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What is pay equity? Understanding the state of equal pay today

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Are you familiar with Equal Pay Day? The National Committee on Pay Equity (NCPE) initiated it in 1996. According to the NCPE, “This date symbolizes how far into the year women must work to earn what men earned in the previous year.”

In 2022, Equal Pay Day was March 15th.

The NCPE elaborated, “Because women earn less on average than men, they must work longer for the same amount of pay. The wage gap is even greater for most women of color.”

According to the U.S. Census Bureau, the female-to-male earnings ratio has improved from 60.7% in 1960 to 83% in 2020. And while a range of of states — from California, New York, and Florida to Arkansas, North Carolina, and Wisconsin — have made significant progress toward true gender pay equity, states like Wyoming and Colorado still posted gaps north of $15,000 as of 2019.

Moving in the right direction? You bet. Good enough? Nope.

In this article, we're going to take a closer look at the state of equal pay today, including:

Let's get started.

Definition of pay equity

According to Karen Denney, an attorney with Haynes and Boone in Fort Worth, Texas, pay equity “means compensating employees the same when they perform the same or similar job duties, while accounting for other factors, such as their experience level, job performance and tenure with the employer.”

That means equal pay for equal work, regardless of gender, race, disability, age, LGBTQ, or other status. The federal Equal Pay Act has prohibited sex-based discrimination since 1963, but loopholes and gaps have rendered it largely ineffective. As a result, many states are now writing their own pay equity laws.

[ Related: 6 best practices for diversity, equity & inclusion ]

Why is pay equity important to businesses?

In addition to being socially responsible, businesses also need to make a focused effort on pay equity. There are several reasons they should do this.

First, implementing pay equity standards can help prevent discrimination lawsuits. For instance, according to the U.S. Department of Labor, in September 2019, a technology company agreed to pay $7 million to settle claims alleging gender and race-based pay discrimination.

Second, pay equity helps attract talented new employees. In light of the Great Resignation, employees currently have a distinct advantage over employers in a very competitive labor market. A company that backs up its claims that it believes in and practices pay equity can gain a competitive advantage over companies that don’t deem this issue important enough to discuss and disclose.

Pay equity also reduces workplace turnover. Employers cannot prohibit employees from sharing salary information. They can discourage it, but not prohibit it. And, if you’ve ever worked in an office, you know that salaries are discussed frequently.

This can hurt an employer when a new employee is hired at a higher rate of pay than a current employee doing the same job. That may not be illegal, but it will lead to hard feelings for employees who have been with the company for a while and can lead to increased turnover.

Lastly, pay equity improves productivity and morale. Employees who are being treated equitably when it comes to compensation are happier employees who will produce a higher volume of quality work than a disgruntled employee who feels they are being discriminated against.

[ Related: The truth about employees with disabilities in the workplace ]

The problem with pay transparency

Of equal concern to women is the issue of pay transparency.

According to the annual State of Women in Revenue report, almost half of women executives in sales and marketing, revenue operations, customer success, and professional services roles considered quitting their jobs in 2021 over pay equity concerns.

But, pay transparency was listed as number one in their top five workplace concerns:

  1. Compensation transparency
  2. Community support and mentoring
  3. Work flexibility
  4. The Great Resignation (talent retention and career opportunities)
  5. Sexual harassment

According to a survey conducted by in the fall of 2021, only around a third of companies have a written policy supporting pay transparency. However, that is changing. For example, Colorado and New York City will require all job postings to include minimum and maximum pay ranges in their job advertisements effective November 2022.

What is perhaps one of the biggest job boards in the world, the social media site LinkedIn, has come under fire for not requiring companies posting open positions to disclose salary information. Many job seekers on LinkedIn have publicly stated they are refusing to apply to companies that ask for their personal information yet refuse to provide salary information.

How can employers help implement pay equity policies?

Employers who are genuinely concerned about pay equity can make proactive changes. HR and payroll technology company ADP recommends that companies:

  1. Document pay equity strategies and update job descriptions and pay structures to align with new policies.
  2. Communicate with employees about the company’s pay equity goals and how it plans to achieve them.
  3. Adjust recruitment and talent management tactics if one particular race or gender constitutes the majority of certain roles or departments.
  4. Conduct a pay equity analysis to identify any potential wage gaps that may be the result of discrimination and correct them.

A pay equity analysis is a statistical way of identifying pay gaps within an organization. It cross-references pay scales against any number of criteria — gender, ethnicity, education, seniority, etc. Discrepancies that can’t be explained by legitimate, nondiscriminatory reasons require further investigation and corrective action on behalf of the employer.

Best practices for pay equity today

In addition to performing a pay equity analysis, employers can:

Review compensation trends inside and outside of their company

Employers need to do their diligence and learn what industry compensation standards are and how much their competitors are paying their employees.

Be transparent about pay

While employers don’t have to disclose individuals’ compensation, they can let employees know how decisions affecting pay are made. This inspires employee trust and compels management to justify that compensation levels are performance-based.

Prohibit salary negotiations

By having a clearly communicated pay structure and compensation objectives, employers can clearly explain their rationale for bonuses and raises to employees asking for more money or threatening to leave the company.

Prioritize budgets

Creating pay equity means closing wage gaps, which requires careful budget planning and the ability to manage conflicting priorities between departments.

Final thoughts

Building pay equity into a company’s culture requires ongoing attention. Regular reviews will show the progress being made toward equitable pay and help identify other areas needing adjustments, such as performance review practices, promotions, and recruiting.

The information and content provided herein is for educational purposes only, and should not be considered legal, tax, investment, or financial advice, recommendation, or endorsement. Breeze does not guarantee the accuracy, completeness, reliability or usefulness of any testimonials, opinions, advice, product or service offers, or other information provided here by third parties. Individuals are encouraged to seek advice from their own tax or legal counsel.

— Published August 18, 2022
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