Creating Pay Equity and Equal Treatment for Employees

Even though the disparity in pay has been a high-profile issue for decades, it remains a concern for businesses across every industry. HR professionals and business leaders continue to search for ways to create pay equity between genders and those of different ethnic and racial backgrounds. Some may face mandates to do so from their local and state governments.

Years of law changes and thousands of conferences, seminars and media stories on pay equity have had an impact. In the 1960s, women made about 42 cents for every $1 made by a man. Currently, women make 82 cents for every $1 a man makes. That’s a big improvement, but still 18 cents short of truly creating equal pay.

And the issue extends beyond pay. Men have now regained the jobs lost since the start of the pandemic in the U.S. Meanwhile, the U.S. Bureau of Labor Statistics (BLS) reports that in January 2002, one million fewer women are in the labor force than in February 2020. The disparity between those numbers likely reflects, in part, the uneven childcare responsibilities men and women took on during the pandemic.

Business leaders looking to solve pay inequity must first understand the scope of the issue, the underlying causes and some steps experts recommend for closing the pay gap.

The Importance of Creating Pay Equity

Pay equity refers to the practice of compensating employees the same – no matter their race, ethnic origin, religion or gender – when they perform the same or similar job duties. In other words, companies should not attempt to save money by offering some employees less money simply because they can get away with it.

Establishing pay equity is more than just doing the right thing. For businesses, it also can increase employee productivity, efficiency and creativity. It also helps companies attract the most talented workers, reduce employee turnover and increase commitment and loyalty to an organization by employees.

The reasons for pay disparity are varied. For example, the Gender Policy Report from the University of Minnesota found that women are overrepresented in low-paying careers such as administrative assistant, childcare worker and cashier.

The report stated that “women may be pushed into these occupations through discrimination, which excludes them from higher-paying occupations, or socialization, which makes them more likely to seek these jobs.” The University of Minnesota also wrote that another study found women disproportionately experience the impact of the “care penalty,” which refers to the trend in which jobs that require higher levels of caregiving provide lower wages than jobs that require similar skills but less caregiving.

However, the report also stated that at least one study has shown 85% of pay disparity would disappear if women simply received the same level of salary as men in the same occupation.

Laws Governing Pay Equity

Creating pay equity is also an issue of regulatory compliance. Governments at all levels in many parts of the country have taken action in this area, a step first taken by the federal government under the administrations of President John F. Kennedy and President Lyndon B. Johnson in the 1960s.

The 1963 Equal Pay Act passed by the U.S. Congress made it illegal for employers to pay women lower wages than men for work requiring the same level of skill, effort and responsibility. In 1964, the Civil Rights Act included Title VII, which made it illegal to discriminate against employees based on age, race and gender. Title VII is often used as a basis to file wage discrimination claims against corporations.

In recent years, states and local governments have acted as well. Most states have laws that prohibit wage discrimination based on sex, mirroring the language of the Equal Pay Act. Newer state laws seek more transparency about pay in the workplace. They also protect employees from retaliation if they openly discuss their pay with co-workers or seek to correct pay disparities.

As more laws are put into place, an increasing number of businesses have settled multimillion-dollar collective and class action lawsuits, according to the Society for Human Resource Management (SHRM). These successful legal actions provide yet another motivator for businesses to create pay equity.

How Companies Can Create Pay Equity

The best place for a business to start is with a pay audit, according to SHRM. This involves collecting data on pay for each employee and then determining if pay gaps are the result of legitimate, nondiscriminatory reasons.

For example, employers with a long tenure working for a company or a high level of responsibility typically receive higher pay, as do those with a higher level of education and experience in their field. However, when companies find areas where an explanation for pay disparity is not readily apparent, they can take action to correct the issue.

An audit also can find trends, such as a repeated pattern of women getting a lower starting salary for no apparent reason. The important next step is to go beyond the data and determine why this is happening and who is making these decisions.

Other ways to manage the pay equity issue include the following from SHRM and LinkedIn.

  • HR should consider pay equity when developing workplace policies and procedures, ensuring that an organization consistently applies its methods used for determining issues such as starting pay, promotions, merit increases and bonuses.
  • Businesses should provide training for executives, department managers and others in leadership positions on the importance of creating a fair process for making salary decisions.
  • Create a culture of gender equality from the top down. General Motors is one of only three companies worldwide to achieve equal pay, according to LinkedIn, partly because the company takes this approach. They created this culture through actions such as creating a women’s car dealer program and becoming the first global car company with a female CEO, as well as a board of directors with more women than men.
  • Stop penalizing women for having children by offering long periods of paid parental leave. Some companies also offer supplemental pay for parents out on maternity leave.
  • When hiring from the outside, companies should avoid asking job candidates about their past salary and then basing the starting salary offer on that number. This “imports” pay disparity from other organizations.
  • Communicate frequently with employees about pay equity metrics and keep them advised on progress that the organization is making.