Purpose of Pay Analysis

    By Beth Boger—FocusHRO

    It’s safe to say that most organizations don’t set out to be inequitable when it comes to the compensation they provide to their employees. Still, HR departments need to take active measures to make pay equity a reality. A pay equity analysis is a way of researching pay rates within your organization and taking a closer look at any differences in pay relative to things like age, race, gender, job description and responsibilities, and seniority.

    Conducting periodic pay equity analyses is a good idea for at least two reasons. First, it may help shield the organization from potential wage discrimination lawsuits. More than any other time in history, a spotlight is being shined on wage gaps, and no company wants to be publicly exposed as being unfair in their pay practices.

    Second, a pay equity analysis is an effective way for companies to improve the pay situation within their own organizations. If the work has been done to ensure that you’re offering employees competitive rates and equitable opportunities for advancement, you’ll be more likely to attract and retain the best talent in your industry.

    Pay gaps that may seem small or insignificant at first add up rather quickly. By conducting a pay equity analysis, an organization is demonstrating that it wants to close the wage gap and calculate wages to offer equal pay for equal work. The goal is not to pay everyone equally but to understand why people are paid what they are paid and to make compensation as equitable as possible.

    To conduct a pay equity analysis, HR will need to have buy-in from organizational leadership, because if executives aren’t on board, the time and effort exerted in such an endeavor could very likely be wasted. One example of time (well) spent for a pay equity analysis is in the collection of data such as performance ratings, level of job-related education, and years of relevant experience. (Please note that in many cases, this data may not be found in an HRIS system, so collecting it may be very time and labor-intensive.)

    This process also includes the examination of differences in the work itself to determine if jobs are substantially similar or comparable. Does the work require similar skills, responsibilities, and effort? Is it performed under similar working conditions? Job titles and descriptions are helpful but should not on their own determine comparability. Also, remember that jobs in different company divisions or departments may still be comparable.

    Ultimately, if a difference in pay is discovered that cannot be justified under federal and applicable state law, the pay disparity must be remedied. Typically, this is achieved by making adjustments to compensation. Remember that an employee’s pay may not be reduced to remedy a pay equity issue, only increased. The goal is to make it “right,” and erring on the side of the employee—with documented evidence to support the company’s decisions made surrounding pay—is the safest option from a risk standpoint.

    Lastly, to prevent these issues from continuing, it is important that pay inequities revealed through this process are discussed with managers, as their understanding of pay equity will be key to maintaining an organizational attitude and approach of fairness moving forward.

    Whether you need help troubleshooting your pay analysis—or help with other functions of your human resource department—FocusHRO’s certified staff can find solutions for your company. Visit www.FocusHRO.com/PRLA to learn more!