State laws governing pay equity increasingly aim to give workers more power to bring pay discrimination lawsuits against employers, which is driving businesses to review pay practices before they face a lawsuit.
“There have been laws on the books for 50-plus years that prohibit pay discrimination,” said Mickey Silberman, a shareholder with Fortney & Scott who specializes in pay equity lawsuits. But a wage gap has persisted. States now are designing fair pay laws that make it easier “to bring and to win claims of pay discrimination,” Silberman said..
New York is the most recent state to expand its equal pay law to include additional requirements beyond gender, such as race, sexual orientation, and other factors. California, Colorado, Illinois, Maryland, Massachusetts, New Jersey, Oregon, and Washington also have implemented strong equal pay protections, according to the American Association of University Women.
Pay disparity can be the result of multiple levers within an organization, including the hiring process, the performance evaluation process, and the engagement level of employees inside the organization, Scott Cawood, president and CEO of compensation trade association WorldatWork.
“We’re seeing states, and even some at the federal level, trying to dismantle the system that results in somebody being paid inequitably,” Cawood said.
Pay Equity Audits
In response to these laws, employers are seeking to address pay disparities before they face litigation. New research from Harvard Business Review Analytics shows 77% of businesses have conducted a pay equity audit, while 9% of organizations surveyed this year say they have no plans to conduct one.
“There have been enough cases, and organizations also have enough knowledge about their compensation that there’s some exposure that they’re aware of,” said Alex Clemente, managing director of Harvard Business Review Analytic Services.
But the research found that other factors motivate employers to pull back the curtain on pay.
Fifty-four percent of the 589 respondents said the tight tabor market, and related recruitment and retention challenges, had led to a pay equity analysis, while 28% of respondents pointed to motivators such as pay reporting requirements from federal or state governments and mitigating risks of enforcement action or lawsuits.
Risk of litigation and the patchwork of state laws with which employers must comply drive employers to be more transparent about their pay practices, and to explain why gaps may exist, said Mark Dwyer, vice president of data science at Trusaic, a provider of compliance software for businesses.
Worker Expectations
Workers themselves are driving employers to examine pay practices, said Marta Turba, vice president of content at WorldatWork.
“There certainly is a lot more legislation, but there are totally different expectations from the workforce, too,” Turba said. Workers are asking for transparency and fairness in pay practices “regardless of whether the legislation is there to be a motivator or not.”
How organizations communicate with workers can still be tricky, however, if salaries need adjusting, Cawood said. “How do you tell somebody that you’ve done a pay audit and there’s an issue? Is it good news?”
Every business should take a look at their pay data, “and not be defensive if you find something that isn’t quite right,” he said. Employers should look at strategies to tell people about pay equity audits, why they need to happen, and be transparent with the results, he said.
To contact the reporter on this story: Genevieve Douglas in Washington at [email protected]
To contact the editors responsible for this story: Terence Hyland at [email protected]; Martha Mueller Neff at [email protected]