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How to conduct an equal pay analysis

25 Feb 2020 By Ruth Thomas

Employers that tackle pay inequity will reap business benefits, says Ruth Thomas, but where do you start?

Although we have had equal pay legislation for more than half a century, the emphasis has been on employees taking action to challenge or to raise a claim. Globally, new emerging equal pay legislation puts the onus firmly on employers to proactively tackle not only equal pay for work of equal (or comparable) value, but also to address the root causes that drive pay inequity revealed in pay gap reporting. 

Like it or not, pay equity – particularly gender pay equity – has become part of our social consciousness of late. This has been partly fuelled by the #MeToo movement, which forced us as a society to ask questions about what was going on in our workplaces. It has also been driven by the fact progress towards earnings parity has really stalled in the last decade. 

Employers are increasingly recognising that tackling pay equity not only reaps business benefits, but also demonstrates commitment to a diverse and inclusive workforce that is a differentiator in the war for talent. Equal pay is no longer just a legal obligation but a key business imperative. 

We know organisations do not aim to pay people unequally; thankfully the days of having male and female rates of pay for the same job are long gone. But it is often the de facto position because of a reluctance to undertake a pay equity audit and the complexity this entails. 

But recent research conducted by Korn Ferry and WorldatWork suggests this is changing. The survey found 60 per cent of organisations have taken, or are now taking, action on pay equity management to respond to or get ahead of legislation. So how should you get started?

The first issue to tackle, and the one that causes most reluctance to act, is the legal challenges. Before you start any pay equity analysis you need to connect with internal or external counsel. The analysis could have a wide range of legal implications and could be used against you in litigation, so understanding the issues of attorney-client privilege is key. 

Next, you need to consider the scope of your analysis. For multi-jurisdictional employers grappling with a patchwork of emerging legislation, a holistic pay equity audit is often the best approach – one that considers the different nuances of pay equity, including: 

  • ensuring employees are paid fairly for comparable work, rather than just for the same or similar work; 
  • making sure work undertaken by certain protected category groups is not undervalued by comparing, for example, predominantly male jobs versus female jobs or by comparing part-time work with full-time work; 
  • validating that where pay variance occurs it is because of legitimate job-related or business factors that are aligned with your reward strategy. This may require using multivariate statistical analysis to model your compensation system based on data regarding factors expected to influence pay. This statistical modelling aims to estimate the relationships between pay and variables such as gender, race, job band, etc; and
  • addressing pay equality by looking across your talent lifecycle to see where blockages or leakages occur that may impact on progression, or the choices employees have to make, with the goal of ensuring all employees have the opportunity to earn the same.  

Then it’s all about data and analytics to help you understand whether you have a problem. Data is definitely a key driver of success and may ultimately affect the type of analysis you can do. For example, you may not hold consistent data on all protected categories. While gender is fairly commonly recorded, ethnicity, race and disability are not so widely held. If you are going to look at root cause analysis, then you need a much broader set of talent metrics to understand the complex issues that cause the lack of representation and progression that drives pay gaps and inequality. But again, don’t let this be a blocker to action; start in those areas where you have data as you work to gather the additional information you need. 

Finally, you must recognise analysis needs to be iterative, rather than a once a year exercise. Pay equity analytics technology is now emerging to help employers benefit from ongoing analysis rather than the traditional once a year exercise with an external consultant. This gives employers greater ownership of the process and the ability to flex their analysis as the workforce evolves. 

This trend is set to gain momentum. Those employers taking action now stand to reap the benefits of not only being legally compliant and reducing time spent rectifying pay discrimination, but also building a culture where employees feel more valued, trust their organisation and, in turn, are better engaged. 

Ruth Thomas is co-founder of and senior consultant at Curo Compensation

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