Lyssa Hansard is the founder, CEO and principal consultant at Cura HR.
Most business leaders approach pay equity analysis with good intentions but incomplete execution. Running the statistical analysis will identify problem areas, but focusing only on significant outliers does not fix the outcomes, long-term. The typical pass/fail rating for each group of employees results in minimal adjustments for a handful of outliers.
This approach does not address systemic problems around compensation decisions and misses the opportunity to create meaningful, lasting change in an organization. To change systemic problems, we have to change systemic behavior. My company conducts dozens of pay equity analyses every year, and I encourage leaders to develop a new strategy based on transparency and cultural change.
Here are our secrets to moving beyond a pass/fail standard toward a more consequential change.
1. Differentiate Your Company
Read any company’s pay practices from the last 20 years, and they will follow a familiar script: “We offer market-competitive compensation. We are committed to internal equity and pay transparency, and we pay for performance to attract, retain, reward and motivate top talent.”
This type of generic statement does not articulate a story to the talent market, or to your managers who are making compensation decisions. It does not capture what you value and what you want to prioritize. Be honest and specific about your values and what drives your business. What do you care most about? What do you want to pay for?
Differentiate your company from others in the market by making a bold statement. Define your compensable factors—the compliant criteria you use to determine pay for a particular job—that you want to shape your compensation philosophy. Get clear on what you want to pay for, whether that’s experiences, performance, tenure or continuous learning. Engage your internal stakeholders to define and implement new decision criteria, and communicate it to existing and prospective employees.
2. Track What You Value
Once you’ve put a stake in the ground and identified your compensable factors, start tracking them. You need measurable data to understand what you’re doing now and what you want to change in the future. Transparency leads to accountability.
If you value education and lifelong learning, for example, monitor employees’ degrees and certifications, training program completions, skill development milestones and continuing education credits. If you believe you pay for performance, define and track clear performance metrics for each employee. Document how these factors influence internal decisions about hiring, promotions and pay raises. This exercise should happen more than just once a year. Aim to integrate tracking into your ongoing business practices and your ways of working, so you can make more informed decisions, just in time.
Inaccurate data can lead to inaccurate analysis. For key factors, such as tenure and years of experience, companies frequently rely on rough estimates from HR. Take the time to collect precise data—cross-referencing multiple sources if necessary—to factor into compensation decisions.
3. Establish Pay Analysis Groups
To conduct a pay equity analysis, define groups of employees who perform similar work. Look beyond job titles, pay grades and even job series, to account for comparable knowledge, skills, experience and responsibilities. This approach helps ensure that pay comparisons are fair and based on actual job functions, so you can recognize employees’ specific contributions and identify pay discrepancies.
4. Conduct A Pay Equity Analysis
Set Goals
Before you get started, consider drafting your goals for the analysis.
• What do you hope to achieve?
• What do you want to be able to say about how you compensate employees?
• What kind of diversity do you want represented throughout the organization? How can you support this, and what do you want a pay equity analysis to demonstrate?
You may never achieve a zero pay gap, but you can defend your practices and demonstrate a consistently low gap, fluctuating slightly above and below zero. By establishing real goals for your equity and diversity in the organization, you will be better prepared to evaluate the results of your analysis.
Run Regression Analysis
When you have clearly defined your compensation philosophy and collected data to gauge your progress toward your objectives, you are ready to run a pay equity analysis.
Using validated data, perform a regression analysis for each work group to quantify how specific factors (performance, education, experience, tenure) actually influence compensation—and how pay disparities correlate with gender, race, ethnicity, etc. This process not only highlights pay gaps but also facilitates understanding the underlying causes of these gaps.
5. Update Your Practices
The results of your pay equity analysis will give you a clear picture of how well your values are translating into actual compensation practices. Use this information to identify systemic patterns of compensation that might result in disparities for particular groups, even if individual differences seem small. Dig deeper to understand where processes are broken, pay decisions are inconsistently managed or opportunities are inaccessible to underrepresented groups.
Instead of looking at pass/fail outcomes and adjusting outliers with pay gaps, make targeted changes based on compensable factors to address systemic inequities.
For instance, if the analysis reveals that your company is consistently paying women of color less than white men in a particular work group, make adjustments for the entire group based on compensable factors. If you say you want to pay for education, raise the salaries of all employees with comparable education to an equitable level. Don’t just set aside this data until next year. Use these factors to make better compensation decisions going forward. Integrate them into your ongoing pay practices, hiring processes, performance reviews and promotion criteria.
The business world is moving toward greater transparency, and companies that embrace this shift will already be ahead of the competition. Don’t fall into the common trap of fading into the background because you sound like everybody else. Get clear on what you value, and align your pay practices with that North Star.
Forbes Business Council is the foremost growth and networking organization for business owners and leaders. Do I qualify?
Read the full article here
