right way, and you have to have the right foundation to do this,” Anessa Fike, a fractional HR professional. “ But then also the process is a very lengthy process. This is not a one month, two month, three month thing. This is like shifting the Titanic,” she said. 

“Unless the company makes a plan and puts it in place for years to come, to do that catch up work, you could be looking at several millions of dollars, maybe a lot more than that, to just get people up to what they actually should be paid today,” Fike said.

How should employers talk to staff about this?

Another key aspect companies have to consider when undertaking pay equity audits is how they’ll communicate that to staff. The less transparent approach is to share that they have a commitment to pay equity without really sharing any findings or details about the work, Bardaro said.

“It is important to communicate openly about pay equity practices because there is often a disconnect between employees' perception of fairness and the actual pay equity practices of companies."

Gudrun Thorgeirsdottir, chief business development officer for pay equity at beqom.

More transparent companies share some level of the findings, in most cases adjusted pay gaps. Ultimately, being able to say they’ve “achieved 100% pay equity” is the goal. 

Still, very rarely do companies go fully transparent, sharing “the details of their findings, and the details of how they got there,” Bardaro said. “So here’s what we looked at, here’s what we included within our review or analysis. Here’s the type of actions that we’re taking based off these findings. Those, I would say, are very far on the extreme end of transparency,” she said.

“It is important to communicate openly about pay equity practices because there is often a disconnect between employees’ perception of fairness and the actual pay equity practices of companies,” Thorgeirsdottir said. 

“Everyone wants to know they are being paid fairly, and if companies don’t communicate effectively, it is hard for employees to feel fairly compensated. We always say, “Don’t let perfection get in the way of good.” Start with what you have and work from there.”