5 Effective Ways to Build and Maintain Pay Equity Within Your Company
In this article
For more than 25 years, the U.S. Census Bureau has tracked Americans’ income to determine Equal Pay Day: A date representing just how far into the year women have to work to earn what men earned the previous year. This year’s date — March 15, 2022 — was the earliest in history.
While this date marks progress on closing the gender pay gap, the issue is far from solved. Women still have to work two and a half months longer to earn a man’s annual salary — and the discrepancy is even greater when you consider certain industries, job titles, or intersectional identities like race, ability, and age. For example:
For AANHPI women (Asian American / Native Hawaiian / Pacific Islander), add 2 months to close the pay gap by May 3.
For moms, add 9 months to close it by September 8.
For Black women, the same 9 months and a few days closes it by September 21.
For Native American women, the date is November 30.
And for Hispanic women, nearly a staggering 12 additional months closes the gap by December 8.
Prominent examples of pay discrimination based on gender are everywhere: The U.S. Women’s National Soccer team recently won $24 million in an equal pay lawsuit; Hollywood stars, like Jennifer Lawrence, regularly receive millions of dollars less than their male co-stars; and in the tech world, research shows that the pay gap between men and women startup CEOs has actually worsened in the last two years.
Pay disparities often come up in conversations about workplace discrimination, in part because pay is so quantifiable. There’s something about the blatant nature of it that seems especially, well, unjust — raising some important questions. If we know pay discrimination is an issue and we know how to measure it, why is it still so prevalent? What can organizations do to not only address it, but also proactively prevent it? And how does pay equity relate to larger diversity and inclusion efforts at work? Let’s dig in.
What is pay equity?
Pay equity is the concept of providing employees with the same compensation for the same labor. While it’s most often used in the context of the gender-based pay gap, it applies to compensating employees equally across race, age, ability, sexual orientation, and other identities, too.
Note: When it comes to the gender pay gap, it’s important to acknowledge that the majority of research focuses on cisgender men and women — people who identify with their gender assigned at birth — failing to account for pay discrimination against transgender, non-binary, or gender expansive professionals.
While equal pay for equal work may sound simple, practicing pay equity is more nuanced than crunching salary numbers. It requires looking at cash compensation in addition to factors like equity (stocks or options), benefits, negotiations, promotion opportunities, and the pipeline of talent considered for job positions in the first place.
For example, it’s well-documented that women earn an average of 83 cents for every dollar a man earns and that gender wage disparities increase for people of color: Black women in the U.S. earn a mere 64 cents for every dollar earned by a white, non-Hispanic man. And for Hispanic women? It’s a whopping 57 cents. But research shows these discrepancies extend to other forms of compensation, like equity, too: Carta’s 2021 Equity Report shows that while women make up 47% of the U.S. labor force, their equity grants account for only 27% of all employee equity. Similarly, while Black and Hispanic people make up nearly 30% of America’s labor force, the report reveals they hold a mere 9% of the total value of employee equity — in large part because they’re less likely to hold positions where equity amounts tend to be higher.
Why is pay equity important?
Pay equity is more than a moral responsibility; it also has profound implications on your organization and our society at large. Think: If women received equal pay, the country’s economy would grow by an estimated $482 billion and the poverty level of working women would be reduced by half.
At an organizational level, some of the benefits of practicing pay equity include:
Compliance with regulations
Reduced risk of discrimination lawsuits
Positive brand reputation
Attracting and retaining top-tier talent
High rates of employee engagement
History of the wage gap
The first U.S. pay equity laws were enacted in the early 1960s, but the origins of inequity (due to gender and race) and debates about equal compensation go back much further, and are possibly systemic. Here’s a brief look:
1860s - U.S. Civil War: During the U.S. Civil War, the government began hiring women (mostly White) to supplement men who left the workforce as soldiers. With many more women needing work than there were jobs available, the government paid them about half of what men earned for the same work.
Late 1800s - “Women’s Work”: As more women joined the workforce alongside men, they were relegated to low-wage “female” positions; Black women, subjected to both racism and sexism, were duly rejected from higher-paying opportunities even though they were working at higher rates than white women. This unfounded notion of “women’s work” has largely contributed to the wage gap, as fields predominantly held by women are often underpaid (in fact, even when women enter male-dominated fields, the pay drops).
1938 - Fair Labor Standards Act (FLSA): In an effort to improve working conditions and create new jobs during the Great Depression, President Franklin Roosevelt signed the FLSA, which established a 40-hour work week and a minimum wage of 25 cents an hour. While the act helped hundreds of thousands of American adults, many traditional women’s occupations were not covered by it, leading to continued wage inequality.
1940s - World War II: A slew of employment opportunities opened for women as men enlisted in the military. During this time, efforts to correct the long-standing pay gap escalated, with the National War Labor Board supporting equal pay policies for women who replaced men workers. Congress actually introduced a Women’s Equal Pay Act in 1945, but it failed to pass.
1963 - Equal Pay Act. By the 1960s, women earned just 60% of what men earned. In response to increased calls for equal pay, President John F. Kennedy signed the Equal Pay Act into law which forbids wage discrimination based on gender.
1964 - Title VII. Congress passes the Civil Rights Act of 1964, including Title VII, which prohibits employment discrimination (including pay and benefits) based on based on race, gender, religion, or national origin.
2009 - Lilly Ledbetter Fair Pay Act - Despite legislation on equal pay, gender and forms of bias continued to lead to wage discrepancies (in the early 2000s, women were still only making around 3/4 of men’s wages). In 2009, President Barack Obama signed the Lilly Ledbetter Fair Pay Act, amending the Civil Rights Act of 1964 by expanding the time period during which employees can file pay discrimination suits.
2020 - Bostock v. Clayton County. The U.S. Supreme Court rules that Title VII protects gay and transgender employees from workplace discrimination, including pay and benefits.
Pay equity laws today
Even with the previous laws, pay gaps continue due to a variety of reasons, like discrimination. And while many federal laws prohibit employment discrimination, many state and local governments have introduced their own pay equity laws that expand protections for employees and encourage employers to conduct formal audits.
In 2016, Massachusetts became the first state to ban asking applicants about their salary history. Since then, 20 more states and 21 local governments have enacted similar laws. This year, New York City went even further and passed a pay transparency law, requiring employers to list the salary range in their job advertisements. Other states’ laws have expanded what counts as “equal work” or offered safe harbor provisions to employers who conduct a voluntary pay equity analysis.
How to implement effective pay equity policies in the workplace
Organizations at the forefront of the movement for pay equity go beyond compliance and incorporate compensation reviews into their overall business strategy. As Salesforce explains in their 2022 Equal Pay Update, “Equal pay should be table stakes and as expected as an earnings call or an annual report.”
In other words, pay equity isn’t a “set it and forget it” situation. Here’s how to make it an early, ongoing, and impactful priority at your organization:
Set salary bands and levels early. And stick with them. Think about how these factor into the different steps of the employee life cycle, like the offer letter, performance review, and promotion stages. Then conduct market research and create competitive salary ranges for different roles. Train managers on clearly defined criteria around salaries, bonuses, and ad hoc pay to prevent discrepancies across teams or departments. At Ethena, for example, we designed a formula-based salary structure for engineers that grows predictability year-over-year and increases with strong performance (oh, and it’s completely public).
Be transparent. Speaking of public … You can get ahead of pay discrepancies by making employee wage data accessible and available from the beginning of the job process. Pay transparency not only helps close wage gaps, but also attracts talent, improves retention, and builds a culture of trust. In one study, 68% of candidates said they would be willing to change jobs to join a company with salary transparency. And in today’s market, more and more applicants are outright refusing to apply to jobs that don’t list salaries. You could be losing out on a rockstar hire all because you didn’t just “share the number.”
Prioritize data. You can’t combat what you don’t measure. Invest in people operations and analytics tools that provide insight into how compensation compares across multiple factors — such as job functions, gender, race, age, experience, tenure, performance, and more. Don’t have the budget for this? There are low lift, low cost ways to do this too. Run your own internal reports to do this yourself. And remember those job levels we talked about? Those will come in handy during this process as well, because you’ll want to make sure you’re reviewing within comparable levels and identifying any gaps in representation across each level. Conducting these types of annual pay equity audits can give you insight into both your progress and areas for improvement!
Create a structured process opportunities for salary increases. One of the proposed contributing factors to pay disparities is that men are more likely to initiate salary negotiations and ask for raises than women. By timeboxing eligibility for increases, you can ensure all employees have an opportunity to earn more — not just those who are prone to advocating for themselves. Employers should be proactively evaluating employees for increases rather than the other way around, and having a structured process for this not only triggers managers to consider this for everyone on their team, but also makes sure they’re doing it equitably.
Treat new hires and existing employees the same. Your structured process will help with this, but ensuring you don’t pay more for new hires while slowly paying you’re existing hires less and less.
Final thoughts: Pay equity is a win-win-win
Across the board, there’s a growing commitment to pay equity and transparency. While taking accountability requires additional effort, it will also attract top talent, improve company culture, and, most importantly, change people’s lives. Ultimately, pay equity is a win-win-win: for employees, your organization, and our economy as a whole.
How is your DEI program going? If you want to take equity a step further at your organization, check out our DEI (diversity, equity, and inclusion) training course. Request a sample training to see how we deliver current, cringe-free content that employees actually enjoy. Our trainings bring complex issues and actually change behaviors. Talk to a member of our team to see if Ethena is right for your company.