Why Pay Equity is Important for Businesses: Examples, Stats, & More
Companies that regularly conduct pay equity analyses and work to implement equitable practices report an 8% higher return on equity compared to their competitors. But what is real pay equity, and why should you be paying attention?
Pay equity ensures that workers doing jobs requiring similar skill, effort, responsibility, and working conditions are paid fairly regardless of their gender, race, ethnicity, or sexual orientation. If two jobs require the same skills, experience, and effort, they should be compensated equally, regardless of who holds those positions.
The benefits of pay equity make it an immediate necessity in the workplace. It is crucial for promoting fairness and economic security for all workers. It helps to close the gender pay gap and other wage disparities. Additionally, pay equity has important implications for businesses looking to grow sustainably in the long term.
We’ll explore key examples of pay equity to understand why it’s so crucial for businesses today.
Recent Developments
There’s a growing movement towards pay transparency, with several states, such as Maryland, Nevada, and California, enacting laws that require employers to disclose salary ranges on job postings. Seven states have currently enacted this requirement, and discussions to promote similar laws in other states are ongoing.
Why is Pay Equity Important For Everyone?
The pay equity debate isn’t just for HR managers. Leaders across the entire organization, including those in legal departments and their employees, can all greatly benefit from understanding these critical issues. Involving the legal team early helps to ensure compliance with federal and state laws, mitigate risks, and establish attorney-client privilege to protect important findings.
Pay equity is not only becoming a requirement but also offers substantial advantages for businesses.
Key Benefits of Pay Equity
Reduced Legal Risk: Lower legal risk is one of the best examples of pay equity’s value. Violating equal pay laws can lead to significant consequences for employers due to several laws at the federal level, like the Equal Pay Act of 1963, and the state laws mentioned above. Employers who violate these laws can be fined and be required to award back pay to the aggrieved parties. This is just one of the many reasons why pay equity is so important.In addition to the fines, not complying with these laws opens businesses up to lengthy and expensive public litigations, further damaging the business financially and reputationally.
Improved Employee Engagement and Retention: Fairness can be a key driver of employee motivation and engagement. In other words, employees who feel they are treated fairly will naturally be more inclined to perform and excel in their roles. Heightened motivation can also reduce high turnover rates for businesses.Lowering turnover can be incredibly beneficial for organizations, with the cost of replacing an employee being 21% of their annual salary (on average).
Improved Talent Attraction and Recruitment: Increasing retention and boosting recruitment go hand in hand. A fair workplace is an attractive workplace. Complying fully with pay equity laws naturally boosts your company’s reputation and makes it an attractive goal for skilled job seekers across demographics.
This example of pay equity is especially important at a time when some job seekers are ready to take a pay cut if it means working in a less stressful and more equitable environment.
Increased Productivity and Performance: An equitable environment is one where employees feel comfortable taking risks and fully expressing themselves through their work. Why is pay equity important? It fosters that very environment, reducing stress and incentivizing dedication to the business. If your employees feel rewarded, they’ll be more inclined to perform.
Positive Brand Reputation: A company’s social reputation is important in today’s business landscape. Your reputation is an asset, as real as any machine on the factory floor. The ability to build this reputation is another great benefit of pay equity. Consumers are likelier to choose brands they believe in and advocate for them.
This example of pay equity applies equally to potential investors. Investors prioritize businesses with sustainable business models. A positive social reputation suggests good management, responsible practices, and a lower risk of controversies.
Achieving Pay Equity
The Importance of Analysis
Our unconscious biases can creep into compensation decisions. Data analysis helps us move beyond subjective evaluations to truly understand the workforce. By examining objective factors like job descriptions, skills required, experience levels, and performance metrics, we can identify patterns that might reveal pay disparities not readily apparent.
Monitoring Pay Gaps: If you know why pay equity is important, you already understand that it needs to be addressed systematically. Data analysis helps us pinpoint and monitor pay gaps on an ongoing basis. HR analytics firms like Jara Analytics are a great example of pay equity being addressed through data. Jara Analytics uses HR dashboards to get real-time insights into pay gaps across similar job profiles and roles.
Tools and Strategies
Here are two powerful tools that play a pivotal role in addressing pay gaps and can help you harness the benefits of pay equity even faster.
Internal Audits: These audits are a crucial first step in tackling pay equity. Audits involve a deep dive into employee compensation data, analyzing salaries, bonuses, and other forms of compensation across different demographics and job categories.
Professional Services: External consultants can bring a fresh perspective and specialized tools to tackle complex issues that an internal team might not be equipped to handle. Knowing examples of pay equity is one thing, but enforcing pay equity is another entirely.
Hiring an outside consultant for the pay equity audit can add credibility with employees. This demonstrates a commitment to transparency so employees can see that the organization isn’t just evaluating its own data.
Make Pay Equity a Reality Today
Leading brands understand why pay equity is important, and it has become a prerequisite for excellence in a competitive market. We can see why with a quick summary of the benefits:
- Minimizing legal risk
- Higher employee retention and better quality of new hires
- Improved productivity and performance
- Higher employee motivation and loyalty
- Improved brand reputation
You can learn more about ongoing developments and new examples of pay equity in action on the Department of Labor’s pay equity website. You can also follow the Jara Analytics blog to stay updated on everything HR, with unique insights straight from the experts.
Is your organization doing enough to advance equal pay? Use Jara Analytics’ compensation solutions to identify critical pay gaps across your business, and use our tailored, data-driven strategies to address those gaps intelligently. Contact us today to learn more about how we can help you drive operational and financial performance with industry-leading compensation analytics.
