Key Steps Organizational Leaders Must Take To Ensure Pay Equity

Part of Kathy Caprino’s series “Building Workplaces That Work For All”

Employee pay is typically one of the largest expenses on a company’s income statement and a critical factor in an organization’s overall level of productivity, engagement, retention, and ultimate competitive advantage.

Yet pay equity remains a challenge in many organizations and industries today. Pay equity data from 2021 from the U.S. Government Accountability Office revealed that: 1) Women earned about $.82 for every dollar men earned 2) Hispanic or Latina women earned about $.58 and Black women earned about $.63 for every dollar White men earned.

The pay equity movement has recently grown at an exponential rate in our country and beyond, due to new legislative requirements and demand for disclosure from activist investors.

So, what is “pay equity” today? According to the National Committee On Pay Equity, pay equity is “a means of eliminating sex and race discrimination in the wage-setting system. Many women and people of color are still segregated into a small number of jobs such as clerical, service workers, nurses and teachers. These jobs have historically been undervalued and continue to be underpaid to a large extent because of the gender and race of the people who hold them. Pay equity means that the criteria employers use to set wages must be sex- and race-neutral.”

To learn more about how HR data and analysis can support the pay equity process, and how leaders can engage in new behaviors that will lead to advancements in pay equity at their organizations, I caught up this month with Brian Levine, Partner and Pay Equity Leader of Merit Analytics Group, a women-owned business co-founded by Helen Friedman and Anna Marley, specializing in people analytics and planning consulting for HR professionals.

Levine has extensive experience in People Analytics, with a deep specialty in supporting DEI and pay equity efforts. Brian spent 23 years as a workforce scientist at Mercer, where, after launching the firm’s pay equity offering, he held various leadership roles for more than a decade, including leading the people analytics business, and, most recently, driving the commercialization of pay equity for the global firm. Brian has been the principal pay equity consultant for more than 20 of the Fortune 100, has led hundreds of pay equity studies, most global in scope, and has significantly evolved related methodologies over his career to ensure companies can achieve real progress and document that progress in their public reporting.

Levine shares key information about pay equity and actions organizations need to take today to ensure equity is being achieved and why that matters:

Kathy Caprino: Brian, what is true pay equity, and what are the biggest challenges companies face in achieving it?

Brian Levine: Pay equity refers to “equal pay for equal work.” Equal work encompasses the job and related responsibilities, but it is more complex and substantial than that. It also involves situational realities that impact pay, including an employee’s experience and location of work. In addition, the complexity is such that there might not always be an equivalent employee for comparison. So, the first challenge to achieving pay equity in an organization is measuring it. Analysts rely on statistical methods that can account for various legitimate differences and allow a focus on the “all else being equal” gap for a given individual, relative to the “best comparator.” Similarly, HR data analysts will roll up such differences to look at gaps between genders and ethnicities for different areas of the business and at the enterprise level.

Once the measurement work is done, the next challenge is in taking appropriate action to counter any potential inequity. The scope of action will depend on the size of the gaps and can be informed by further analysis. If the gap is large, leaders need to ensure there’s a sufficient available budget to support progress toward equity, especially if/when there is pressure to disclose results in the near term.

Perhaps one of the most significant challenges is ensuring that managers are equipped to implement changes effectively. They need to understand enough about the process that they can get behind planned pay changes. If they are not on board with the corporate priority or do not trust how pay adjustments are determined, they will not necessarily follow through. Necessary conditions for success in achieving pay equity require that the manager sees it as a clear priority and receives effective training on the process and how to communicate changes.

Caprino: From a leadership perspective, why is it crucial for pay equity to be achieved, and what are the negative repercussions and damaging consequences if it isn't?

Levine: I have found in past research that organizations striving to improve diversity—especially in the top ranks—are best served by addressing pay equity first. Pay equity has a more profound effect on diversity than other important efforts, including manager training, support of affinity groups, mentorship programs and flexible work options. I believe that this is the case because a focus on pay equity is fundamental to driving equity in other employment practices—equity becomes a more pervasive managerial norm.

Pay equity also has other important benefits to companies, especially relating to retention and engagement. Of course, paying an employee better when that increased pay is warranted will help ensure that that employee is more likely to stay. But it is also the case that a culture of equity—where employees trust that pay is fair—can be engaging and retentive for the workforce as a whole. Conversely, not pursuing and communicating pay equity efforts puts companies at a disadvantage relative to more forward-looking competitors, resulting in risks to talent retention and productivity.

Caprino: Pay is just one aspect of the employment relationship. What other ways can organizations dimensionalize and understand equity and achieve it?

Levine: The average or median pay gap is a metric that many organizations have been analyzing following its required reporting in the UK across gender lines. While the statistic is imperfect, it’s favored because it gets to a bigger issue than equity in particular roles—it addresses individuals all having access to high-paying roles. In fact, the inequity that stems from different representation of genders and ethnicities across organizational levels is a greater (and often more damaging and far-reaching) challenge than inequity stemming from pay differences in a particular job. To solve the bigger issue, organizations need to ensure equity is being achieved in all talent “movements” including hiring, promotion, and retention.

Statistical modelling can also be used to assess and solve these further potential inequities. Models reveal the factors that are associated with key outcomes (e.g., the skills associated with advancement, the experiences and conditions associated with retention, etc.) and can be leveraged to drive tailored strategies for a given organization. For example, representation of women might be best advanced through promoting longer-term relationships with one supervisor (rather than having multiple over the years) and/or providing training on the key competencies that are necessary for advancement in that organization. A holistic analysis of equity can accelerate and sustain achievement of talent objectives.

Caprino: Performance ratings previously were seen as critical in deciding wage and salary modifications, but there can be biases (both unconscious or conscious) reflected in those ratings. How are performance ratings sometimes biased and what are the potential outcomes of those biases?

Levine: Because performance ratings are in part discretionary (meaning, based in part on personal opinions and beliefs of the manager determining the ratings), bias can seep in. In my past work, I have seen that ratings are more likely to differ across gender and race lines where there is less reliance on quantifiable productivity measures.

I also have seen, in one analysis I conducted for a client, that ratings differences across groups were reduced under managers who had taken unconscious bias training within a few weeks of their rating decisions. The two results together suggest that structure, in the form of standards for performance evaluation and managerial training, can drive greater fairness in performance rating decisions. And that’s critically important because ratings should and typically do directly relate to reward outcomes.

It's important to share, though, that organizations need not throw away performance rating systems altogether just because of the fear that bias can slip through. The systems in and of themselves, in supporting verifiable justification of pay decisions, can serve to minimize bias. Regular back-end review of ratings, supported by appropriate analytics can further help ensure fair ratings.

Caprino: Let’s talk about HR data analytics. What is the essential role that HR data analytics plays in an organization, to assess and address challenges in equity and fairness in the workplace?

Levine: The role of analytics is absolutely central to addressing inequity. Increasingly, there is a call to tackle the issues at the source—to find the root causes, whether in problematic policies or actual behaviors—and rectify them rather than waiting for back-end review and adjustment. Though analytics can get at some root-cause issues, the evidence shows that there is no silver bullet, especially where discretion and bias, conscious or not, is real and persistent. Bias finds a way in, so, ultimately, it’s a choice for organizations between formulaic, unquestioned pay decisions or regular review and correction.

Caprino: As a practitioner in this space for many years, you've seen that there are pitfalls when organizations try to do this work on their own. What are those?

Levine: Companies are increasingly tempted to take on the HR data analytics work internally, leveraging technology that is intended to automate much of the work. But pay equity analysis is complex statistical work and serious errors can be made. It benefits from expertise and insight, developed through the experience of having done similar analysis many times, across many organizations. That expertise drives efficiency, but also accuracy and defensibility.

Credibility of the work product is a top priority. Executives need to know that dollars spent will be impactful. Shareholders need to have faith that disclosures are effective representations of reality. And managers and employees need to believe that pay decisions are fair. The best outcome can be achieved through domain experts partnering with organization-specific experts, with the latter especially in the HR and compensation areas, to ensure thorough accounting of specific situations before pay adjustments are processed.

Caprino: What three steps can you offer to leadership and organizations hoping to improve their efforts in achieving pay and all other forms of equity?

Levine: The three key steps we recommend are:

Get commitment across the board

First, get commitment from the critical players in your organization. The executive team needs to greenlight not only the study but also the required actions behind it. The organization’s commitment to equity needs to be clear throughout the management ranks. HR and compensation leaders need to be engaged in the work from the start, to ensure that they understand how the work is done and can ultimately stand behind it when they are in the trenches presenting and defending resulting pay adjustments to managers.

Build a consistent approach

Second, have a consistent approach across the organization’s footprint, so that no employee can claim that they are exempt from the effort. While different jurisdictions have different regulatory requirements, a minimum standard should be maintained as part of the people strategy.

Engage in pay equity work now

For organizations that are not proactively undertaking pay equity work today or not openly communicating that the work is being done, the tide is quickly turning so that these organizations will be at a serious disadvantage. Organizations need to stay ahead of this curve if they want to be competitive in the talent and shareholder markets.

For more information, visit www.meritanalyticsgroup.com.

Kathy Caprino is a global career and leadership coach and trainer helping professionals expand their confidence, self-esteem and impact.