Combatting Pay Inequities Through Equitable Wage and Compensation Programs

May 9, 2022

Two blocks on seesaw with an imbalance of coins on either side

Pay disparities have plagued the nation for quite some time now. While much pay equity work happens through legislation, it’s ultimately up to employers to combat pay inequities through equitable wage and compensation programs.

Continue reading to learn more about pay equity, the history of pay disparities, and how to combat this in the future.


What is Pay Equity?

Pay equity, in simplest terms, means that employees should be compensated the same when they perform identical or similar job duties, taking into account other important factors like experience level, job performance, and tenure. 

While this sounds simple at face value, pay equity ultimately hinges on combatting deeper biases embedded in the workplace and
recruitment processes. To truly accomplish pay equity, the criteria used by employers to set wages must be completely neutral and bias-free. 

Addressing pay disparities requires us to look deeper and address the structural
imbalances in workforce representation. Achieving this takes some work but isn’t impossible to work towards.


A Long History of Inequities

Sadly, the gender pay gap has plagued the U.S. for over half a century, even after pay discrimination became illegal in the U.S. with the Equal Pay Act of 1963. Even today, women working full-time in the U.S. are still paid 83 cents for every dollar their male counterparts earn. 

And gender isn’t the only type of pay disparity out there. Pay inequities are exacerbated by other characteristics such as race, ability, age, and work history. These disparities persisted despite introducing Title VII of the
Civil Rights Act of 1964. It was broadly intended to protect people from employment discrimination based on a protected class. 

Recently, we’ve seen many state laws providing more comprehensive protection and
pay transparency than mandated in the Equal Pay Act.

These laws require employers to compensate people
equally for “substantially similar” work rather than only “equal” work. Many states also expanded their fair-pay legislation beyond gender to protect employees from discrimination based on other protected characteristics. 

In addition, many states require employers to disclose wage information or ranges to candidates and current employees.
States with such pay transparency laws include California, California, Colorado, Connecticut, Maryland, Nevada, New York City (effective May 15, 2022), Toledo and Cincinnati, Ohio, Rhode Island (effective January 1, 2023), and Washington.


Why Should You Have an Internal Pay Equity Structure?

Laws aside, pay equity and transparency are best practices to ensure your employees feel valued and respected in the workplace. And it’s also a great draw for potential applicants during your hiring process.

But how exactly do you make sure that everyone’s being compensated fairly? That’s where internal equity comes in.
Internal equity has a very similar definition to pay equity – employees with similar roles and duties within your company should be compensated similarly, whether that be from their salary or additional benefits attached to the position.  

There are a plethora of reasons why internal equity is essential. Here are some of the most significant ones: 

  1. Retain your valued employees. They won’t stick around if they don’t feel compensated fairly or valued.
  2. Compliance and mitigate your risk of discrimination lawsuits. We’ve seen a drastic uptick in equal pay litigation against employers as states continue to pass more robust pay equity laws.
  3. Attract top talent by offering comprehensive, attractive, and competitive compensation.
  4. Actively combat the gender and race pay gap, and continue to eliminate biases from your pay structures.

By ensuring employees are compensated equitably, employers can attract the best talent, reduce turnover, and increase organizational commitment. Therefore, this will also increase your organization’s efficiency, creativity, and productivity


The Importance of a Compensation Analysis 

Many companies fail to put a lot of thought or intention behind how their employees are getting paid. If you’re shying away from compensation conversations, it’s likely because your organization lacks a solid methodology for why you’re paying what you do.

A great place to start with eliminating pay disparities and having more open compensation conversations is reviewing your company’s internal equity and developing a compensation philosophy. Hence, you have consistent practices with internal employees and new hires. 

By completing a full compensation analysis and audit of your compensation structures, you’ll gain the information needed to
identify pay disparities and opportunities to improve internal equity

Much of this involves digging into your current pay structure and doing in-depth compensation study research. Here are some important considerations to make when doing your compensation study research:

  1. What are the current wages for each position in your industry and your market(s)?
  2. What other kinds of compensation are typical for your industry and your market(s) (i.e., bonus, profit-sharing, equity)?
  3. What kinds of benefits would employees normally expect?
  4. What other amazing things can you offer? Think paid time off, remote work stipend, discounts, wellness stipend, EAP, etc. We encourage you to get creative here!

There’s quite a bit more to this, including establishing internal equity factors, calculating ranges based on these factors, creating wage bands, and realigning your compensation structure. 

Another thing to consider is making sure the compensation structure is equal for current and new employees to avoid disparities. You should set controls for
salaries offered in the hiring stage to avoid over-compensating new hires compared to existing employees in the same role. 

Completing a full compensation analysis is vital to ensuring your employees are getting paid fairly compared to similar positions and job duties. Meanwhile, you’re empowered with the solid reasoning behind why your employees and prospective employees get paid the way they do.

You can complete a compensation analysis yourself or hire an expert to help. HR Annie has a team of experts who can help build an equitable wage and compensation program for your organization.  


Best Practices for Fair Compensation

Pay equity is vital for all aspects of your business, from recruitment and onboarding to retention and company culture. 

So how exactly can you, as an employer,
promote pay equity

  1. Complete a full compensation analysis to build an equitable compensation system.
  2. Line out objective metrics for recruitment, performance, and promotions to track and ensure consistency in compensation.
  3. Communicate with employees regularly and honestly about progress on these metrics and how compensation is determined to build trust. 
  4. Train higher-level management on the new compensation system, how to document decisions, and the right way to discuss this with employees and candidates. 
  5. Continually review your compensation system and job descriptions throughout the year to ensure proper compensation for work being done.  


HR Annie can support compensation analysis work and can help you build an equitable wage and compensation program. Contact us to learn more about how we can help!

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