How to check in on pay equity

Creating an equitable employee compensation plan can involve high-pressure decision-making—perhaps even more so than picking a Saturday-night movie.

While gender- and race-related pay gaps appear to be slowly closing, achieving fairness isn’t as simple as giving everyone a raise for good performance, explained Megan Smith, VP and head of HR at SAP North America. “A lot of companies recognize performance-driven compensation decisions make a lot of sense…But to make a salary decision on that alone ignores a lot of other…relevant environmental factors that also go into fair pay.”

Some companies and US legislators are working to close pay gaps, but compensation experts told HR Brew that the keys to achieving pay parity are pay transparency and regular data analysis and adjustments.

Transparency. “Part of the answer to closing gender wage gaps and racial wage gaps…is greater pay transparency because sunlight is a disinfectant here,” Emily Martin, VP for education and workplace justice at the National Women’s Law Center, told the 19th News site in March.

Just look at Denmark: According to a report from the National Bureau of Economic Research, the nation’s 2006 pay transparency laws reduced the gender pay gap 13% by 2008 (though much of this progress, Politico notes, can be attributed to men’s wages stagnating, not women’s increasing). While research on the effectiveness of pay transparency is still limited, Europe has slowly expanded its pay transparency rules in recent years, and in the US, New York City and some states have taken similar measures to reduce pay disparities.

At SAP, Smith said an internal pay transparency tool, introduced in 2020, allows employees to see the salary range for their position and how it might change at more senior levels. This transparency, she said, “holds the company accountable” and “provides the benchmark for the employee around market competitiveness and internal equity.”

Timing. A full pay equity analysis doesn’t happen overnight. Brian Levine, strategy and analytics partner at consulting firm Mercer, told HR Brew that an equity analysis can take up to 12 weeks and involve statistical analyses and consultations with a legal counsel to ensure any adjustments are lawful.

CNBC reports that US companies have conducted equity analyses on an annual basis, but Levine suggests doing reviews at the middle and end of the year. “There’s a lot of benefit to doing analysis and then informing adjustments at mid-year because so much happens at year-end,” he said.

Smith explained that SAP uses annual reviews to look at “not only scalable ongoing processes to maintain fair pay, but actually point-in-time analysis to ensure that we are committed to providing equitable pay across the company.” This approach helped it reach gender pay parity globally in 2019, the company .

Looking forward. Still, the software companies use to pinpoint pay gaps only analyze data based on gender and race. To ensure equity among other traditionally marginalized groups or based on a more intersectional approach, more data is needed. “The challenge that companies are facing,” Levine explained, “is how do you collect that data while allowing people to have the freedom to disclose or not.”

It’s not just about making pay more equitable, Smith added, but making the workplace more equitable.

“It also comes to access to opportunity and inclusive practices that actually get people into your company to begin with,” she said. “We’re not trying to say everyone needs to make the same amount of money, but we have to make sure when we’re measuring performance, it’s a data-driven, fact-based conversation about outcomes.”—KP

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