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Prioritizing Pay Equity in 2021

Jen Dewar
Dec 11, 2020 6:15:00 AM

As we round out 2020, wage gap statistics tell us we still have a lot of work to do. Women earn 82 cents for every dollar earned by men. Black women earn 62 cents for every dollar a White, non-Hispanic man earns. Latino men earn 69 cents for every dollar a White man earns. LGBTQ+ men earn 96 cents for every dollar non-LGBTQ+ men earn. We’ve been making some progress over the years, but many believe the COVID-19 pandemic will lead to a widening gender pay gap and income inequality.

Going beyond cash compensation, we find the pay gap widens further in companies that offer stock grants to employees. Women own just47 cents in equity for every dollar men own. And, While women represent 35 percent of equity holders, they only own 23 percent of the equity. Black and Latinx employees make up a very small proportion of employee stakeholders, and hold a disproportionately low percentage of total equity wealth.

We need to pay close attention to pay equity in 2021 to keep making forward progress —and to mitigate the risk of sliding back.

Best practices to help ensure pay equity

Achieving pay equity requires an intentional, ongoing commitment to fair compensation. Some best practices to help ensure pay equity include:

  • Never asking for a candidate’s salary history: Using a candidate’s salary history in compensation decisions can perpetuate an existing wage gap. Even knowing it can influence decisions—so it’s best not to ask. Research has found that salary history bans have increased pay for job changers by about five percent, with an eight percent increase for women and a 13 percent increase for Black employees.
  • Building job grades and salary bands: Take a more proactive approach to setting compensation targets by building salary bands and job grades. This will help you make more fair, strategic compensation decisions during hiring, review cycles, and promotions. Some states even require employers to share salary bands with candidates during the recruitment process.
  • Keeping an eye on representation by job level: The uncontrolled pay gap is largely due to an opportunity gap. For example, Women hold nearly half of entry-level roles, but only 38 percent of manager roles, 30 percent of VP roles, and 21 percent of C-suite roles. Track your representation by job level to ensure you’re hiring and promoting people from underrepresented groups.
  • Conducting regular pay equity analyses: Even with the best intentions, pay inequities may still exist. It’s important to conduct pay equity analyses once or twice a year to find and address them, rather than allowing them to perpetuate. These analyses are becoming more common; only 35 percent of organizations conducted them in 2016, and 56 percent of organizations conduct them now. Look at cash, stock, and bonus to ensure you’re seeing the whole picture.

Making pay equity adjustments

When you spot pay inequities, it’s important to address them as soon as you’re able. The most common approach is to run pay equity analyses during compensation cycles. Make strategic adjustments first, then layer on merit-based adjustments and cost-of-living increases, as applicable. This will ensure that further adjustments are fewer and smaller.

But, with many companies facing economic uncertainty due to the pandemic, a normal compensation cycle may not be feasible. Here’s how you can make fair pay adjustments when you need to conserve cash:

  • Prioritize pay equity adjustments over merit-based increases: Utilize whatever budget you have to cover fair pay adjustments first. The Social Security Administration set the cost-of-living adjustment at 1.3 for 2020. This could provide more room for pay equity adjustments if your company budgeted the standard 3 percent for compensation adjustments in 2021. You may then choose to reward your top performers with stock option grants, deferred raises, or deferred bonuses.
  • Run an equity-only cycle: If your company uses stock grants as part of your compensation package, an equity-only cycle can allow you to create more equitable Total Compensation packages for employees. Be sure to calculate the value of your equity so employees understand how it contributes to their total package.
  • Adjust pay reductions: If you made pay reductions this year and plan to restore them in 2021, consider adjusting for pay equity. Again, communication is key to ensure employees understand why pay restoration might look different for every employee.
  • Make adjustments as employees relocate: If your company has adopted long-term remote work and has a location-based pay policy, adjust for pay equity during remote workforce transitions. Below-band employees moving to areas with a lower cost-of-market may move in-band without requiring any additional cash. And above-band employees moving to areas with a lower cost-of-market could free up budget to make pay equity adjustments elsewhere.

New pay equity laws

With slow progress toward pay equity, many state governments are enacting legislation to address some of the root issues leading to pay inequities. Here are three new laws to be aware of in 2021:

  • Colorado’s Equal Pay for Equal Work Act requires employers to disclose salary ranges in job postings, announce opportunities for promotion to all employees, and keep records of job descriptions and salary information. It also includes a salary history ban, and encourages regular pay audits. This goes into effect January 1, 2021.
  • California Senate Bill No. 973 requires some employers to submit a pay data report, categorized by race, ethnicity, and gender. This applies to employers who are required to file an EEO-1 report, and is due on or before March 31, 2021.
  • Maryland’s Equal Pay for Equal Work Act has been amended to require employers to provide candidates with the salary range for their position, if requested, and to prohibit employers from seeking a candidate’s salary history. This amendment went into effect on October 1, 2020.

As a reminder, wage discrimination is illegal at the federal level, and it has been for quite some time. The Equal Pay Act of 1963, Title VII of the Civil Rights Act of 1964, the Age Discrimination in Employment Act, and the Americans with Disabilities Act prohibit compensation discrimination on the basis of gender, race, color, religion, sex, national origin, age, or disability. Additionally, the Lilly Ledbetter Fair Pay Act allows your employees to file wage discrimination lawsuits within 180 days of their last discriminatory paycheck.

Final thoughts on prioritizing pay equity in 2021

The gender and ethnic wage gap persists, despite federal, state, and local legislation that aims to close it—and may even widen as a result of the COVID-19 pandemic. It’s time to get serious about pay equity so we can right these wrongs—and comply with the law.

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