Employers may already be aware of the pressure to disclose the gender pay gap in their organizations. What they may not know is that the pay gap issue is equally relevant with regard to all protected classes, not just in terms of gender.

As a result, employers need to be prepared with pay equity solutions to address the race and ethnicity pay gap as well as the gender pay gap. The Society for Human Resources Management writes: “As employers in the U.S. tackle issues around racism, fresh attention is being given to the racial wage gap and why Black men and women, in particular, still earn substantially less than their white counterparts.”

One expert quoted by the International Bar Association posits that “the Black Lives Matter movement creates a new inflection point and call to action that will mirror the catalytic #meToo movement of 2017 and drive employee bodies, companies and governments to take action on diversity and pay equity for ethnic minorities, rather than just paying lip service to the concept.”

UK Leading The Way?

A UK-based contributor to Lexology reports, “With racial equality more in focus than ever through the Black Lives Matter movement, we should expect to see the pressure for change in this area to continue.” The Lexology article also notes that, in the United Kingdom, “some large employers have started to report on their own figures. Professional services firm Deloitte has been publishing its ethnicity pay gap figures since 2017 with its latest figures showing a 14.6% mean gap. Lloyds Banking Group has become the first major UK bank to disclose its Black pay gap, which showed that its Black staff are being paid almost 20% less than their colleagues.”

Further, the CEO of Barclays, a Britain-based global investment bank and financial services company, stated: “Being a more diverse and inclusive organization also means addressing pay gaps where they exist at Barclays. I am encouraged by the progress we have made on this in recent years, but there is still more to do … we need to go further to understand the specific causes of lower representation of women and ethnically diverse colleagues in senior roles across our company, and how we can address them.”

The Difference Between Pay Gap vs. Pay Disparity

It’s important to remember that the pay gap is the unadjusted measurement of how much pay differs – “unadjusted” in that it does not control for legitimate business reasons for differences in pay. Pay disparity refers to the adjusted metric after controlling for legitimate business factors; for example, most organizations use tenure as a legitimate business reason for making a compensation decision. Other such factors, according to HRDive, include “job title, industry, job location, education, and experience … when these factors are taken into account, pay inequity gaps may still exist, but they will likely be smaller than an uncontrolled analysis will produce.” Such legitimate business reasons typically depend on the legal jurisdiction of the employer. 

However, if there is still pay disparity after controlling for legitimate business factors, this creates a legal liability that an organization must address; pay equity class-action lawsuits abound and will no doubt increase.

Why U.S. Employers Should be Proactive

Employers in the U.S. would be wise to recognize the importance of establishing ongoing, monthly monitoring of diversity, equity, and inclusion (DEI) metrics, including the race/ethnicity and gender pay gaps. DEI metrics reporting is increasingly being demanded by shareholders, who expect to see improvement in these metrics over time. Therefore, organizations should proactively monitor their pay gaps and disparities with pay equity audits.

According to the Harvard Business Review, “data presentation should allow for easy comparisons between units and across time periods” and recommend that employers “manage DEI [reporting] in exactly the same rigorous and data-driven way you manage the rest of your business. Achieving DEI objectives requires no more and no less than the use of the same planning, feedback, and accountability processes that are deployed to reach targets in sales, product development, and budgeting. Data drives targeted action and creates accountability in these domains, and so it should in DEI as well.”

By conducting pay equity audits on a regular basis, and controlling their pay disparity with regard to all protected classes, employers can qualify for “safe harbor” protection in jurisdictions that offer such provisions. In Colorado, the Equal Pay for Equal Work Act (EPEWA), which passed in 2019, offers a safe harbor for employers that conduct proactive, comprehensive pay equity audits. Employers may avoid damages if they can demonstrate with reason that they believed they were not in violation of the EPEWA. Similarly, Massachusetts passed its Equal Pay Act (MEPA) in 2016; its three-year safe harbor offers a complete defense for employers that can demonstrate reasonable progress toward eliminating unlawful wage gaps. And Oregon’s Equal Pay Act of 2017 (OEPA) takes an aggressive stance on pay equity, but also contains concessions for business, including phasing in elements of the law over time and creating a safe harbor for certain employers that conduct a pay equity analysis. 

Organizations looking to disclose pay equity, diversity, and inclusion data information should do so within an ESG reporting framework. Download our white paper, DEI in ESG Reporting to learn about the different standards you can leverage for sharing your progress.