- Conduct a thorough job evaluation to define roles, responsibilities, and required qualifications.
- Develop standardized pay structures with clear salary bands based on market data and internal equity.
Managing Pay Equity: A Strategic Toolkit for HR Professionals
Learn how to create and implement an effective pay equity practice with this toolkit featuring best practices, compliance tips, and proven data-driven strategies.
Pay equity refers to the practice of ensuring employees performing similar work are compensated fairly, considering factors such as experience, education, and performance. It addresses systemic disparities in compensation that may be linked to gender, race, or other biases. A court-approved gender pay discrimination settlement against the Walt Disney Company illustrates the continuing importance of pay equity for employers.
Pay equity and pay transparency go hand in hand. Pay transparency involves openly sharing information about pay structures, salary ranges, and compensation practices. Both can significantly affect employee retention and productivity and have compliance requirements that can vary by state.
Achieving pay equity is essential for fostering a fair, inclusive, and competitive workplace. This toolkit provides actionable guidance to help HR professionals establish, implement, and manage pay equity effectively.
Master Difficult Conversations Around Pay Equity
Get practical tips for tackling difficult compensation conversations, plus actual pay equity ROI success stories and expert HR insight through an audience Q&A in this All Things Work podcast episode.
Current Trends in Pay Equity
Pay equity audits, which focus on fairness and equal pay across demographic groups, are vital to successful programs. These audits tend to overlap with broader pay audits, which are the primary tool to check pay accuracy and compliance, however, only 54% of HR leaders conduct pay audits each year, according to SHRM research.
Almost half of organizations (46%) do regularly conduct internal wage audits, with 63% viewing the audits as a commitment to diversity, fairness, and inclusion.
In addition, the landscape of pay equity is rapidly evolving, shaped by emerging technologies, shifting workforce expectations, and regulatory changes. Key trends include:
- Scaling back of federal initiatives: Although new executive orders from the Trump administration are reshaping workplace policies, federal and state laws still mandate fair pay practices.
- AI in pay equity analysis: Artificial intelligence is revolutionizing pay equity audits by enabling faster, more accurate analysis of compensation data in real time.
- Increased focus on intersectionality: Organizations are moving beyond gender pay gaps to address disparities at the intersection of race, ethnicity, disability, and other factors.
- Pay transparency state laws: States are enacting legislation requiring employers to disclose salary ranges in job postings and prohibiting them from asking about salary history.
- Remote work impacts: Pay equity challenges are magnified in remote work settings, where disparities in pay for remote versus in-person roles have been observed. Some states also have requirements for remote pay transparency.
The Pay Transparency Tipping Point: From Compliance to Competitive Advantage
David Turetsky, Managing Consultant at HR Data Labs, explores how strategically embracing pay transparency can help organizations strengthen their reputations and attract the talent that will drive the future of work in this Tomorrowist podcast episode.
Compliance Issues
HR professionals must not only stay informed about federal and state regulations regarding pay equity and transparency laws, but balance compliance with salary decisions that align with business needs.
Key Laws
- Equal Pay Act (EPA): Prohibits pay discrimination based on gender for employees performing substantially equal work. The law does not require jobs to be identical, but substantially equal, which is determined by job content, not job titles. The law covers all forms of pay and benefits, including bonuses, stock options, life insurance, vacation and holiday pay, cleaning or gasoline allowances, hotel accommodations, and travel expense reimbursement.
- Title VII of the Civil Rights Act: Prohibits compensation discrimination based on race, color, religion, sex, or national origin.
- State-Specific Laws: More states are continuing to enact pay transparency laws that can affect pay equity, such as prohibiting salary history inquiries, requiring pay range disclosures in job ads, or specific requirements for remote positions that some states have when advertising for positions in different states. HR should consult with legal counsel to navigate state-specific requirements.
Recommendations for HR
- Assess pay policies and confirm they contain nondiscrimination, nonretaliation, pay transparency, and pay equity language. Provide training on the policies to HR and managers.
- Confirm compliance with salary history ban laws.
- Evaluate your pay structure to ensure there are no biases and no disparate impact on certain groups.
- Perform benchmarking and market pay surveys.
- Conduct audits of job descriptions, employee classifications, and jobs that help you explain, for example, why one role in one state might make a higher salary than a similar role in another state.
An individual alleging a violation of the EPA may go directly to court and is not required to file a charge with the Equal Employment Opportunity Commission (EEOC) beforehand. The time limit for filing an EPA charge with the EEOC and the time limit for going to court are the same: within two years of the alleged unlawful compensation practice, or, in the case of a willful violation, within three years. For more detailed federal guidance on the EPA and Title VII, visit the U.S. Equal Employment Opportunity Commission (EEOC) website.
SHRM Resources
- Avoid Job Discrimination: Know These Federal Laws
- Multistate Comparison Tool
- Understanding Implicit Bias in the Workplace
- I&D Risk Check Calendar Template
- Foundations of Legal Inclusion and Diversity
- Quiz: What Do You Know About Unconscious Bias?
- Q&A: Disparate Impact vs. Disparate Treatment
- Toolkit: Managing Equal Employment Opportunity
SHRM Total Rewards
Design and implement holistic rewards programs that attract, motivate, and retain top talent. Drive organizational performance by aligning compensation, benefits, and recognition with business goals and employee needs.
Pay Equity Strategy and Best Practices
To establish a pay equity strategy, you’ll need to determine what you want to prioritize. According to SHRM research, 1 in 3 HR pros do not have a pay equity strategy in place. Start by gathering information on job levels, salary ranges, individual employee profiles/experience, performance evaluation histories, and promotion data. You’ll also want to review your pay structures, including those for starting pay, merit increases, and promotional pay to eliminate gender, race, and other biases in your pay scales.
Employers should plan to conduct a self-audit of recent pay decisions. Choose a period for the audit long enough to provide a sufficient number of decisions to produce a meaningful analysis but short enough so that turnover of employees does not create unnecessary complications in analyzing the data.
Data Analysis
Effective pay equity programs rely on robust data collection and analysis. If you identify statistically significant pay disparities in your initial analysis, examine the data one layer at a time and ensure it is correct. This may require consulting an outside professional or legal counsel skilled in pay discrimination issues. If significant disparities remain, there is likely systemic pay discrimination that can lead to a legal challenge if corrective action is not taken.
Follow these best practices when analyzing your data:
- Data collection: Gather comprehensive compensation data, including base pay, bonuses, benefits, and equity awards. Ensure data is disaggregated or broken down into subgroups by gender, race, and other relevant factors to be able to identify hidden disparities.
- Benchmarking: Compare your organization’s pay practices against industry standards to remain competitive. SHRM's Benchmark HR & Business Metrics with Confidence interactive tool may be a helpful resource.
- Intersectional analysis: Examine pay gaps across multiple dimensions, such as gender and race, to address compounded inequities.
- Statistical analysis: Use valid statistical methods such as regression analysis which can identify and control non-discriminatory variables such as job level, experience, performance, and education to determine if pay gaps are justified or indicate potential bias.
Pay Equity Best Practices
Achieving and maintaining pay equity requires a dedicated and systematic approach. By following these best practices, organizations can ensure that employees are compensated fairly, fostering a more inclusive and equitable workplace.
- Break down compensation data by gender, race, role, and tenure as well as pay range and pay transparency data for state/local jurisdictions.
- Use proven statistical methods to pinpoint unexplained pay gaps.
- Partner with external experts if in-house expertise is limited.
- Address identified pay disparities by adjusting salaries and total compensation packages.
- Implement policies to reduce managerial discretion in pay decisions, minimizing bias.
- Document all decisions and actions to ensure transparency and legal compliance.
- Train managers and HR teams on pay equity principles and unconscious bias.
- Develop accessible resources, such as FAQs and guides, to educate employees on pay structures.
- Regularly review compensation data to detect emerging disparities.
- Establish a formal schedule for pay equity audits and policy reviews.
- Hold leadership accountable for maintaining equitable pay practices.
SHRM Resources
- How to Conduct a Pay Equity Audit
- Job Evaluation Guide and Best Practices
- Job Analysis 101
- Determining New Hire Pay Placement Within a Range
- Evaluating Off-Cycle Pay Raise Requests
- Common Types of Differential/Premium Pay
- How to Establish Salary Ranges
- Shift Differential Policy
- Performance and Salary Review Policy
- Merit Increase Policy and Procedure
Pro Tip
Employers struggling to establish a pay equity strategy should start by examining their job architecture framework. This involves making sure that employees are correctly classified through clearly defined job families, sub-families, and individual roles within them, combined with a comprehensive grading/leveling strategy.
Technology and Pay Equity
HR technology systems or vendors can expedite what has typically been a manual, time consuming process in pay equity analysis, increase the frequency of data collection, and facilitate compliance efforts. Experts recommend systems that can tie into other systems outside of HR, such as finance, as well as integrating data across those systems to increase data value. Appropriate privacy safeguards are essential, as is a good understanding of the problem the platform needs to solve. Consider the following when evaluating systems:
- Culture and employee experience.
- User experience — how easy it is to navigate the platform.
- Flexibility for business needs.
- Smaller tech companies for more competitive pricing.
Choosing a Pay Equity Technology Tool
Modern compensation technology can generate easy-to-understand dashboards based on a wide range of data points, highlight red flags, and even spot areas or identify groups where pay inequities are occurring. Platforms can play a role in both pay equity and pay transparency by comparing compensation rates internally and externally while accounting for relevant nondiscriminatory factors such as education and seniority and providing visibility into pay range placement. In short, companies gain a statistical picture of their workforce compensation based on gender, race, and role tenure — correlated to experience — and can be more strategic in setting and adjusting compensation rates.
Sending an RFP (request for proposals) to potential vendors allows you to easily compare and compile responses. Make sure the data vendor uses a variety of sources for their compensation information and be clear about what industry you are targeting. Key questions to ask include:
- Where does the vendor source their data?
- How often is the data updated?
- What is the target audience or industry for the data?
- Are your organization’s jobs reliably benchmarked in the vendor’s data?
AI Tools for Pay Equity
AI-powered pay equity tools can identify patterns of inequity, predict potential disparities, and recommend corrective actions. These platforms offer added value through advanced data analysis, bias detection, and transparency features, but human judgement and insight remain an essential component to avoid discrimination. Steps to get started with AI include:
- Use built-in analytics from current HR information systems.
- Begin with basic gender pay equity analysis before expanding.
- Focus on creating clean, consistent data structures to upload into AI tools.
- Making use of more accessible AI tools such as ChatGPT if the tools are cost prohibitive.
Keeping AI Inclusive: Cautionary Tales and Proactive Solutions
In this episode of SHRM's All Things Work podcast, author and speaker Michael Bach discusses the importance of human intervention when integrating AI technology to mitigate biases in HR functions such as conducting pay equity audits.
Pro Tip
Choosing the right technology system for pay equity analysis a complex undertaking or HR, so it is important to gain input from and collaborate with key stakeholders to make an informed choice. For example, partner with senior leaders, hiring managers, and in larger firms, IT, and accounting staff as well as including legal counsel.
Expert Advice
Take advantage of these SHRM resources for more expert insights related to pay equity and transparency, earn professional development credits (PDCs), and gain a competitive edge.
Let's Talk About Pay: Hard Conversations and Negotiation Strategies
Ben Zweig, CEO of Revelio Labs, shares pay negotiation strategies for employees, unpacks the psychological and social barriers to self-advocacy, and equips people managers with empathy-driven tools to build trust and transparency in compensation discussions in this All Things Work podcast episode.
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