Best Practice: Conducting a Pay Equity Analysis

Natasha Waldron
UK Marketing Manager | Novative SA
14th September 2020
Member roleChamber member

In our previous article,  we have highlighted the importance of a pay equity analysis and have pointed out benefits for your business. Besides better retention and compliance with the law, it can also reduce the risk of a bad reputation. But still, the uncontrolled gender pay gap indicates that women earn 19% less than men  showing that pay equity is still an issue within the workplace.

According to HR People + Strategy, only a 5% difference in starting salary ($50,000 to $52,000) can result in a $200,000 cumulative pay gap over a 40-year career. And this is exactly where the analysis of pay equity comes into play. It aims to eliminate overall wage disparities based on race, gender, or other unjustified criteria.

In this article, we look at how you can conduct a pay equity analysis to eliminate these factors.

The Pay Equity Analysis

Conducting an annual pay equity analysis is an important tool for your business. When people hear the word pay equity analysis they automatically assume that it is about paying everyone equally. However, this could not be further from the truth. A pay equity analysis is a method of researching pay rates within your company. It can provide you with the information you need to identify pay disparities and opportunities to assure equal pay for work of equal value. The main objective here is to limit the risk and ensure compliance with federal and state laws.

To conduct such an analysis, it is advisable to set up an audit team of experts in human resources, payroll, finance, and legal matters. This will ensure that the analysis is conducted in compliance with data protection laws.

Define Purpose

First, you will need to think about why you are doing an analysis. Do you want to stay ahead of regulation and law? Or do you want to improve your overall company policies and system around pay distribution? Writing down the purpose of your analysis will help you in the process of allocating needed resources (personnel, budget, time).

Research Policy

The next step is to look at your current compensation model and process. This will help you find the gaps in your system that may have led to pay disparities. Ultimately, the goal is to close those gaps within your compensation model by developing new pay rates and criteria.

Collect Data

Now you will need to collect all data that is needed within the scope and purpose of the analysis. Data you most likely need are employment status, historical employment, demographic information, job details (level, full-time/part-time/responsibilities, compensation) and performance rate. Since this data contains sensitive & private information, data security & anonymity must always be guaranteed. In addition, it is recommended that certain sensitive data be removed before the data is transferred to another member of the audit team, which is not necessarily required for analysis, e.g. name & birthday.

Group Data

To gain better insight, group your data into job categories that you consider important for your analysis, such as similar departments, locations, full-time employees, or job titles. Once you have grouped the collected data, you can now identify factors that may justify noticeable pay differences.

Analyse Data

Analyze your data by comparing the job descriptions of the job with the data you have collected about the people working in that job. Then compare employees with similar positions and responsibilities. Also, focus on your gender distribution within the jobs and how they are compensated. An example of a first analysis is to look at entry-level positions and compare the hourly rate.

Interpret Results

When you have analyzed the data, you may have found some discrepancies in the payment for work of equal value. You should pay attention to differences in the remuneration of people in the same positions, with good performance ratings or with the same experience and skills. You should also look more closely at high pay for an employee with very poor performance ratings. Assess whether these differences in pay are legally justified.

Take Action

Lastly, report any inequalities identified to the management team and to take immediate corrective action. This should include a discussion on whether the results should be communicated to all employees in public. However, affected employees must be informed immediately. Salary adjustments should be effective immediately to avoid the risk of penalties from the judicial authorities.

Overall, a regular pay equity analysis is highly recommended ensuring compliance with the law. It is very beneficial for creating a workplace where employees feel valued and have the confidence, that their company wants the best for them.

Editor note: This blog post was written by Novative's newest marketing team member Julia Schurr.

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