For True Pay Equity, Start With These 3 Areas

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Assessing gender pay equity goes beyond looking at base salaries.

Pay equity should extend beyond wages to include other common pay considerations, such as gender equity in bonus structures, starting salaries and merit pay increases.

For decades, the U.S. Bureau of Labor Statistics has shown that women receive lower base salaries than men. In the first quarter of 2020, for instance, full-time female employees earned only 80.4% of what their male counterparts earned. Equal Pay Day, originated by the National Committee on Pay Equity in 1996, also illustrates this gender pay gap.

To ensure your employees feel they are being paid fairly based on performance, skills and other job requirements, let's examine three main areas where pay gaps exist.

1. Bonus Structures

Currently, women must work longer than men for the same amount of pay, and that disparity also exists in bonus structures.

According to The ADP Research Institute study "Rethinking Gender Pay Inequality in a More Transparent World," pay equity worsens for women when bonus pay is considered. The study followed the career paths of exempt new hires who remained with the same organization from the third quarter of 2010 until the end of 2016. Findings revealed that the pay gap between men and women went from 17% for base salaries to 19% when incentives were factored in.

To improve pay equity in bonus structures, HR leaders should look closely at their compensation program by reviewing employee base pay, incentive pay and total compensation. With internal data in hand, you can compare your data with broader industry benchmarks, which can allow for a more holistic approach to pay equity and enable more informed decision-making around awarding bonuses.

Don't forget to track your compensation program to monitor the bonus pay, age and tenure of your employees so you can check that you're meeting gender pay equity goals. Transparent communication is also key. Make sure you share your company's policy on equitable pay practices and provide comparisons of your program with industry standards to help solidify trust between your managers and employees.

2. Starting Salaries

Another area where lack of pay equity can creep in is starting salaries. Fortunately, there are ways to mitigate this risk. Start with a written policy that includes procedural steps to help govern starting pay decisions. Within that policy, determine who will making starting pay decisions and lay out the role of each person. You'll also need to decide who will have the final authority to determine starting pay. You may want to consider implementing standard pay ranges or guidelines for each position to ensure fairness in pay.

Be mindful of the fact that some state laws prohibit asking about a job candidate's salary history. Therefore, salary history should generally not be a factor in setting compensation. To help your business maintain compliance, keep track of how decisions are made and routinely monitor starting pay decisions. Other legal considerations that involve pay equity include:

  • The Equal Pay Act (EPA).
  • Title VII of the 1964 Civil Rights Act.
  • The Age Discrimination in Employment Act (ADEA).
  • The Americans with Disabilities Act (ADA).
  • The Lilly Ledbetter Fair Pay Act of 2007 (Ledbetter Act).

Having a basic understanding of these legal considerations can help you mold your compensation policy to ensure that your starting compensation is the same for everyone when they perform the same job duties. When in doubt, consult with legal counsel for guidance on pay equity laws in your state.

3. Merit Pay Increases

Your company's compensation program likely has a pay-for-performance component that directly links an increase in pay to a specific set of criteria. Merit pay increases are often used to reward top-performing employees, and the increase amount and allocation will depend on the matrix you set up. However, even if you have a formal process in place for merit pay increases, managers typically have some discretion in how much increase in base pay to award employees, which could lead to systemic discrimination.

You can lessen this risk by conducting a self-audit of your pay practices and reviewing your internal policies. Ensure that you have a written policy detailing the techniques you will use to link performance and merit pay increases. You'll also want to review how much discretion your managers have in determining an individual employee's merit pay increase and apply checks and balances to promote pay equity. Lastly, document rationale for pay increase decisions and implement a tracking program to monitor compliance with your merit pay increase policy.

But the gender pay gap likely won't be solved by pay audits, bonus plans, salaries and merit increases being monitored independently. To best support the pay equity goal, you should have a data-driven, comprehensive HCM platform in place. This takes commitment, investment and persistence, but the payoff can be massive — making your organization a magnet for top talent that can enable you to outcompete and outgrow your rivals.

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