Pay Equity
Frequently Asked Questions
What is a pay equity study and how is it different from a pay gap analysis?
Pay equity studies involve analyzing compensation among similarly situated employee groups—those in comparable roles with similar responsibilities, skills, and qualifications—to identify disparities in pay within these groups to help organizations ensure fairness and compliance with anti-discrimination laws like Title VII of the Civil Rights Act and the Equal Pay Act.
A pay gap analysis compares the average earnings of different demographic groups—such as men vs. women—across an entire organization or workforce. It can be unadjusted (comparing raw averages) or adjusted (accounting for factors like job level, location, or experience).
Why is conducting a pay equity analysis important for organizations?
A pay equity analysis helps organizations ensure fair compensation practices, reduce legal risk, improve employee trust, and support compliance with equal employment opportunity and pay equity laws.
Which laws and regulations govern pay equity?
In the United States, laws like the Equal Pay Act, Title VII of the Civil Rights Act, the Americans with Disabilities Act, the Age Discrimination in Employment Act, and the Lilly Ledbetter Fair Pay Act require pay equity on a federal level. Many states in the U.S. have also enacted their own laws regarding fair pay.
In the European Union, the European Union Pay Transparency Directive and the Member State-specific laws stemming from the Directive are the primary regulations regarding pay equity.
What does a pay equity analysis involve (and how do we conduct one)?
Conducting a pay equity analysis is essential for ensuring fair compensation practices and maintaining compliance with U.S. labor laws such as the Equal Pay Act and Title VII. The process begins by defining the scope, such as whether the study is organization-wide or limited to specific employee populations, and objectives. Next, employees must be grouped into Similarly Situated Employee Groups or other comparison groups based on job content, level, and responsibilities to ensure accurate comparisons. Then compensation data (including base pay, bonuses, and equity) must be collected and normalized along with legitimate pay factors like tenure, education, and performance ratings. After pay data and factors are collected, the appropriate statistical method must be selected. Options can include multiple regression analyses for large groups or Cohort Ratio Comparison (CRC) for smaller populations. When the calculations are complete, results must be interpreted to identify statistically significant and unexplained pay disparities. Finally, a remediation strategy that may include salary adjustments, policy updates, and documentation must be determined. This structured approach to salary equity audits supports workforce transparency and helps U.S.-based employers mitigate legal and reputational risks.
Should a pay equity analysis be done under attorney–client privilege?
When and how often should we perform pay equity analyses?
What forms of compensation should I include in a pay equity analysis?
What factors can justify pay differences?
What counts as a statistically significant pay disparity?
What should we do if our pay equity analysis finds unexplained pay differences?
How can we prevent pay inequities from arising in the future?
What should we do if an employee complains about pay inequity?
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