Pay Equity Shines Spotlight on Compensation Alignment

The Equal Employment Opportunity Commission (EEOC) decision to require most employers to submit pay data sorted by race, ethnicity, gender and job category—so-called EEO-1 data—is the latest step toward achieving pay equity in the workplace. Employers that gather and submit this data have an opportunity to address pay equity issues and to ensure their pay practices are operating as intended.

Addressing Inequity

"People think they are being fair," said Jamie Press, senior vice president of human resources for payroll provider Prime Pay in West Chester, Pa. "But the first step toward pay equity requires taking a look at actual numbers and the effects of an organization's pay practices."

Such a review is not just a step toward greater fairness; it could also help employers avoid uncomfortable disclosures about their pay practices.

"Employers should expect that [EEO-1] data will become public," said Denise Visconti, a shareholder with law firm Littler Mendelson in San Diego. "This is not just about the EEOC and public getting the data. Individual states could access the data to enforce pay equity requirements and laws now or in the future."

Although the first round of EEO-1 reporting focused on older data from 2017 and 2018, employers can still analyze that data and learn from it. For pay differences in gender, race and ethnicity, ask, " 'Do these differences still exist in 2019 data, and, if so, can you explain them?' " Visconti advised. "If you can't, it's time to address them."

She also urged employers to prepare for any questions the EEOC may ask about the data. This is the time to identify legitimate business reasons for any oddities or potential problem areas, using footnotes to provide context.

If a review reveals unequal pay, that's another challenge for employers, and executives will need to consider the potential risks of being sued.

Pay equity problems can exist in any part of an organization. That is why it's important to evaluate pay practices and outcomes at all levels of the company—from each manager's group to the organization as a whole. This includes "making sure performance evaluations are free of unconscious bias," said Press.

HR has a key role to play by providing facts about existing pay and performance-evaluation practices, setting up training for managers who are falling short when it comes to fairly assessing employee performance, and making sure the entire system operates consistently and fairly.

[SHRM members-only toolkit: Managing Pay Equity]

Find the Root Causes

When examining pay data, look for pay differences among various groups or individual employees with the same or similar jobs, then identify what drives those differences. In some cases, problems could arise when those making pay decisions are out of step with the organization's stated compensation philosophy.

For instance, one employer was strongly against raising starting salaries for new hires, fearing pay compression, which results when newer employees make more than longer-tenured employees in the same position. "However, a pay equity analysis showed that managers were still giving new hires [pay] premiums to join the organization," which, as feared, led to different pay levels for new employees compared to the existing workforce, said Casey North, a San Francisco-based principal with the workforce strategy and analytics practice at Mercer, an HR consultancy. Once pay becomes arbitrary, it can be harder to combat pay inequalities.

In another case, an organization's compensation philosophy was to have performance weigh most heavily in pay decisions, with little to no consideration for an employee's potential. In reality, however, managers were letting employee potential significantly affect their pay decisions.

To correct these types of issues, employers can conduct a thorough audit of compensation practices to uncover problems and identify ways to address them. "It is important to get your house in order," said Visconti. These audits can focus on answering several key questions, such as:

• Is available data clean and robust enough to support a comprehensive compensation audit?
  

• Do pay decisions reflect the company's pay philosophy?
  

• How do median pay levels differ when compared to specific groups—for example, median pay for men compared to that of women?
  

• Are some employees earning bonuses for unexplained or inadequately documented reasons?
  

• Is the compensation philosophy encouraging discrepancies in pay levels, or are discrepancies happening because managers are not adhering to the compensation philosophy?
  

• If the goal is to pay for performance, is the organization actually paying for performance?

When conducting a pay analysis, "dig deeper to find out why any discrepancies are happening," North said. In the process, employers may find other issues not based on compensation that need to be addressed to support pay equity. For example, an analysis may show that men are more likely to hold jobs at a higher level in some parts of the organization, which may indicate gender bias in promotions.

Joanne Sammer is a New Jersey-based business and financial writer.

Related SHRM Articles:

Closing the Gender Pay Gap, HR Magazine, June 2019

U.S. Companies Are Working to Fix Pay-Equity Issues, SHRM Online, May 2019

Visit SHRM's resource page on pay equity.