Pay Equity Analysis

Defining pay equity goals for your organization is one thing, choosing a solution is another. And it's an important decision for employers because the wrong solution could put you in a worse position than when you set out to achieve your goals.

In this piece, we will be talking about the importance of choosing an honest, reliable, and consistent pay equity solution.

One of the most important criteria for choosing a pay equity solution is ensuring that the software doesn’t encourage gamifying the metrics. Below is an example of what we mean by that.

X Corporation implements a pay equity software solution that identifies pay inequity across white vs non-white employees as well as gender. In implementing the software and running the pay equity analysis, X Corporation discovers a significant gender pay disparity within its accounting department and a significant race/ethnicity pay disparity in its warehouse department. The pay disparities exceed $1 million and indicate that X Corporation needs to address compensation within the two departments. 

Alarmed by the findings, X Corporation adjusts controls within the pay equity software to see if it can arrive at a different outcome. They find that by adding “Division” to the accounting department analysis and “City” to the warehouse analysis the combined pay disparities drop significantly to $400K, which, on the surface, suggests X Corporation has a smaller pay disparity. The danger and the temptation with do-it-yourself pay equity analysis software like this is that you can get a better answer by toggling the model parameters, but should you?

In fact, there was no difference in skill, effort, responsibility, or working conditions between the accountants servicing the different divisions of X Corporation. The only difference is that those accountants focused on one division were predominantly women, while those focused on the other division were predominantly men. Division differences in pay were just another name for gender discrimination. Adding “Division” masked those disparities.

Similarly, the City differences in warehouse pay served to mask pay differences between white and non-white workers. The warehouses were in adjacent cities with nearly identical costs of living. The tasks and responsibilities of workers were the same. The only difference between these groups of warehouse workers was that one group was predominantly white and the other group was predominantly non-white. 

Applying such “convenient” factor controls (as Division and City above) gamifies the pay equity analysis results. All the software did was mask real pay inequity problems. Gamifying the analysis prevents X Corporation from achieving its pay equity goals to:

  • Minimize legal risk
  • Eliminate pay disparities
  • Promote social equity in the workplace

As these examples illustrate, gamifying your pay equity analysis -- that is, selecting controls to reduce your pay disparities -- ultimately only masks pay disparities. Regulators and plaintiff experts hone in on such masking or “tainted” variables and discard them. The only one fooled by such gamified results is the employer who created them.

In addition, a gamified selection of pay model parameters is incapable of reflecting jurisdictional restrictions on which pay factors can (or must) be included, whether for mandatory regulatory submissions or to qualify for litigation-safe harbors.

Gamified pay-equity software also encourages an employer to divide up their workforce into separate groups for analysis that yields the least pay disparity. As with the gamified pay factor selection just discussed, such groupings are statistically indefensible and are readily discarded by regulators and courts. 

Another notable difficulty with gamified workforce groupings is that doing so poses a significant risk for compliance with various local and international pay equity requirements. Certain jurisdictions, such as California and Illinois, use an equal pay for “substantially similar work” standard. Other jurisdictions such as Massachusetts use an equal pay for “comparable work” standard. Grouping to minimize disparities ignores and violates these requirements. 

While it’s true that every organization is unique and certain business factors may be more important than others in conducting the pay equity analysis, the example above is a case in point for why you need to select the right pay equity solution – one that provides you with the insights and interpretations to truly achieve the three goals described above. It also speaks to the importance of having an expert consultant to guide you through the analysis. 

The takeaway? Don’t tinker with pay equity controls just to reduce disparities. Instead, make sure that you apply the controls that your organization truly compensates differently for. Apply them consistently and honestly. 

There are pay equity software vendors that provide a plethora of modeling checkboxes to choose from in “getting to green” -- that is, to no pay gaps -- but these exercises are little more than entertainment. The key to credible, reliable pay equity analysis is combining a careful review of compensation philosophies with sound statistical methods and awareness of the appropriate state and international regulatory frameworks to ensure that your organization’s goals are being effectively and accurately achieved. 

During the pay equity analysis, it helps immensely to have a dedicated pay equity partner to assist with setting up the pay equity model and discussing both the implications and advantages of selecting the right factors. This is why choosing the right pay equity solution is paramount. 

Trusaic’s pay equity auditing and DEI analytics platform, PayParity provides a reliable framework for setting up and conducting a pay equity analysis and includes customized controls, but also provides you with a dedicated team of statisticians and international regulatory experts to assist you in understanding the analysis and the results. We can also help you understand the true risks gamification poses for your organization. 

The total compensation, DEI, and pay equity analytics software solution also includes the state-of-the-art Salary Range Finder®, which gives your HR staff and recruiting managers the tools to extend fair offers of compensation to your employees. Rather than finding and fixing pay inequities, you can prevent them from ever happening.

Pay equity and DEI goals are complex because they deal with people analytics. There is no cookie-cutter approach and every business is different. What matters most is that once you begin the process, you remain true to your commitment to achieving pay equity and do not alter the results to tell the story you want. 

To learn more about the importance of choosing the right pay equity solution and how to effectively discuss pay equity with various stakeholders, read our guide The Pay Equity Communications Planner.