HR Hacks for Leaders: How to Conduct a Pay Equity Assessment
Pay equity has been a really hot topic this year and for good reason. Too many companies pay below a living wage, and gender & racial biases are baked into salary systems. Stagnant companies are waiting for their governments to push them into salary action. In the United States, the federal minimum wage is $7.25 per hour. While dozens of states and cities have implemented higher minimum wages, many others have not. I’m looking at you, North Carolina.
In the United States, the federal minimum wage drives the wage floor for companies, which means no company can legally pay less than this amount per hour. The last increase to the federal minimum wage happened in 2009 while cost of living adjustments have increased by 22.4% since 2009. These are also generalized numbers across a remarkably diverse range of geography. The cost of living varies across states and cities. In fact, Seattle just surpassed Boston as the 3rd most expensive place to live in the United States.
Geographic location matters because access to daily necessities, such as childcare and health care, can vary, especially in quality. Housing prices can increase based on the range of income within a city. What does this have to do with our series, HR Hacks for Leaders? Everything. More people are asking for raises, and more resources are available for people to research salaries and negotiation techniques.
This is the 4th post in the HR Hacks for Leaders series. The 1st post detailed how to measure people success as a supervisor. The 2nd post provided a deep dive into employee turnover, a key metric for supervisors. The 3rd post offered several tools for receiving meaningful feedback as a supervisor. Today I’m going to share how to conduct a pay equity assessment. This will be helpful when (not if) your employees ask for a raise because the US cost of living is so high right now.
Pay equity is defined as “paying employees fairly and consistently, without discrimination on the basis of gender, race or other protected categories but taking into account job-related factors such as education, work experience and tenure. (SHRM)” As a supervisor, you need to understand why your employees are paid at certain rates and how they can change their pay. If you cannot, then you will be left with a lack of trust from your employees and difficulties in recruiting new employees.
It is common for applicants now, especially younger ones, to ask how your company is addressing the documented wage gap for gender and race/ethnicities. And you need to know how to answer. The first step is conducting a pay equity assessment for your team. A pay equity assessment offers a comprehensive look at your team’s salary by demographic data, such as gender, race/ethnicity, age, and tenure. Below are the steps for creating the data tables.
1. Gather your team’s data with as much demographic information as possible. You will want to download this into a spreadsheet so you can sort the information by distinct factors. In our pay equity assessments, we start with name, position, level (ex. Coordinator), department, classification (Ex. Full-time), hire date, birth date, gender, race/ethnicity, annualized salary, and geographic location.
2. On a different tab in your spreadsheet, create tables for each demographic category. The left side rows will represent the levels in your company. The columns across will show the number of employees in each level, the average salary in that level based on the data, the highest salary in that level, the lowest salary in that level, and the % spread between the highest and lowest. Loftis Partners usually creates tables for these categories (based on client feedback):
a. Salary ranges by level
b. Salary ranges by gender
c. Salary ranges by race & ethnicity
d. Salary ranges by age
e. Salary ranges by tenure
f. Salary ranges by department
g. Salary ranges by top 5 highest paid & bottom 5 lowest paid
h. Salary ranges by intersectional identities (ex. Gender and race/ethnicity)
3. You will also want to identify the current cost of living in each of the geographic locations where your employees live. For the United States, we use the economic summaries provided by the US Bureau of Labor Statistics. You can look at state level data, major cities, and most rural areas. The economic summaries show the unemployment rates, average weekly wages, nonfarm employment, prices paid by urban consumers, average annual spending, and other information. We look at the average weekly wages and average annual spending to identify the cost of living for these locations. Here’s an example for Los Angeles, CA.
Once you put this information together, you want to review each demographic table first to identify any outliers – data that is much bigger or smaller than the nearest data point. Make notes for any outliers per table. Then review your outliers and look for any patterns. Here are some common ones.
· Is one person or position coming up multiple times as an outlier? That is a sign that a person’s salary is not aligned with the overall salary system at the company.
· One department is paid significantly more on average than other departments (ex. Finance). Is this difference aligned with the company’s philosophy?
· A certain gender and race combination have higher salaries overall. What is happening here? Some intersectional identities tend to stay longer at the company. Why is that?
· No one under age 55 works here. What’s up with that? How can employees stay with the company as they near retirement age?
These are all examples of questions that may arise in a pay equity assessment. This tool brings forth issues that may not be visible when looking at overall team data. And knowing this kind of information for your team as a supervisor helps you in understanding why your employees are paid certain rates and how they can change their pay.
You may encounter some issues when conducting a pay equity assessment. A common one is a lack of data. Some companies just do not track this kind of data. Another challenge may come from HR or finance teams who do not want to share this kind of data with you. You also might find that your company doesn’t have a clear pay philosophy and/or clear pathways for increasing pay.
Pay equity assessments offer comprehensive views of your team’s salary data that will help you now and overall, as a supervisor. Let us know what happens with your pay equity assessment. We’d love to hear from you on LinkedIn. We also offer several pay equity services at Loftis Partners. Good luck!
Photo by Andriyko Podilnyk on Unsplash
The is the fourth part in a four-part blog series. Pay equity is our passion. Read more on our blog, Building Equity in Nonprofits? Start with Pay. — Loftis Partners