Pay analysis helps ensure income equity within a diverse organization. And evaluating your company’s pay structure can eliminate discrepancies while boosting morale. So, what is a pay analysis, and why do some financial experts say you should do one every year?
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A pay analysis is sometimes called a pay equity audit (PEA) or pay parity audit. That means it’s a tool to help companies research and pros and cons of their payroll structure. Income evaluations assess the differences in pay between several groups. So, companies can examine or change income variables relative to gender, race, age, or other criteria, such as:
- Job Description
Fair pay attracts better talent. And excellent workers drive productivity. Meanwhile, productive companies enjoy better efficiency and streamlined operational costs. Yet, some businesses still undercut employees without realizing it.
The topic of income equity has always been a crucial component of reasonable businesses. But the concept is fueled by budding social movements like MeToo and Black Lives Matter. Several U.S. states have already passed transparency laws mandating employers to file annual equal pay reports. Thus, an annual pay analysis is more essential than ever.
Many factors can contribute to an inequitable pay structure. And salary discrepancies aren’t always caused by unscrupulous business executives or discrimination. Other issues can impact how much employees get paid for their time. Take credentials, for example. Someone with more experience will most likely make more money, even if they do the same job.
Occupational clustering is another concern. Areas with a high population of specific professionals might feature dozens of high-demand jobs. But places, where specific expertise isn’t needed, could pay employees much less than the average. Imagine a Michelin chef trying to enjoy a lucrative career where food is scarce. They could have terrific cooking skills, but their income probably won’t reflect that.
Job demands can also affect the payout. Challenging careers typically require skilled experts who can work long hours to finish projects. And for some people, heavy-duty responsibilities aren’t worth the paycheck. This concept explains much of the gender pay gap. Yet, it’s not the only factor at play. So, a yearly pay analysis helps companies level the playing field for everybody.
Industry demands and company structure could unknowingly threaten income equity within an organization. Occupational segregation and vertical segregation produce outdated barriers to entry in countless economic sectors. And failure to recognize excellent performance is a primary example of that.
Performing a pay equity audit, or PEA, on your company requires continual due diligence. First, you must raise awareness among employees to demonstrate your allegiance. Then, you have to consult Human Resources (HR) to determine the legal and ethical standards for your industry. Moreover, you should identify existing operational gaps that cause income discrepancies and find new ways to compensate the staff.
Next, try to examine the company’s hiring, firing, and promotion processes. Look for decentralized systems and miry authority. Weed out incorrect employment classifications, redefine job descriptions, and enable more advancement within the organization. Now, make sure the compensation schedule is conducive to modern lifestyles. And do regular tune-ups to eliminate inequitable pay gaps that emerge from turnover, shifting duties, subjective bias, and industry demands.
Performing a comprehensive PEA involves comparing employee income with similar duties in the area. That’s because geographical location plays a significant role in expected salaries per industry. Executives must also investigate the underlying causes of unjustified pay discrepancies. Then, they should be accountable for issues and transparent while creating reasonable changes.
Small businesses can conduct an in-depth pay analysis without outsourcing accountants and consultants. But large companies should invest in a Certified Public Accountant (CPA) to avoid costly mistakes. And since auditors require accurate records, organizations should maintain updated files to study data in real-time. Meanwhile, the reports should include the following information:
- Employee Demographics
- Job Classification
- Salary Comparisons
- Performance Statistics
Pay equity auditors can also perform regression analysis. That way, the company can accurately account for income differences from previous years. Thus, most organizations inevitably learn that their company’s compensation policies deserve an immediate overhaul. And these are the six steps they take to do it:
Understanding the pay structure of any company requires a closer look at the compensation arrangements. The objective is to find out how your business compares to other companies in the same industry. Usually, large organizations will pay for labor researchers to examine and analyze the data. But company executives should participate in the investigation to help account for resources and expenses.
Not everyone in your company can perform a comprehensive pay analysis. Yet many businesses can’t afford the yearly expense of professional services. So, consider who can analyze the organization’s compensation plan. It can be an individual or a group of employees who represent different demographics. However, you should start with business operations offices such as human resources or the finance department.
Similar job roles can go by different names depending on the company. For example, one organization might have managers reviewing job applications and onboarding new staff. But another company in the same industry might delegate those tasks to another department. An accurate pay analysis requires defining or reconfiguring duties to meet industry standards and exceed equity expectations.
Equitable pay structures don’t always mean every employee gets paid the same wage. Many companies define a worker’s income based on a range of criteria. Factors such as work experience and education level play a significant role. However, businesses should organize, review, and update staff records to ensure the most impartial approach. Data on ethnicity, gender, age, and background should help analysts conform to anti-discrimination mandates.
Progressive organizations typically “age” the data they collect during a routine pay analysis. That means their findings account for the time passed since the last survey. Information and statistics can change quickly. So, companies must determine their metrics and reflect on market disruptions or changes in real-time. Most businesses utilize a compensation scale based on percentiles above or below the national average for similar industries.
Finally, compare the findings to other companies. Make sure the staff are getting a competitive wage regardless of their demographic. Then divide the salary by the market average. If the sum is more than one, then the salary is already above the line. But if the sum is less than one, the organization should work to match the industry average by the end of the year.
Afterward, you can make decisions about the new salary structure. But don’t forget to track changes and monitor progress. Align the results of each pay analysis with a feasible goal then adjust as needed on the next round.
NOTE: New pay equity programs typically require several months to take effect.
A yearly pay analysis is crucial because it helps reveal problematic practices in an organization. So, executives usually end up with shocking conclusions and challenging decisions to make. Therefore, companies must decide how to address issues without causing turmoil among the employees. How will you indiscriminately adjust salaries when staff is underpaid or overpaid? Determine that first.
The goal is to ensure that valuable teammates get compensated fairly. However, their salaries cannot threaten the company’s profitability. And the wage structure should make your organization a stressful place to work. To that end, many companies utilize intuitive compensation measures to maintain the status quo. Primary practices include:
- Cost-of-Living Adjustments
- Performance Bonuses
- Annual Raises
- Shift Premiums
- Hazard Pay
Remember, a pay analysis should reveal and remedy unlawful compensation disparities before securing company profits. And yearly audits can help shield your organization from pay equity litigation. Some state legislatures, investors, and shareholders consider salary discrepancies a serious offense. So, they often pressure organizations to fulfill their oversight duties through public advocacy.
Routinely conduct wage surveys, then share the data with human resources, lawmakers, and concerned shareholders. Demonstrate your organization’s willingness to increase transparency and boost diversity with an equitable compensation structure. Also, consider the effects of multinational economics when analyzing global pay scales. Diversity, Equity, and Inclusion (DEI) programs can only take you so far.
Diversity, Equity, and Inclusion programs are crucial to operating a diverse organization. They influence operations, determine brand trajectory, and dictate worker morale. Inclusion efforts also represent marginalized communities within the workplace. But not all DEI programs are a success, even after a comprehensive pay analysis.
Poor program implementation can create an unsatisfactory and unstable environment. But here are four other reasons why Diversity, Equity, and Inclusion plans sometimes fail:
- Inadequate Long-Term Planning
Long-term equity planning helps ensure an inclusive culture despite changes. Companies can adopt different DEI policies for different groups. But failing to address inequity in the workplace can lead to sustainability problems regardless of the pay structure.
- Lack of Committed Staff
Businesses can have the best-laid plans but still, fail to meet their employee’s needs. If the staff isn’t on board with the organization’s DEI efforts, no progress can be made. Thus, companies must invest in motivating their crew to establish and maintain a fair atmosphere.
- Undereducated Employees
If employees are unaware of the company’s DEI policies, they might not use them to their advantage. Issues could grow out of hand and ultimately cost the business money or rapport in the industry. So, make sure your staff knows about the efforts you’ve made.
- Inaccurate Pay Analysis Data
A DEI program can only do so much when the foundational data is incorrect. That’s why a yearly pay analysis is critical. Much can change for a company or industry within one year. But a routine analysis can help executives stay abreast of equitable developments and salary expectations.
For the best results, assign leaders to define and enforce DEI policies. Hold staff accountable for mistakes, and work to foster a more inclusive environment. Choose teammates who are committed to positively impacting communities with enthusiasm and compassion. And don’t forget to streamline your instructional delivery tactics to remain sensitive to specific groups.
TIP: Choose someone as the company’s primary DEI representative.
An annual pay analysis allows companies to examine and streamline several aspects of the business. The comprehensive examination of salaries ensures competitiveness and DEI compliance. But it also upholds shareholder expectations while adhering to industry ethics. Therefore, frugal organizations can conduct PEAs as part of their regulatory risk mitigation efforts.
By adopting a transactional approach, businesses can adjust their goals without public scrutiny. However, boards must understand and respect pay equity measures to enforce them. So, much of the process belongs to educating or re-educating staff on workplace discrimination. Plan for yearly renewal of equity data to remain relevant and equitable in your industry.
The new normal includes Diversity, Equity, and Inclusion (DEI) programs plus an annual pay analysis. Giving your hardworking employees their fair share is crucial to maintaining a quality reputation in today’s economy. Well-paid staff is more willing to go the extra mile for employers. And they learn to trust their company because their company values their contributions. However, if handled unethically, pay transparency can become a public relations or legal issue. So, hire an expert to help if needed.
About the Author
K. Edwin Bryant is a highly respected senior pastor, professor and academic, published author, and corporate strategist with a passion to advocate for underrepresented communities.
Dr. Bryant has a Ph.D. from Macquarie University, Sydney, AU in Ancient History: New Testament and Early Christianity. Currently, Bryant is the COO of Full Gospel Baptist Church Fellowship International, Senior Pastor and CEO of Dayton, Ohio’s Mount Pisgah Church, chairman of the Board for Tehillah Music Group, and an adjunct professor of the New Testament & Early Christianity.
He uses his leadership and influence to pry open spaces of white privilege and create pathways of equality and belonging for the Black, Indigenous, and People of Color communities.
In Dr. Bryant’s book ChaRIOT: The New Cultural Conversation, he confronts difficult conversations to help non-blacks reinterpret public responses to oppression imposed on and experienced by the black community.
Dr. Bryant currently resides outside of Dayton Ohio with his wife and children. When he’s not working on a multitude of projects or catching up on trending events; you might find him watching Netflix (especially the Blacklist) or hitting the piano inspired by artists such as Robert Glasper, Moonchild, and Corey Henry.