Author: Zev Eigen
Many states have recently adopted laws that require companies of all sizes to close the gender pay gap. The principle underlying these laws is simple: pay men and women based on their contributions to the work being performed without regard to gender. However, for employers trying to comply with these laws, and existing federal equal pay laws, the devil is in the details: complying is not as straightforward as the principle behind them.
That does not mean that employers are not wise not to review their compensation systems. The opposite is true. Employers should absolutely review their pay practices as soon as possible for several reasons:
(1) Reduce costly legal risk: Google, Uber, and other companies have been sued for pay equity violations. These suits can be extremely expensive. In some jurisdictions like Massachusetts, conducting a pay equity review in good faith serves as an explicit defense, and in other jurisdictions, a good faith review serves as an implicit basis for legal defense.
(2) Reduce public relations risk: It is extremely hard to regain trust once it is harmed by publication of gender pay inequality. Reviewing compensation shows a commitment to finding and fixing issues beforeany bad publicity, which is significantly more likely to reduce public relations problems. Paying attention to pay equity aftera company is outed may be regarded as a hollow gesture even if it is sincere. Timing is everything.
(3) Improve recruiting: You know what makes it really hard to recruit top talent? Paying men more than women for performing substantially similar work.
(4) Improve retention rates and culture generally: I know at least three professional female friends who have quit their jobs because they were not paid equitably relative to their male peers. In each of these instances, their employers were never made aware of the fact that pay equity was the root cause of their loss of this top talent. Employers may not even know that pay equity problems are partially to blame for costly avoidable churn until it’s too late—when a class action is filed against them.
OK., so hopefully you’re convinced that it’s a good idea to get ahead of this risk and not fall behind it. That’s great, but as mentioned at the outset of this post, the devil is in the details and it’s easy to make serious mistakes when trying to check to see whether your company is getting pay equity right.
As someone passionate and deeply committed to helping organizations get this right, I have seen it all in terms of companies trying to comply with this risk. Below I describe the three most commonly observed pitfalls I see the most well-intentioned companies stumble into and how to avoid them:
Pitfall #3: Doing it the Easy Way at the Expense of the Right Way
We all love convenient things that make our lives easier. However, the third biggest pitfall I see in organizations is trying to comply with pay equity laws in ways that maximize their convenience instead of ensuring that they are done correctly. For instance, across jurisdictions, employers are charged with grouping individuals doing “substantially similar” work based on “skill, effort, responsibility and working conditions,” or words to that effect. That means that if you have job titles that are very granular and overlapping, they are too narrow, and need to aggregated into bigger groups. It also means that if you have job functions, levels or grades, those may be too broad. It’s sometimes not easy, but generating reasonably calculated “substantially similar groups” or “SSGs” as we call them at Syndio, is clearly the best practice when it comes to pay equity review. Don’t use pre-existing groups like job titles, grades, or levels just because they are convenient. Ensure that SSGs are mindfully created in layers (assessing risk narrowly and broadly).
Pitfall #2: Over-Estimating Complexity
It’s hard for companies to know how much needs to be done by experts in this area and how much of the work may be done one’s self. What makes this trickier is that experts may charge a lot for a single review based on data that may become less relevant or accurate due to changes in your organization. Experts vary in their approach to reviewing pay equity, as do consultants and law firms. Avoid overpaying for overly complex reports that may not truly help you solve the problems on an ongoing basis or identify the root policies or procedures causing pay equity concerns.
Pitfall #1: Under-Estimating Complexity
This is the most common and most dangerous pitfall to avoid. I love DIY projects, who doesn’t? But some projects are more amenable to DIY (like building your own white board) than others (say, orthodonture). I’ve seen too many employers who task someone in accounting or payroll with pulling data from existing HRISs in the system itself or in Excel and eyeballing for compliance or just looking at simple measures that may not be accurate. In every instance in which I’ve seen employers approach pay equity compliance this way, they end up both under- and over-estimating risk for many employees, sometimes leading to making the problem worse than it was and sometimes paying out a lot of money unnecessarily. Trust me—your HRIS can’t do your pay equity for you, nor can Joe or Janet in payroll or accounting unless they know the law and accepted methodologies and have experience with pay equity compliance.
So, what are the best practices for employers struggling to find their “Goldilocks” (just right) approach to pay equity, without overpaying, under-estimating or over-estimating complexity and avoiding getting the analysis wrong all together? First, use a system that enables iterative recurring review to stay ahead of risk instead of being behind it. Second, ensure that any vendor is using valid methods accepted by courts and agencies. Third, any method used should not just be finding problems but diagnosing why they are occurring to prevent recurrence of pay equity concerns over time. Fourth, your pay equity solution should empower identification of non-economic remediation as well as appropriate economic remediation. Fifth, and lastly, find a solution that strikes the right balance of algorithmically applied statistical expertise with democratized accessibility to empower stakeholders to find and fix problems and stay in compliance over time.
Zev Eigen, JD PhD is the Founder and Chief Science Officer of Syndic Solutions. He retains expertise in labor and employment law and experience in data science, predictive modeling, and economic sociological research. Contact Zev on Twitter or LinkedIn.