What to consider when considering a pay equity analysis

When it comes to pay equity, employee perception can be as damaging as the closely guarded reality. Just ask Apple, which is facing serious blowback after it banned a Slack channel dedicated to discussing pay transparency.

Perceptions of pay inequity are related to increased turnover rates and lower employee morale: both things employers want to avoid amidst the Great Resignation.

With or without a dedicated Slack channel, workers across the country are discussing pay equity, and with good reason:

• According to 2021 data from Payscale, women still make an average of 82 cents for every dollar earned by men—a gap that widens for Black women to 63 cents to every dollar earned by a non–Hispanic white male, according to Equal Pay Today.
• Early evidence suggests the pandemic might have moved the needle in the wrong direction, as women disproportionately left the workforce to attend to childcare and came back to lower starting pay.

It pays to run. The best thing HR can do is be proactive. Rob Porcarelli, COO of Syndio, a pay equity software company, told HR Brew that employers should, “run toward the problem” of pay equity.

“The best companies are the ones who look under the hood, find some rust, and fix it,” Porcarelli explained. “The key is, companies can’t be afraid to look. Workforces don’t expect perfection, in fact they’d be seriously skeptical if you told them there were no pay problems, but they do expect a good-faith effort toward addressing disparities.”

Helping companies run toward the problem is big business: Law firms are the OG pay-equity partner, working under attorney-client privilege to offer companies tailored assessments of the legal risk associated with their base pay, merit increases, and spot bonuses.

They are far from the only players in the game. Increasingly, software forward companies—including, EquiCalc, Beqom, and Affirmity—are vying for a piece of the pie, promising to deliver the same high-quality results as law firms faster and at a fraction of the price. Though the tech vendors vary in approach, most streamline the data-cleaning process and employ AI to group employees into comparison groups— two pieces of the process that can be time consuming. There is a market for efficient, lawyer-lite solutions: As of September, Syndio and its pay-equity software raised $50 million dollars in funding.

Decisions, decisions. When selecting a partner, HR departments have a lot on the line: Fumbling pay-equity concerns could lead to pricey litigation under federal and state laws and accompanying bad publicity.

Proponents of software argue their solutions are superior to the old method of hiring lawyers to do pay equity assessments. Dan Levy, National Managing Director of Advanced Analytical Consulting Group, said software could “cut both [companies’] internal effort and the outside consulting costs to maybe 10% of what they were in prior years.”

Porcarelli, who formerly served as global head of employment law at Starbucks, offered one explanation for why software is more expedient. In his view, when lawyers get involved, “time expands.”

“Using Syndio, employers can make decisions in seconds that I’ve literally seen take weeks when lawyers get involved,” said Porcarelli. “Besides, who put legal in charge of embedding equity? I say that as the guy who was previously in charge of putting the brakes on everything.”

Lawyers beg to differ.

Stacey Bastone, an employment attorney at Jackson Lewis, told HR Brew that aside from the benefits of conducting analyses under privilege, law firms dip deeper into possible compensation problems. This deeper analysis, admittedly, takes time, but she argues that they get it right, minimizing clients’ legal risk.

“These ‘off-the-shelf’ software options may be a good way to get a very high level picture of red flags in your compensation, but I think you need to really work with somebody that understands your compensation system to get a nuanced look,” Bastone explained. “A lot of the software out there is designed to identify class-based discrimination: They are not designed to identify the individual comparisons that employers need to make remediation decisions. That type of review can only be done by a literal line-by-line review of your workforce.”

Levy agrees, to an extent. He advises HR to look for differentiators between software firms to find the most capable partners and weed out subpar solutions.

“Find out what range of statistical tests the software performs,” Levy advised. “Can the software handle glass-ceiling analyses, small group comparisons, and suggest adjustments for underpaid groups?”

He also advises working with a company that lets you “try before you buy,” noting that any company that is cagey about their methodology might be cutting corners or relying on software that doesn’t work as advertised.

Zoom Out: Software offers employers the ability to look at pay on a regular basis, uploading new compensation rosters as they see fit. In contrast, law firms typically evaluate pay in a robust manner at most once per year. According to Christine Hendrickson, who heads Seyfarth Shaw’s pay-equity group, it may not be a question of either/or but a question of addition. She thinks that companies may find benefit in both approaches.

Bottom line: Companies need to have a strategy for evaluating compensation and be highly selective when choosing their partner, be it software or lawyer. Silencing Slack channels won’t make the problem go away.