Updated March 23, 2021
The topic of gender pay equity has gained momentum on both a national and global scale, and U.S. companies are recognizing it as an important issue to address.
Consider recent events:
The U.S. women’s soccer team used their victory in the World Cup this summer as a platform to advocate for gender pay equity in their sport;
States such as California, New York, New Jersey, and Massachusetts have expanded their laws addressing pay equity beyond what is provided under federal regulations;
We have also begun to see greater interest from publicly traded firms regarding environmental, social, and governance (ESG) issues, which include gender pay equity;
Beyond the United States, countries such as Iceland, France, and the United Kingdom have passed legislation requiring companies to report on gender-based pay inequities, holding them publicly accountable for addressing the issue.
With this issue continuing to be at the forefront of business news and social media, it is important for companies to both clearly understand the issue and be armed with actions they can take to address gender pay equity.
Current Federal Protections Against Gender Pay Inequity
Gender pay equity is governed by three regulations at the federal level: the Equal Pay Act of 1963, Title VII of the Civil Rights Act, and Executive Order 11246 (which addresses federal contractors and sub-contractors).
Although some differences exist, the regulations have significant commonality in that they prohibit sex-based wage discrimination between men and women who perform equal work on jobs that require equal skill, effort, and responsibility and are performed under similar working conditions (Equal Pay Act 1963).
Compensation differences are not illegal if they are based on (1) a seniority system, (2) a merit system, (3) a system where earnings are clearly linked to quantity or quality of production, or (4) a job factor other than gender.
These federal laws addressing gender pay equity have been generally ineffective since they were enacted, with potential reasons ranging from tepid penalties to inequity standards that are difficult to prove in court.
This ineffectiveness over time has contributed to the current gender pay inequity and is what’s driving states and individual companies to take ownership of the problem and work toward solutions.
Clarifying the Gender Pay Equity Issue
Gender pay equity refers to the concept of equal pay for equal work or equal pay for comparable work; equal pay for equal work considers equal pay for similarly situated employees (e.g., accountants) without regard to gender, while equal pay for comparable work considers comparable wages for employees that may be in different jobs but have similar compensable factors (e.g., skill, working conditions) that indicate value to their organization.
Equal pay for comparable work might therefore consider the pay equity between janitors (typically a male-dominated position) and cafeteria workers (typically a female-dominated position), as these are both positions that do not require much experience, require a low skill level, and have similar working conditions.
As mentioned above, laws at the federal level already address equal pay for equal work, while recently enacted laws in certain states address equal pay for comparable work.
The term gender pay gap has been used loosely in the press and is sometimes confused with gender pay equity.
By definition, the gender pay gap refers to the pay comparison of all working women to all working men, with no regard for factors such as position or tenure.
Based on this comparison, women in the U.S. currently earn 78 cents for every dollar earned by men (The State of the Gender Pay Gap in 2018, PayScale), a statistic that has stayed fairly stable over the last fifteen years.
Gender pay inequity can be addressed immediately, as it is an issue that can be handled at the company level; however, the gender pay gap will take decades to correct, as it would require equal pay and representation of all men and women in the workforce.
Assessing Gender Pay Equity Through Pay Audits
The first step in addressing gender pay inequity is determining if and to what extent the issue is present throughout a company’s workforce, which can be accomplished through a pay equity audit.
The results of an audit, regardless of its outcome, should lead to candid company discussions concerning solutions, either to address current pay inequities or to guard against them in the future.
Therefore, the audit should preferably be conducted under the direction of inside or outside counsel, allowing protection of the audit results, as attorney-client privileged documents are not discoverable in the event of a lawsuit and can support constructive internal discussions.
A pay audit generally has five major steps:
Gathering the data that will be used in the analysis from the company’s human resource information system (HRIS), which may present unforeseen challenges if the HRIS data is incomplete or incorrect.
Determining how employees will be grouped for analysis (e.g., by job title, job family, salary grade, etc.), a critical step to ensure that there is a sufficient sample for statistical analysis and that the groupings include employees that are similarly situated; at a basic level, similarly situated employees perform similar tasks under similar working conditions.
Identifying legitimate factors for pay differences, such as job performance, job level, experience, and/or seniority.
Using statistical methods, typically regression analysis, to test the effect that these legitimate factors have on pay differences in the employee groups.
Evaluating whether there are pay differences between genders (or other protected classes) within the employee groups that go beyond what can be explained by legitimate factors.
Addressing Gender Pay Inequity in the Short- and Long-Term
Based on the results of the audit, a company can determine if discriminatory pay practices exist in its current workforce and weigh the need to make immediate pay adjustments for gender pay inequities.
We advocate that employee communications regarding equity pay adjustments be honest and brief, and support the company’s overall compensation strategy (e.g., fair and equitable pay, competitive market pay, etc.).
Companies can also take steps to determine the systemic causes contributing to gender pay inequity by examining their internal practices relating to pay; hiring, career advancement, performance assessment, compensation, and succession planning systems can be examined for biases and modified to ensure an equal playing field for women and men.
California, Connecticut, and Delaware have passed laws prohibiting employers from inquiring about job candidates’ pay history, a practice which can also be implemented at any company to help eliminate systemic pay inequities.
Businesses Are Taking Action for Good Reasons
The issue of gender pay inequity has thus far not been sufficiently addressed in the United States, and we are encouraged that businesses are now taking matters into their own hands; 60 percent of U.S. organizations are working to resolve pay inequities based on gender, race, and other protected classes (2019 Pay Equity Practices Survey of C-Suite and Reward Leaders, WorldatWork/Korn Ferry).
Beyond minimizing potential litigation risk, companies that proactively address social issues such as gender pay equity can position themselves as employers of choice in the eyes of their employees, job candidates, shareholders, and the media.
Joe Kager and Amy Svendsen of the POE Group
info@poegroup.com
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