Does Your Organization Have Exposure to Wage Differentials?

Does Your Organization Have Exposure to Wage Differentials?

Pay equity has been a hot topic of discussion over the last few years. Dozens of states have recently either passed or are considering a variety of pay transparency bills. When you take a step back and look at an organization, pay equity is more than just dollars and cents.

Wages within an organization can widely vary for a position, and are largely based on seniority, merit, or quantity or quality of production. All organizations should have established guidelines for these variables, and make sure every employee’s compensation is based on these factors. As mentioned above, compensation is more than just a salary. Compensation also includes bonuses, holiday pay, vacation time, and other benefits typically negotiated in an employment contract.

Employee pay is typically one of the largest expenses an organization has. Pay drives financial performance, efficiency, and productivity and helps to attract and retain the best talent. According to a recent study conducted by the National Partnership for Women & Families, across the nation the median annual pay for a woman who holds a full-time, year-round job is $47,299. The median annual pay for a man who holds a full-time, year-round job is $57,456.  Overall, women in the United States are paid 82 cents for every dollar paid to men. This amounts to an annual gender gap of $10,157.

How to Avoid Wage Differentials

A pay equity audit (PEA) is the best way for company leaders and boards to ensure their organization is paying employees fairly. A PEA involves comparing the pay of employees doing “like for like” work within an organization and investigating the causes of any pay differences that cannot be justified.  Typically, an HR department handles the PEA for smaller organizations. For larger organizations (over 500 employees), the PEA is usually handled by an outside consulting firm that specializes in pay and rewards.  There are several tools online that are available help with conducting a PEA.

Once a PEA has been completed, it is crucial to take action where necessary. According to a 2019 study conducted by Korn Ferry, most organizations find that up to 5% of employees are eligible for an increase. The average salary adjustment typically ranges from 4% to 6%. HR should monitor the hiring, promotion, and compensation process on an ongoing basis. When or if employee compensation audits uncover disparities based on gender, correct it immediately. Raise the lower paid employee’s wages to match the higher wage. If compensation is tied to evaluations, implement procedures to make sure that evaluations are performed fairly and without gender bias.

Annual Review of Compensation

It is natural for compensation programs to need a regular “tune up” – as pay gaps start to re-emerge over time when organizations experience employee turnover, reorganizations, changes in job duties, and subjective bias. Employers should conduct an annual review of compensation, with more of a “deep dive” every few years.  Pay transparency is a great way an employer can build trust with their employees. If not handled ethically, it may also become a legal and public relations issue.


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