How Do We Address Salary Inequality in the Workplace?

“Equity” is a concept that’s been getting more traction in HR conversations lately. It has emerged as a useful guide for businesses to incorporate values of social justice into their organizations. But what is equity? And how can we tell whether a policy is equitable in its treatment of employees?

This article will look at equity and distinguish it from related concepts, like equality. We will outline ways an organization can use equity as a guide and discover why equitable organizations will likely be more profitable in the long term.

Let’s dive into pay equity, why it matters, and how we can work toward a more equitable future.

What Is Pay Equity?

Equity and equality both attempt to embody fairness. Equality is a way to achieve fairness, like in the principle that every person must be treated equally before the law regardless of their identity. While rules requiring equal treatment can get us closer to fairness, there are cases where equal treatment worsens unfairness. In these cases, equity is the proper solution.

Consider the following scenario:

A warehouse hires workers to fill orders on a contract basis. The company gives them each an identical ladder and the same eight-hour shift. They are each paid $1 per item they retrieve and pack. So far, all variables are equal, and their arrangements seem fair.

But what if the workers are each assigned to very different areas of the warehouse? Group one is assigned to an area with short shelves that can be picked by hand, and group two is sent to an area with short and tall shelves. Group three is assigned to an area where all the shelves are so tall that they require a ladder. In this case, our everyday assumption that equal treatment is fair treatment breaks down because groups two and three must work more to earn the same wage as group one.

What should the warehouse manager do when equality isn’t enough to produce fairness? They need to shoot for equity by adjusting the details of the contracts to account for the details of the different jobs.

They could adjust pay rates according to shelf height, provide workers with safety tools, or vary other aspects of the work or contract to achieve equitable pay for work.

Many organizations pay different amounts for the same work and qualifications. This is not just a moral and ethical issue, it is a legal one. Most countries have laws that penalize organizations for pay discrimination based on identity.

Laws across the globe, such as the Equal Pay Act of 1963 and Title VII of the Civil Rights Act of 1964, prohibit employers from discriminating in compensation based on gender, race, or other protected characteristics. Similarly, in 2021 the European Union began drafting an international legal framework requiring pay equity and transparency. And many other countries are enacting specific legislation to ensure corporate pay is transparent and fair.

Why Pay Equity Is Important

Pay equity is a basic requirement of fairness. Qualifications and performance must determine pay; any other factor—like gender, race, attractiveness, likability, or religion—should have no effect.

Pay equity is also crucial for promoting diversity and inclusion in the workplace. Employees are more likely to feel valued, motivated, and engaged when they believe their employer is committed to providing equal pay for equal work. This increases productivity, lowers turnover rates, and betters business outcomes.

Pay Equity and Inequality: Some Illuminating Examples and Statistics

Let’s consider some statistics about inequality in the global workplace. Here are a few examples of the problem as it exists today:

Gender Pay Gap

According to the  National Women’s Law Center, women working full-time in the United States are typically paid 67 cents for every dollar paid to men. Black women earn 63 cents and Latina women 57 cents for every dollar white, non-Hispanic men earn.

If this is a problem you’d like to help your organization tackle, check out our blog on Empowering Women in Male-Dominated Industries.

Racial Wage Gap

According to the  Economic Policy Institute, in 2020, Black workers earned only 73 cents and Latino workers about 72 cents  for every dollar earned by white workers.

CEO-to-Worker Pay Ratio

The CEO-to-worker pay ratio around the world is also startlingly high. According to a report by the Economic Policy Institute, in 2021, the average CEO earned 399 times as much as the average worker. The unfairness is glaring if one considers salaries a wage earned through labor. No matter how hard they work, a CEO won’t do the equivalent of 399 times more labor than their average workers.

Disability Discrimination

People with disabilities face a significant wage gap, earning only 68% of what non-disabled workers earn on average.

*Data compiled from the  World Bank, the  US Department of Labor, and the  US Census Bureau.

These statistics demonstrate that wage inequality is a complex issue requiring a multifaceted approach.

How HR Can Address Salary Inequality in the Workplace

Now, let’s address some less intensive and formal ways HR can address salary inequality. These are not meant to be taken as alternatives to a pay audit but rather as the major lanes where HR can take action to promote equity. A pay audit will give you more information about how to navigate in each of these lanes.

Evaluate and Standardize Hiring Practices

One way to ensure equitable pay is to make sure that employees are hired into appropriately compensated roles. This means identifying the qualifications and responsibilities of each position and documenting fair and competitive salary ranges for each.

Narrow pay ranges leave less opportunity for two equally qualified people to be hired at different rates. So, where a position’s pay range is wide, it should be part of a well-defined formal pay structure that defines salary sub-ranges based on objective criteria such as education, experience, and job responsibilities.

For more specific guidance, check out our courses on setting Initial Wages and Salaries and  Compensation and Benefits.

Counteract Biases in Performance Evaluations

According to the Society for Human Resource Management, performance evaluations can carry bias for a number of reasons, including rushed processes causing supervisors to focus only on the most recent performance results. These evaluations often result in personally biased responses that professionalism requires us to avoid. Here are two suggestions for getting better—and less biased—information out of reviews.

First, HR managers can create a clear, precise rubric for evaluations that defines the criteria against which the employee’s performance will be assessed and use objective evidence to measure their performance according to those criteria.

In the same article referenced above, Eric Ellis, a trusted SHRM conference speaker, even suggests moving away from yearly evaluations to quarterly reviews to maintain a more accurate and fair perspective.

Other Common Workplace Practices for Promoting Equity

In addition to these suggestions, we’ve created a short video of suggestions for other practices to promote equity in the workplace:

Common Workplace Practices for Promoting Equity | Knowledgecity.com

These are just a few suggestions, so if you want a deeper dive into practical methods, we have a full course on  Developing a Pay Equity Strategy.

How to Conduct a Pay Equity Audit

A pay equity audit aims to ensure that all employees are paid fairly and equitably for their work, regardless of their gender, race, ethnicity, or any other protected characteristic. It is not a complicated process, and its usefulness in addressing unfairness in pay will depend on the auditor’s intentions rather than on their data analysis skills.

Here are the five basic steps to  conducting a pay equity audit at your institution:

Gather and Analyze Data

The first step is to gather all the data about how much employees are paid and all other relevant data. This means collecting all employee salaries, job titles, qualifications, years of experience, accomplishments, and anything else that should affect a person’s pay.

Then, analyze the data to identify pay disparities between employees performing similar work with similar qualifications. There’s probably no organization in the world whose pay structure is completely equitable, so do not fear finding these disparities.

Identify Potential Disparities

Collect a list of disparities so you can identify patterns of inequality. To do this, you can ask two questions. First, do the employees being compensated more than others for their work have anything in common? Second, do the under-compensated employees have anything in common?

Address Any Inequities

If the analysis seems to suggest unjustified pay disparities, it is most helpful if HR managers address them promptly by bringing them to management’s attention. The remedy might involve adjusting salaries, revising compensation policies, and changing hiring and promotion practices to ensure that all employees are treated fairly.

The temptation to achieve equality by adjusting salaries downward is best avoided for two reasons.

First, in cases where some employees are undervalued, a downward adjustment in compensation will only result in more employees being undervalued.

Second, it sends the message that equity is achieved by penalizing those valued more rather than by increasing the quality of life of those valued less.

Communicate With Employees

It is important to communicate with employees throughout the pay equity audit process to ensure that they understand what is being done and why. This can help to build trust and support for the process and can also help to identify any additional issues or concerns that need to be addressed.

Monitor and Reiterate

HR managers should continue to monitor the situation to ensure progress over the long term. This will involve conducting annual pay equity audits to ensure all employees are paid fairly.

Why It Is in the Best Interests of a Company to Pay Its Employees Fairly

Achieving pay equity in the workplace is not only a legal requirement but also a moral obligation. Paying employees fairly is not merely the right thing to do, though. It is also in the best interests of businesses.

Harvard Business Review makes many strong points on the topic. They found that fair compensation can increase productivity and enhance a company’s reputation. When employees are paid fairly, they are more likely to be motivated and engaged in their work. This leads to increased productivity and better results for the company.

Conversely, when employees feel they are not being compensated fairly, it can lead to dissatisfaction, low morale, and decreased productivity. They may be less likely to put in extra effort, work longer hours, or take on additional responsibilities.

Fair compensation can also reduce employee turnover. Employees who feel they are being paid fairly are more likely to stay with the company. This way, they can retain valuable employees familiar with the company’s operations and culture. Businesses known for paying their employees fairly will also attract more top talent.

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Paying employees fairly is in the best interests of businesses. Employees are the backbone of any company and deserve to be compensated fairly for their work. By paying employees fairly, businesses can demonstrate their commitment to their employees and build a positive work culture that values respect.

This article only scrapes the surface of the resources KnowledgeCity has to offer. Our online videos cover numerous topics, including employee compliance.

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