Pay equity assessments or audits ensure that all employees receive proper compensation regardless of age, race, gender or disability status. The assessments create a workplace where employees can reach their full earning potential. Further, they show that the company understands that pay inequity increases wealth disparities in such areas as generational wealth and home ownership.
A pay equity audit will also help insulate your firm from potential wage discrimination lawsuits. State and federal governments, media, and regulators such as the Equal Employment Opportunity Commission are all turning their attention to wage gaps.
Salaries for positions should be consistent internally and competitive with companies similar to yours in the same geographical area.
Once a pay equity audit is complete and competitive rates are established, HR will be more able to attract and retain superior employees. HR will also be able to offer equitable opportunities for current employees to advance or be promoted both laterally and vertically within the company.
Conducting a successful pay audit
- Identify the purpose of the audit and its timeline, then choose which methodology you will use, which personnel will conduct the audit and what budget is required. Set a communication policy to establish stakeholder buy-in.
- Learn how pay rates have been determined at your company by researching pay rates historically. Identify the root causes of any pay inequities.
- Gather data, including job titles, job grades or levels, and job descriptions (detailing each position's responsibilities), as well as the company's organizational chart. Next gather the genders, races, ages, education levels, beginning salaries, overtime pay rates and bonus amounts for all employees, along with hire dates, performance reviews and level of experience in a specific field.
- Compare the organizational data to similar positions at other companies. This information can be found in online salary surveys and databases, by purchasing information from data reporting companies or compensation specialists, by reviewing any surveys or networking opportunities conducted by your industry, by reviewing job postings, or through accessing government data (like the Bureau of Labor Statistics' Occupational Employment Statistics for wage data by occupation and geographic area). Compare employees to workers with substantially similar skills and responsibilities. Do they have similar titles and working conditions? Is the compensation similar?
- Analyze the data, seeking to determine whether differences in wages can be tied to gender, race or age. Your analysis is determined by the measurable criteria and type of compensation. Your goal is to determine whether pay differences are legally justifiable — that is, if they are based on seniority, merit, or a system that measures earnings or quantity or quality of production. You also want to address any outliers in employee compensation (employees who are paid significantly more or less than their counterparts).
- Take action to mitigate pay differences. Your company may need to adjust salaries (but it is generally not advisable to reduce employee compensation). Finance and HR will need to be part of any effort to raise pay rates. Record what you've discovered to inform any future hiring/wage decisions.
- Keep a summary of recruitment activities, including how many times a position was posted, how many candidates were interviewed, and how many declined the position and why.
- Remember that equity reviews and any resulting salary adjustments should not be used to address performance issues.
Establishing pay equity can be complicated. But in addition to being a legally enforceable concept (equal pay for equal work), pay equity is an ethical solution that secures economic viability while boosting individual and organizational outcomes. Paying each employee fairly creates a better work environment, enhances company culture and increases employee satisfaction.