From frontline workers to C-suite executives, organizations are increasingly embracing workforce diversity and inclusion. Certainly, elevating minorities and underrepresented populations at all corporate levels is the right thing to do – and can also bring competitive advantages for employee attraction, retention, and motivation. But even the most noble workforce diversity initiatives fall short if compensation equity (or equality) isn’t factored in. Sadly, nearly 60 years after the passage of the Equal Pay Act of 1963, much work remains to be done.

The Compensation Equality Problem

Even though the COVID-19 pandemic appeared to have turned an employee market to an employer market seemingly overnight, a tight labor force could soon return. The 2021 Employer Survey, sponsored by the Indiana Chamber and reported on at the 2021 Chamber Legislative Preview, reported that 41% of all Indiana employers plan to increase their workforces in the next one to two years. This should also increase the urgency for competitive pay – and pay equity.

How bad is the problem of unequal pay? A recent article in Workspan reported that women overall still earn only about 80 cents for every dollar paid to a man. African American women face even greater pay inequality, earning just 63 cents for each dollar paid to their male counterparts. Hispanic women fare even worse, earning a mere 54 cents for every comparative dollar. The problem is real, and it’s nationwide – according to World Economic Forum, the US ranks a dismal 49th globally for gender equality.

Naturally, employees have noticed the disparities and care about this issue! According to a Randstad US Survey, 78% of employees desire a workplace where people are treated equally. What’s more, four in five women reportedly would switch employers for greater gender pay equity. Perhaps most telling is this: 53% of employees believe unequal pay is the top factor impacting gender inequality.

How to Close the Compensation Equality Gap

Despite the Equal Pay Act, progress has been slow. In fact, according to the Institute for Women’s Policy Research (IWPR), it will take nearly 40 years (till 2059) before women earn as much as men for equal work. As dire as this sounds, evidence indicates that proactive companies committed to compensation equality have a distinct competitive advantage. IWPR found that organizations with a formal process to address pay equity have 13% higher employee engagement, and 19% are more likely to exceed industry average levels of productivity. 

So, how can companies effectively embrace diversity and inclusion and implement compensation equity? The best place to start is by doing internal compensation analyses focused on discrimination and pay equity. These analyses should be done annually to be better positioned to close equity gaps in response to shifting market forces. Because each analysis requires similar information, it can be easier to do them jointly. The analyses should address all protected classes. They should examine positions based on job title as well as by people in similar jobs as indicated by pay grade.

If results indicate broad inequities, dig deeper. A second set of analyses can examine if differences in pay are justified. Courts have held that legitimate reasons for initial pay differences can become less valid over time. Nonetheless, closing compensation gaps may require implementation in phases over a defined period, so it’s best to get started as soon as practicable.

Before embarking on these analyses, however, understand this: it’s advisable to work with an attorney (internal or external) to invoke attorney/client privilege regarding the processes and results. In fact, the request for these analyses should come directly from the attorney.

Ultimately, true commitment to diversity and inclusion requires a matching commitment to compensation equality. Companies that embrace these initiatives will have distinct advantages for attracting and retaining top talent, while also motivating superior performance.

Cassandra Faurote is CEO of Total Reward Solutions, a compensation consulting firm and author of Compensation Sense 101: Common Sense Answers to Your Questions About Employee Compensation and Total Rewards. You can reach her at cassandra@totalrsolutions.com.

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