Why Pay Audits Are Just the Beginning
Why Pay Audits Are Just the Beginning
If a company suspects pay inequity–or wants to proactively prevent it from occurring–the first step is to do a pay audit. This process determines if an issue exists and, if so, who is affected. Too often, however, employers believe that once the audit is complete and the company has made any appropriate adjustments, the problem of pay inequity is over forever, right? Well, no.
Pay audits are one tool to identify and monitor unequal pay in the workplace, but they’re not the only step to reconcile for or prevent uncontrolled pay gaps. Just like a fever is a sign of a deeper illness, we must look at pay inequities as a symptom–not a cause–of other disparities in the employee lifecycle.
Are you interested in diving deeper into pay equity? Check out the other blogs in the series:
- Why the Pay Equity Issue, Isn’t Really About Pay
- Talent Acquisition and Pay Equity
- Pay Equity and Equal Opportunity
If companies don’t correct unfair practices and procedures, inequities will continue in the employee lifecycle, even after the pay audit is complete.
Start with the pay audit
To address pay inequities holistically, companies must first determine their current state. Pay audits help organizations take a thorough look at how and what employees are paid and how those decisions are made.
A thorough audit looks at the data, often using statistical analyses to compare the salaries of those who do similar work and examining any discrepancies case-by-case. Outliers don’t always mean a pay inequity, as sometimes they can be explained by legitimate, nondiscriminatory reasons such as longer time in the job or higher performance ratings. But it is critical to go through each instance to determine if any unexplained patterns exist.
Examine compensation practices
In addition to reviewing the specific outliers, it is necessary to look at the existing compensation practices beyond a fixed salary when searching for pay gaps. For example, how do commissions and competitive compensation systems affect pay gaps? In commercial real estate, where sales commissions are a major component of the salary, the gender wage gap has widened in the last five years. Women make 10% less than men in fixed salary but earn 56% less in commissions and bonuses.
Commercial real estate is not an anomaly. An ADP study found that across the U.S., in exempt salaried positions, “the average bonus amount for women was less than two-thirds of the amount paid to men who had equivalent base pay, age, and tenure.”
Bonuses and commissions are intended to be based on merit. However, other factors -such as bias influencing a manager’s decisions when assigning lucrative assignments– may come into play. Establishing processes that review the distribution of opportunities can ensure there is equitable access to opportunities that would lead to higher commissions and bonuses, in addition to fair salaries.
Leadership buy-in is critical for successful pay audits
While companies increasingly face pressure to address pay inequity issues, many businesses don’t perform pay audits. Harvard Business Review reported that in a survey of the 922 largest public companies in the U.S., only 22% said they had conducted a salary audit between 2016 and 2020.
However, that may change, as companies may do more audits in the future. As an example, starting this year, California will require private employers to file pay reports annually. California is often a leader of employment trends, so other states may follow suit.
Conducting a pay audit requires commitment and support from senior leaders to identify problems and take action. . By addressing pay issues proactively, companies may reduce their risk of defending equal pay claims in the future. Otherwise, if these situations were known but weren’t addressed, companies may face serious legal and reputational ramifications.
Changing workplace culture to address pay inequities
The NYC Commission on Gender Equity said it best: “True pay equity requires a change in workplace culture.” This is a bigger picture approach than conducting a pay audit and reconciling any inequities. The commission suggested several practices to consider for supporting that shift:
- Make wage and gender-equity an employer-wide value
- Implement unconscious bias training
- Address equity in recruiting and hiring practices
- Use gender-neutral language in recruiting materials
- Consider eliminating identifying and historical information – such as educational background, salary history, racial and gender identity – that can create bias in hiring and compensation decisions
- Use structured interviews and have interview panels that represent a diversity of views, experiences and roles within the organization
Communicating the pay audit results
Once the pay audit is complete, leaders should consider how–not if–they convey the results to employees. As with any problem, when companies address them directly, provide an improvement plan, and show progress; employees, customers and the community are appreciative.
Pay gaps can be reduced through transparent pay practices. These practices include explaining to employees how salaries are set, how salary increases and bonuses are decided. Payscale found that these conversations helped decrease bias among leaders who made compensation decisions.
Finally, equitable pay practices are not just about legal compliance–although that is a noteworthy aspect. They can impact an organization’s ability to recruit. In a Glassdoor survey, 63% said they would not be likely to apply at a company where a pay gap existed. And when employees find out they are not being paid commensurate with their colleagues, it can cause significant workplace culture issues such as decreases in engagement and morale, and increase the risk of employee attrition. These workplace culture issues ultimately affect the organization’s ability to perform.
A pay audit is not the final step in creating pay equity, but it is a necessary step in creating an equitable workplace.