As workplaces evolve, workers are holding their employers accountable by demanding more pay transparency. On average, women earn 82 cents for every dollar a man earns, and employees want to know what their companies are doing to address this pay gap.
According to beqom’s 2022 Compensation and Culture Report:
Leaders can start closing the gap by conducting a pay equity audit to identify any disparities that exist within their organizations.
A pay equity audit is a type of analysis that can show leaders where pay inequities exist within the company and what factors – like race or gender – may influence compensation. The goal is to ensure that employees who do similar work earn similar pay. Completing these audits can be challenging. It takes time, money, commitment, and cooperation to do them correctly, however, it may be necessary.
Women of color face more significant pay discrepancies, even when factoring in education. This happens because of systemic biases, which can lead to:
Also, women are more likely to leave the workforce because of caretaking responsibilities and tend to incur higher wage penalties when they return.
Pay inequities can lead to substantial income losses for workers. Black and Latina women can lose over $1 million over a 40-year career because of pay discrepancies.
For leaders, a failure to address pay inequities can lead to problems in recruiting and retaining top talent. However, the best way to ensure fairness in compensation is to conduct a pay equity audit. The six steps below will guide you through key elements of the process.
Typically, HR departments take the lead on pay equity analyses. However, it is also important to include the finance department. In some cases, companies may want to invite legal counsel to ensure the company is complying with state and federal laws.
Companies with fewer than 500 employees may choose to conduct the audit internally. However, larger companies or those with limited HR resources may want to hire a consulting firm, such as Perfeqta, to support them in the process.
Why is your company doing a pay equity audit at this moment? What does your team want to learn from the analysis? Clear goals and objectives will help shape the methods you use and the data you need to complete the audit.
For instance, if your company wants to look at pay gaps by gender, the data collection process will look different compared to analyzing pay gaps by race or ethnicity. A consulting firm can help your team establish the goals and objectives that are most relevant to your business.
Having a clear, shared understanding of pay policies before conducting the analysis can provide some context for the results. Some questions for the team to consider include:
Having a list of the current pay policies also serves as a starting point for the team when they are ready to identify solutions to pay inequities.
Comprehensive pay audits require the following information:
Suppose your company has a centralized database that includes up-to-date employee demographics, department, job level, and salary. In that case, gathering the necessary data for the audit should be fairly straightforward. However, for many companies, this is the step where things start to get tricky and time-consuming.
Some common issues teams may face during data collection include:
It may be necessary to create and send out an employee survey to ensure accuracy, especially regarding demographics.
The methodology for the analysis depends on the organization's size and how much data is available. Smaller organizations with fewer than 30 employees, or those with limited data, can examine the differences in salaries between comparable groups. For instance, small companies can look at the average pay between men and women at the same job and education levels and compare the differences.
Larger companies will likely have enough data to conduct a regression analysis. A regression analysis can demonstrate which factors have the most influence on salary.
There are several ways to remediate pay discrepancies evident from the pay audit. On average, companies make a 4-6% salary adjustment for those affected by pay gaps. These adjustments are often included in annual pay adjustments or are made incrementally going forward.
The team may also change some of its hiring and pay policies to reduce the gap for future employees. Any decisions regarding policy changes must be clearly communicated to employees and carefully monitored by the leadership team to ensure proper implementation. Once the initial pay equity analysis is complete, leaders can run the analysis annually as part of the pay review process.
Download our free resource guide, The Executive’s Guide to Inclusive Leadership. We share actionable strategies for company executives who want to lead with empathy, practice allyship, and make decisions rooted in equity.
If your company wants to create an inclusive and equitable workplace, here are 6 DEI metrics your team can start tracking, regardless of where you are in your DEI journey.
To create a more meaningful work environment, here are 12 questions leaders can ask employees to learn more about their career goals and work styles.
Sign up for Perfeqta’s free newsletter to stay up to date on the latest talent development trends.
Prepare your company for a future of work that is diverse, inclusive, and people-first.
Tell us about your employee development goals and how our team can help you.