How to Prepare for a Pay Equity Analysis

The topic of equal pay has never been more relevant than it is today. With a new administration come...

Posted by Thomas Carnahan, Ph.D on April 14 2020
Thomas Carnahan, Ph.D
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The topic of equal pay has never been more relevant than it is today. With a new administration comes new priorities. The US House of Representatives passed the Paycheck Fairness Act in 2019. This legislation was not sent to the Senate; however, there is a good chance that it will be sometime in 2021. It is widely believed among experts, including our own, that EEO-1 Component 2 will return as a priority for the EEOC.
Equal pay is getting recognized as a community issue and not a “woman’s” issue. Representative Greg Stanton of Arizona co-sponsored the Paycheck Fairness Act and said “Pay equity isn’t only a women’s issue. It’s an issue that affects families, children, and our economy as a whole. In two-thirds of American families today, women are the primary or co-breadwinners – when they get paid what they deserve, our entire community will win.”

As part of a larger Diversity and Inclusion process, the process of creating and maintaining an equitable compensation system is necessary to attract and retain top talent. The journey is one you should not embark alone. Investigating, identifying, and remedying inequities should be performed by a third-party under attorney-client privilege to ensure an unbiased and confidential review.

For federal contractors, monitoring for pay equity is the law, and noncompliance could pose considerable damages. As your Affirmative Action Plans are audited, OFCCP will also be running statistical analysis on data to detect pay discrepancies. So now is the time to get your financial house in order.

Are you thinking about taking on an internal pay equity analysis? Here are five things to consider before you start:
  1. What are your objectives?
    Why are you taking on the analysis to begin with? Are you preparing for an audit or potential lawsuit? These factors are important to understand before you begin. If you have a particular area of concern, it’ll be important to focus on that during your analysis. 
  2. What level of analysis are you looking for?
    If you are preparing this analysis for Affirmative Action compliance reasons, you will want to look at the individual establishment level. However, there are different ways to investigate pay equity by state and Federal laws that may be enforced by various state AGs and the EEOC.
  3. What are your groupings of Similarly Situated Employee Groups??
    How will you group employees that should be paid similarly? Do you use a job evaluation method to match those that have “comparable worth” or will you match jobs in other ways that assess skills, responsibility, accountability, etc.?
  4. What is your compensation philosophy?
    This is probably the hardest question to answer, because even positions that are paid similarly may have different philosophies. It is critical to understand how your organization will objectively pay each employee and then test that philosophy to ensure it is being applied in a reliable and valid manner. Your compensation philosophy will also dictate what objective data you need to be measuring, recording, and maintaining for analysis.
    Some common factors:
    - Time variables (position, company, overall experience)
    - Education
    - Revenue generation (sales)  
    - Job function or family
    - Level of responsibility (manager versus non-manager, exempt versus non-exempt)
    - Performance (if a scoring system is in place)
    These factors can be considered “bona fide” reasons for pay differentials. Yours may vary. 
  5. What data is collected in your Human Resources Information System (HRIS)?
    This can be problematic for companies because in some cases, the factors that they choose in the above question are not captured in their HRIS system. If there’s a factor that you’d like to consider, but it’s not collected in your HRIS, it’s time to start thinking about how you will collect that information from your employees in an efficient way. At a minimum, you will need to collect: 
    - Employee ID number
    - Race
    - Gender
    - Job title
    - AAP Job Groups (if applicable)
    - EEO-1 Category (if applicable)
    - Pay Grade (if your company uses them)
    - Hire date
    - Base compensation, including annual salary or wage rate plus typical number of hours worked per week
    - Other compensation, including overtime, bonuses, incentives, and commissions 

Once you’ve considered all the factors on this list, it’s time to get started on your analysis. Berkshire has a proven track record of helping clients navigate this process, and our experts are available to assist you in planning, executing, and maintaining an pay equity program.

For more on pay equity, visit our pay equity main page.

Pay Equity Webinar Mockup 3Are you ready to take your next step? Berkshire's free webinar "Pay Equity 101 with Berkshire" is now available for download. Click below to learn more about how to analyze your data!           Download Today!

Thomas Carnahan, Ph.D
Thomas Carnahan, Ph.D
Thomas Carnahan is Berkshire's Compensation Services Manager. He has a Ph.D in I/O Psychology from Capella University.

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