Pay Equity Studies – A “Soup to Nuts” Guide

Pay equity is a hot topic everywhere – from investors and boards to HR teams and employees themselves. In light of the increased focus on pay transparency, human capital metrics, and diverse talent, companies are spending more time shoring up their job architecture, analyzing pay practices, and going deeper into the data to understand where potential pay issues exist. 
 
 Equity Methods’ Pay Equity FAQ is a step-by-step guide useful to organizations both in the early stages of analysis as well as companies further along in their journey. Highlights include: 

• Why does pay equity matter? The guide dives into the legal implications of “equal pay for substantially similar work” and builds the business case for conducting regular pay equity studies. Business leaders care about pay inequities because of the implications for talent and legal risks. Compensation Committees are expanding their charters to include oversight of broader human capital issues and seeing increased shareholder proposals by investors to disclose pay gap data and remediation plans.  
  
  
• Setting up a pay equity study. Having the appropriate expertise is critical to run a successful pay equity analysis. Often, the project will be led by legal counsel to ensure attorney-client privilege is preserved, and the attorney will engage directly with the compensation consultant. Determining internal roles for the project and having discussions on the data elements, the definition of pay and how the job architecture will be defined is a critical step that should not be underestimated. 
  
  
• Components of a robust pay equity study. The study itself typically takes 8-16 weeks and includes data discovery, an iterative data collection process that will involve testing assumptions and a statistical analysis output based on regression models. The guide features explanations of findings that are statistically significant, outliers and aggregated pay gaps. A good consultant will be able to interpret the data in a way that is easily understood. 
  
  
• Turning analysis into action. Remediation, the final phase of the study, is to form an action plan to address an aggregate pay gap. There are various options - with pros and cons - that may be considered. The plans should be reviewed with senior management and the Compensation Committee. Once the approach is determined, companies will decide if they will implement with the next merit cycle or on an off-cycle basis and create their communication strategy. 

Looking forward. Analyses are typically repeated on an annual basis and can become more sophisticated as new data is layered on for additional insights such as attrition, hiring, and promotion data as well as correlations with unconscious bias in performance evaluation practices.