The start of a new year is a great time to consider a pay equity audit, especially with budgets, raises, bonuses, and promotions often being finalized. As you plan this for 2024, the audit itself matters, but just as important is to be ready to take action after conducting the audit.
Pay equity is a major concern for employee retention. Two employees doing the same job with inequitable compensation in the absence of extenuating circumstances is a recipe for internal swirl and often leads to higher costs in the long run. The costs of an inequitable pay structure include increased turnover, deterioration of company culture, and often public hits to the company’s reputation and ability to hire top talent in the future.
Beyond this, those from historically excluded backgrounds, such as women and people of color, are often impacted disproportionately and more negatively with lower pay compared to their peers. According to State of Inequity: Building a Brighter Future for BIPOC at Work, a report by Hue, BIPOC women are twice as likely to not be paid fairly and 1.5 times as likely to report they haven’t had opportunities to succeed compared to White Americans at their company.
With that in mind, we’ve collected a few simple steps to conducting a pay audit and analysis.
Collect accurate data
Compile relevant employee information, such as current salary, role, name, geography, tenure, level with the company, and salary history within the company. This provides a baseline, to which you can add demographic data, performance history, and other markers such as the recruiting source (whether the employee was a referral, online applicant, etc.) for a more robust view.
This is not always easy, and support from experts who may be external to your organization may be required, whether it’s at the outset to determine benchmarks and goals or whether it’s deeper down the process to enable effective action and rollout.
Make adjustments
After grouping employees by job, level, or other relevant criteria, those analyzing the data can identify outliers who are either paid much more than their peers or much less. Legal and compliance consultants say that around five percent of employees are eligible for pay increases ranging from 4-6% of their salary. It is not recommended to decrease salaries for anyone, but that’s still useful information to have as it relates to raises for those individuals in the future.
HR can also note these results to ensure that new hires are paid in a range that follows a model that would ensure continued equity in this analysis. If you’re at a larger company, your payroll and HRIS providers would likely be willing to help you out here (and you could potentially even earn some good press by doing so).
Stay vigilant
As your company grows and new employees join, other changes within your organization may come as well, such as payroll system changes, and geographic expansion to places where you’ll need financial experts helping you with currency exchange and legal experts to comply with employment laws in different countries. This makes driving equitable pay more complex but requires even more emphasis.
Gaining buy-in from across the organization for this effort is critical. Salaries and compensation are a sensitive subject. There can be pushback or resistance from top-level leadership, either on the effort to conduct the analysis or on the money it will take to make adjustments. Considering that recent data from Korn Ferry suggests that 60% of companies are conducting regular pay audits and acting on them, its importance is clear at a broader level to drive competitiveness for your organization.
Ultimately, outside vendors can help complete the execution of a pay equity audit, but the initial push must come from leadership and HR. From an employee relations standpoint, letting employees know that you’ve conducted an audit, and even sharing details of some of the results or corrective actions taken can be a boost to culture and morale. If employees feel they are being treated fairly, it can go a long way for retention and productivity.
