9 Pay Equity Best Practices for 2023

6 min read
Jan 11, 2023 6:00:00 AM

Pay equity is top of mind for many company leaders and compensation professionals. While we’ve made some decent progress in narrowing wage gaps, we still have quite a bit of work ahead to fully close them. 

Every organization has a responsibility to do their part to close the pay gap. If you’re not sure where to start, or need some new ideas to continue making progress, these pay equity best practices can help.

1. Never ask about a candidate’s salary history

Women earn 83 cents for every dollar men earn. Black men earn 77 cents for every dollar white men earn. Employed workers with disabilities earn 74 cents compared to workers without disabilities. Knowing a candidate’s salary history can influence your compensation decisions and perpetuate these long-standing gender and racial wage gaps. 

That’s why salary history bans are being enacted in a growing number of jurisdictions — and they're working. Following salary history bans, women have seen an 8% increase in pay, and Black employees have seen a 13% increase. This is a simple and effective first step toward pay equity.

2. Tread lightly when asking about salary expectations

Rather than asking a candidate about their salary history, some employers will ask for salary expectations instead. This can help ensure that neither party wastes their time if expectations don’t align with the budget — but it may also lead to an unfair wage gap. This is due to the expectation gap. 

Hired data found a strong correlation between salary expectations and the actualized wage gap of historically marginalized groups:

  • Asian men request $1.05 for every dollar white men expect, and earn $1.04 for every dollar their white, male counterparts earn
  • Latinos request 99 cents, and earn 99 cents
  • Asian women request 97 cents, and earn 98 cents
  • Black men request 95 cents, and earn 95 cents
  • White women request 94 cents, and earn 95 cents
  • Black women request 91 cents, and earn 92 cents
  • Latinas request 91 cents, and earn 93 cents

It could be assumed that a candidate’s current earnings influence their expectations. Asking about expectations may perpetuate the pay gap in the same way that asking about salary history would. If you choose to ask this question during your recruitment process, consider doing so early on and keeping this information isolated from compensation decisions. 

3. Build salary ranges

Take a more proactive approach to setting compensation targets by building salary ranges and job grades. Your compensation philosophy should also include the inputs that determine employee compensation within these ranges. This can guide you toward more equitable, strategic compensation decisions during recruitment, compensation review cycles, and promotions. 

Some states even require employers to share salary ranges with employees and candidates. For example, companies with employees in California must share salary range information with current and prospective employees and include salary information in job postings. Stay on top of pay transparency legislation in places your company is located and where you have employees so you can ensure compliance.

4. Embrace pay transparency

While 18% of organizations have increased pay transparency due to a legal requirement, 42% say their transparency goes beyond just what’s required or motivated by regulations alone. Another 41% say their commitment to pay transparency is motivated by factors unrelated to regulatory requirements. 

Embracing pay transparency is an important step toward pay equity because it holds employers accountable to their team members.  When an employer openly communicates about compensation with employees, it indicates that they have nothing to hide and that each team member's pay was set intentionally and fairly.

5. Share your commitment to pay equity

Make sure company leaders and team members know that pay equity is a priority for your organization. You need manager support to make pay equity a reality, and you need team members who know they can speak up if they feel there's a pay disparity within your organization.

Share the steps you’re taking to self-audit, as well as your plan to address pay disparities. When you make adjustments, let employees know how they'll be affected and when they'll see changes in their paychecks. Finally, encourage all employees to reach out if they have questions around their compensation or pay equity. This additional level of transparency will help you build an organizational culture that people want to be a part of — ensuring your organization’s long-term success. 

6. Address the opportunity gap

People from historically marginalized groups are underrepresented in every level of company management. For example:

  • Women hold nearly 48% of entry-level roles, but only 40% of manager roles, and 26% of C-suite roles. 
  • Men of color hold 19% of entry level and manager roles, and 13 percent of C-suite roles. 
  • Women of color hold 19% of entry-level roles, 14% of manager roles, and only 5% of C-suite roles.

While representation of people of color and all women drop at each level of management, white men see increased representation at each job level. They hold 33% of entry level roles, 41% of manager roles, and 61% of C-suite roles.

Lack of representation in leadership roles impacts salaries and lifetime earning potential for women and people of color. Track representation and internal mobility to ensure people from marginalized groups are being hired and promoted into leadership positions. If not, dig into your data to understand why — and address the problem. For example, if you see that women aren’t being promoted at the same rates as men, a mentorship or sponsorship program could help.

7. Limit salary negotiations

Data shows that salary negotiations don’t benefit all groups equally:

Rather than allowing salary negotiations to create or widen pay gaps, rely on salary bands to make fair, competitive compensation decisions. When you present an offer or a raise, explain why you’ve assigned that particular salary and what the team member can do to earn more in the future.

If you find that negotiations are truly necessary to close candidates and retain team members, that’s a sign you need to revisit your salary bands. Then adjust compensation for all eligible team members to maintain pay equity.

8. Measure pay equity regularly

Even with the right intentions, pay equity can get off track. Analyze pay equity at least once or twice a year to find and address discrepancies rather than allowing them to perpetuate. This may include hiring an outside firm to run a pay equity audit, using compensation management software during your regular review cycle, and tracking key performance indicators in a spreadsheet. Reporting pay equity statistics to leadership helps keep the focus on the importance of this company goal.

Pay equity means more than salary, so make sure to include bonus and stock for a comprehensive analysis. Slice your data in different ways to look for pay gaps by gender, race, and intersectionality.

9. Adjust pay equity during your compensation cycles

It's common to make fair pay adjustments during regular compensation review cycles. Doing this alongside merit-based adjustments and cost-of-living increases allows you to prioritize spending your budget where it’s needed. If you use a platform like Compaas, you can even see the effects your raise cycle will have on pay equity — before changes hit payroll.

Just remember to communicate pay equity adjustments with affected team members. This will underscore your commitment to pay equity and build employee trust.

Final thoughts on pay equity best practices

Achieving pay equity requires an intentional, ongoing commitment to equal opportunity and fair pay. These best practices are a good starting point, but it’s important to fine-tune your pay equity strategy to play to the strengths and opportunities of your organization.

For instance, a company that’s introducing higher levels of pay transparency might discuss the results of a pay equity analysis during an all-hands and share what the company is doing to improve. But a company that struggles to hire and promote people from underrepresented groups into leadership roles may focus on unconscious bias training to help them overcome an internal pay gap.

The path to pay equity won’t be the same for any two companies, but the journey will be well worth it.

Want to learn more about pay equity? Download our eBook, Pay Equity: The Ultimate Guide.

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