Benefits and Compensation, HR Management & Compliance

Getting Pay Equity Right

Fairness is a major factor that tends to color how employees view the workplace. If a happy, engaged employee learns that another employee doing the same job is getting 15% more than he or she is getting, all the other things that made the job seem great turn to ash.

Source: Greg Brave / shutterstock

Employers may or may not even notice the ill effects when employees feel that they are being treated unfairly. The consequences can range from catastrophically expensive lawsuits, causing public relations nightmares, generating retention/hiring problems, or more likely, all three.

However, there are often instances of unfair treatment, especially unfair compensation that are often not detected by employers, such as diminished engagement, reduced commitment to work, and ultimately, costly turnover. This tends to occur more frequently with female employees.

One highly talented woman working in a technical role in the entertainment industry told me that,

“[a]t my previous job, I learned that a male peer with the same title but less experience made twice as much as me.  I immediately wanted to quit.  Eventually, I did.”

Another accomplished female data scientist/programmer expressed a similar sentiment, noting that she even tried to get her employer to fix the gender pay gap:

“When I realized the men on my team were paid more for the same role, I lobbied to fix the gap. When I learned that pay was attached to perception rather than performance and men were “perceived” as better performers solely by virtue of their gender and that no amount of effort on my part would result in a different outcome, I left. If my employer could not recognize what I bring to the table, I will vote with my feet and take my talent elsewhere.”

These two women are not alone. These are common and expected reactions when employees perceive that they are paid unfairly. Note that the comparisons are purely internal. They have nothing to do with whether they are paid fairly by market standards outside the organization.

So, how can great HR professionals focus on ensuring that employees are treated fairly at work? The focus on fairness should be on all hiring and promotion decision-making, but the fastest and best way to get started is to ensure that your organization is committed to compensating people equitably. Aside from federal and state laws that require this, it is the right thing to do from a human resource management perspective and will directly impact everything from engagement to productivity to turnover.

What Is the Best Approach for Getting Pay Equity Right?

Committing to fair pay is great, but there are a lot of ways to get it wrong. Companies should avoid making the mistake of thinking that pay equity is an opportunity to see if someone in accounting, who is good at Excel, can figure it out, or thinking that payroll software can conduct pay equity review because it shows average pay and standard deviation numbers by job title. Well-intentioned HR managers make these mistakes.

On the other end of the spectrum, don’t assume that getting the most complicated analysis out there (we’re talking pages and pages of complicated statistical output) or the option that is the most expensive is the right solution either. There are many complicated solutions out there that seem elaborate, just to justify an exorbitant price point.

Getting pay equity right is about committing to the solution and finding an option that empowers data analyses. Of course, first and foremost, the solution has to be methodologically sound, relying on standard statistical techniques and standards of review. Additionally, any pay equity solution deployed must comply with an organization’s data security and data privacy policies and practices. For instance, data and analyses/output should never be stored on local machines or hard drives outside of the organization’s control.

But there is much more than getting the math right. Managers know their people better than an analyst or consultant outside the organization. So, an optimal solution is one that enables you to make adjustments to the data (groupings, classifications, comp), and have the results update dynamically. An optimal solution is not a “one-and-done” static report that relies on data that was current as of 3 months ago. You should only accept a solution that enables updating of data to be current, so that you can see results any time. That’s what an ongoing commitment to pay equity means. Why would someone working today care about the organization’s announcement of being 100% pay-equity-compliant last year?

Additionally, HR managers should seek a pay equity solution that empowers them to remedy issues with both economic and noneconomic means. Many pay equity reviews jump to economic remediation without first addressing potential structural changes. Many don’t do a good job of spotting the critical structural elements of work that may account for pay equity issues. Lastly, managers need a solution that empowers to hire and promote people with an eye towards pay equity in order to avoid creating risk. Keeping an organization out of hot water is a much better way to approach this issue than always looking back and trying to fix problems that could have been avoided if pay equity were factored into the equation when setting starting pay or rolling out new components of pay like equity grants or bonuses.

In part 2 of this article we will give you 7 questions that every HR professional should ask about pay equity.

Zev J. Eigen is the Founder and Chief Data Scientist at Syndio.