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The best talent will always have the most choice when it comes to who they work for — so what are they looking for? 

Research shows that companies with fair pay initiatives increasingly attract and retain top talent. 

Organisations that see this as a cultural imperative are therefore routinely evaluating their people’s salaries through the practice of pay equity audits. A focus on pay equity enables organisations to stand behind an employer value proposition that is grounded in the virtues of pay that is truly fair and competitive.

What Are Pay Equity Audits?

In a pay equity audit, you'll examine and compare the pay of people in similar roles against each other and their market rates. When you look at the market, you’re looking to see if what you pay your people is consistent with what they could be paid if they worked somewhere else. 

Many companies define what ‘competitive’ means for them in something called a compensation philosophy. This process is one way of staying true to that position. 

That same compensation philosophy should also make what is a reasonably standard commitment towards fair pay, in particular, that your company doesn’t intentionally discriminate in how it awards pay. 

A pay equity audit therefore compares the salaries of individuals within a group, to ensure that any reasonable factors such as performance or skills justify the differences in pay. While a compensation philosophy isn’t critical to making sure people are paid fairly, I recommend one, as it goes a long way towards affirming your organisation's commitment to your people.

It’s always in a company's best interest to undertake both the internal and external parts of a pay equity audit on an ongoing basis. Firstly, it eliminates the risk of underpaying your people and losing critical skills to a competitor that pays more generously. 

Secondly, paying people differently based on traits such as age, gender or ethnicity is not only unfair, it’s illegal — companies that let this pay practice go unaddressed risk not only demoralising their workforce but attracting massive fines and reputational damage by flouting laws such as the Equal Pay Act. 

Companies that are not only committed to rooting it out, but eliminating it, reap the benefits in both talent attraction and engagement. It’s a strategic advantage.

While companies rarely intend to circumvent fair pay, running a business can be chaotic, and disparities can emerge when left unchecked. It’s a bit like you’re driving down a road and become distracted by something outside the window, if the road suddenly curves to the right, you may find yourself scrambling to correct, or worse, veering off course. 

Both payroll software solutions and people management platforms are evolving in response to this, bringing features that dashboard information on these pay disparities, and giving organisations an even higher level of insight.

Arming yourself with insights is important, but it’s only through routinely undertaking a pay equity audit that you can ensure your company doesn’t veer away from where it wants to be.

Benefits Of Pay Equity In The Modern Workplace

The commercial benefits of a pay equity audit are many, but centre largely on ensuring your people stay motivated and stay longer.

But what does this look like for companies that don’t undertake pay equity audits?

Pay Equity in Action

pay equity in action infographic

Courtesy of pay transparency laws and protections, it’s not unlikely that your current employees will, at some point, either search for or be served an ad for a job that is similar to the one that they’re doing now, yet pays significantly more money. 

As you can imagine, the employee’s immediate next thought is likely “Why am I not being paid similarly?” 

Regardless of what happens next, what just took place is widely known as a moment that matters — a touchpoint in the employee experience that leaves a lasting impression as the employee may now be left feeling undervalued for the work that they do. 

Companies that proactively practise pay equity audits are aware of those roles in the market and are actively ensuring that a moment like this is instead one where their people affirm that they are paid similarly to the ad that popped up.

The same can be said of internal pay equity factors. Flaws in people systems and processes can result in pay discrepancies based on the traits of an individual instead of their role or performance. 

With the discussion of pay becoming less taboo by the day, if someone is paid less than their peer they’ll inevitably find out. In the best case, companies could expect that employee to raise it and have it addressed swiftly, hopefully limiting any impairment to motivation and engagement. 

Sadly, the worst case is more common, with systemic issues often creating barriers for individuals and leaving many unlikely to raise the issue — resulting in impacts on productivity or attrition. 

While the need for regular pay equity audits is clear, companies must take a structured and robust approach toward completing them, or their efforts will be seen as a veneer that causes more harm than good.

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How To Conduct A Pay Equity Audit

Any pay equity audit is a data-informed approach, so your intentions must be backed up with robust and accurate data on your people. 

Here is where the value of an employee management platform is critical for ensuring you can spend your time focused on analysing and taking action, and not on data entry. Once your data is in a good place, it’s time to dive in.

1. Document your pay practices

Most companies will undertake a pay equity audit on at least an annual basis, and you should look to codify this within your compensation philosophy. 

Documenting your pay practices gives certainty to your people of not only what is involved but when they can expect it to take place. Your compensation philosophy should therefore be the place you start when defining the goal of the pay equity audit, which is a critical first step in its undertaking.

2. Set goals that inform your approach

It’s easy for the volume of data that materialises in a pay equity audit to become overwhelming. To combat this, you’ll need to set a series of goals as a way to inform how you look into the mass of data you’ll be working with and draw insights that can inform action. 

For example, let’s say you are looking to compare all roles to their market benchmark and create a cost to remediate. You’ll need some key data points, such as employee salary, job level and market benchmark. 

3. Consider sub-goals

As you define top-level goals for a pay equity audit, you’ll undoubtedly uncover requirements that need to be satisfied to meet them — these are your sub-goals. 

An example of sub-goal may include ‘set a benchmark rate for each role type’, which needs to happen before we know if someone is paid fairly compared to the market. 

Defining the needs for your goals and documenting these sub-goals is critical to ensure you know what you’re doing and when you’re done. 

It’s also never a bad idea to speak with your legal counsel in a process like this, ensuring you’re accounting for any federal laws, DEI or demographic metrics that should inform your analysis along the way. 

But remember, your legal team is typically focused on what I would call the bare minimum — ensuring your company is avoiding the risk of a claim. 

It’s your role as a people operations professional to ensure that you’re accountable for another kind of risk — disengagement and attrition. It’s you who is focused on enabling an incredible people experience, and this often extends well beyond the compliance basics.

5. Define comparable jobs

Before looking at the data and coming away with your decisions, it’s important to start by defining comparable jobs, where the scope and responsibilities are largely similar. Job titles are a great place to start but you could go as deep as a review of skills and responsibility. 

Most organisations will employ a job-level framework that efficiently categorises individuals and aids in this process.

6. Define necessary data

Once you know what you’re looking for, it’s time to define all the data necessary for your findings. Of that data, what do you already have the information that needs to be surfaced or crafted so that you can make determinations and achieve your goals? 

It’s at this stage that solid analytical skills are important as you’ll face large amounts of information that can be made more efficient with clever formulas, reducing the overwhelming nature of this work. While large spreadsheets may feel impressive initially, they can be a nightmare to manage. 

These days, there’s a tool for everything, so let technology be your friend here. Good compensation management is made more difficult by manual processes and user interfaces that aren’t intuitive or easy to consume. 

7. Look for patterns and outliers

Once the data is gathered, it’s time to see what it tells us. Look for patterns or outliers, ensuring that the context of any comparison is correct and that it adjusts for legitimate factors like performance or tenure which may influence pay determinations depending on your pay philosophy. 

Important to note is that this process is likely to yield a ‘rinse and repeat’ of gathering more data or changing formulas to ensure accuracy, so don’t be disheartened if you have to return to the previous stage and adjust your sub-goals slightly to meet your goals effectively.

8. Compile your findings

Once you’ve been able to successfully investigate the data, it’s time to pull together your findings. This is commonly done in a report or presentation that can surface high-level insights such as a group's compa-ratio or pay gaps amongst roles of equal work, to determine where any remediation efforts should be directed. 

This stage often ends with a recommendation for addressing the areas of the business that are at odds with the pay stance we mentioned earlier and the cost and mechanism for doing so.  

Strategies For Correcting Pay Inequities

Of all the effort and complexity that a pay equity audit comprises, how organisations correct for them is the most important. 

While it’s one thing to direct the budget toward correcting for pay differences, it’s also the bare minimum. Leading companies are committed to meaningfully identifying the underlying causes of pay discrepancies and continually pursuing corrective actions that prevent them from materialising again.

The ongoing nature of pay equity audits

Companies should look across successive pay equity audits for patterns in their results, and drive pay equity audits from a merely compliance-driven transaction to a progressive and transformative talent enabler. 

An example may be that multiple audits repeatedly find one gender is paid less than another, despite the same roles receiving similar performance ratings. It’s these broader insights that can be a canary in the coal mine for surfacing systematic flaws in workplace practices, eroding their effectiveness. 

Companies would do well to use findings like this to drive initiatives aimed at controlling for the biases that led to those pay disparities, improving areas such as budgeting functionality and reducing the risk of disengagement or attrition in the process. 

Transparency drives success

Progressive companies aren’t keeping mum about their pay equity audits either. Organisations frequently platforming their efforts towards remediation are the ones that see pay equity audits as cultural imperatives, and are driving talent attraction and retention results.

You can start this journey by taking simple actions like debriefing your workforce on anonymous data of the findings and what actions you’re taking away from the effort. Highlighting areas such as how you are addressing any gender wage gap, or showing where the budget was directed in the last cycle are great places to share insights.

While it may seem daunting, I’ve witnessed first-hand the unprecedented support and appreciation shown by workforces treated as the lifeblood of the organisation that they are.

Evolve Your Approach To Pay Equity

Pay equity audits are a critical mechanism through which you can ensure equal pay — inside and out — but don’t let that be the end of it. 

Done well, pay equity audits can instil trust and show your people that fair pay is not just a nice to have but a deep-rooted pillar of your culture. Talented professionals are increasingly looking toward organisations with both commitment and accountability on this front.

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By Matt McFarlane

Matt helps Heads of People and Chief People Officers of scaling technology companies build and grow their company through their compensation strategy. With experience ranging from seed startups in a small office to companies with hundreds of people fully remote and globally distributed across 70+ countries.