What Most Companies Get Wrong About Pay Equity Audits

Brave Souls® Q&A with Katica Roy

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Read This Before You Conduct A Pay Equity Audit

Question:

Pay equity audits are in vogue among DEI practitioners and there seems to be no shortage of consultancies that offer the service. Are these audits really worth the time and money?

Curious about something? Ask your question here for a chance to have it answered in an upcoming edition of Brave Souls®.

Answer:

A pay equity audit is one tool (among many) that can facilitate improvements in diversity, equity, and inclusion at a company. As to whether an audit merits the time and money requested from the service provider, that depends on the details of the agreement.

Here are key concepts you should know about pay equity audits to help you decide if conducting one makes sense for your company.

Key Concepts Of Pay Equity Audits

A pay equity audit is not a magnum opus. It’s a snapshot of a company’s pay practices, meaning it is:

1. Static: a point-in-time reference
2. Singular: only one aspect of gender equity in the workplace

Those two characteristics of pay equity audits (static and singular) infer the following limitations:

1. Static: Every human capital decision a company makes can change the state of pay equity at the company. Promoted someone? Hired someone? Fired someone? You’ve just outdated your pay equity audit.
2. Singular: Pay equity is one way to measure gender equity. It’s a KPI, not the KPI. Other KPIs to measure gender equity include rates of promotion, amount of bias in performance reviews, and representation at all levels of the ladder — to name a few.

At Pipeline, we’ve established a core set of 5 KPIs that, when measured through the intersectional lens, provide the most actionable and accurate view of gender equity for our customers.

Benefits Of A Pay Equity Audit

You may wish to conduct a pay equity audit to reap the following benefits:

• Good governance: 90% of the market value of S&P 500 companies derives from intangible assets, such as human capital, goodwill, and company culture. Some companies go as far as saying their people are their most valuable asset. With such a prodigious amount of value locked up in intangibles, it bodes well for companies to disclose the type of human capital data that pay equity audits can provide.
• Attract talent: Women are the most educated cohort in the labor force, approximately 50% of the talent pool, and 72% of them would not apply to work at a company where a pay gap exists. A public pay equity audit can signal to job seekers that your company cares about workplace equity. (Although, you still have to take additional steps to rectify any pay gaps to earn and retain the talent.)
• Attract investors: Individual and institutional investors want to use their portfolios to catalyze action toward gender equity. A pay equity audit allows these investors to evaluate the health of human capital at potential portfolio companies.
• Legal protection: 42 out of 50 states have equal pay laws that go beyond the mandate of the federal Equal Pay Act of 1963. In many states, companies that fail to prove that they pay equitable wages will face fines. However, these laws often include safe harbor protections for companies that conduct pay equity audits because it demonstrates good faith.

Drawbacks Of A Pay Equity Audit

Pay equity audits are reactive and backward looking. They won’t remove inequity from the upstream decisions that impact pay. That’s because pay represents the quantitative value companies place on their talent.

How we evaluate an employee’s performance and potential represents their actual value to the organization. These evaluations of performance and potential are inputs to determining pay.

If you want to close the gender pay gap, you need to make sure the inputs to pay are equitable.

If you want to close the gender pay gap, you need to make sure the inputs to pay are equitable. In other words, you need to intercept and eliminate biases from every talent decision before they infiltrate the employee experience. A pay equity audit can’t do that.

TL;DR

A pay equity audit is a starting point in your company’s journey to gender equity. It’s a backward looking indicator that reveals disparities in compensation between various cohorts of employees. In turn, these compensation disparities signal underlying inequities (i.e. systemic inequities) that your company will need to address if you want to close pay equity gaps and keep them closed.

Curious about something? Ask your question here for a chance to have it answered in an upcoming edition of this newsletter.

This article was first published on my website.

© 2022 Katica Roy™, Inc.