Despite laws prohibiting pay discrimination, gender and racial wage gaps persist in US companies. Employers are now reconsidering pay strategies to achieve “pay parity” or fair and equal pay.

According to the US Government Accountability Office, women earn $0.82 for every $1 men earn, with even wider gaps for those at the intersection of these identities. This data highlights a long-standing history of inequality.

Many employers are now prioritizing fair pay practices. In this article, we’ll explore the importance of pay parity and offer simple steps for your team to promote fairness in pay practices.

TABLE OF CONTENTS

What is pay parity?
The importance of pay parity
Pay parity vs pay equity
How to achieve pay parity
Payroll preparation with HR software 🚀

What is pay parity?

Pay parity is a term used to signify the lack of a pay gap. Normally, employers will define exactly how they interpret pay parity as a part of their company-wide DEI initiatives. In many cases, pay parity is used to describe equal pay for work of equal value for employees, regardless of gender, race, sexuality, or nationality.

Pay parity in the workplace

Although pay discrimination was made illegal under federal law almost 60 years ago – under Title VII of the Civil Rights Act of 1964 and the Equal Pay for Equal Work Act of 1963 – gender and racial wage gaps are still a big issue for companies throughout the United States. In an effort to achieve equitable pay or “pay parity”, many employers are rethinking their compensation strategies and practices.

According to The US Government Accountability Office, women earn on average $0.82 for every $1.00 a man earns. The gap widens even more so for workers with intersectional identities. The same research shows that black women in the United States are paid just $0.63 and Hispanic or Latina women earn $0.53 for every dollar. These numbers reveal a history of perpetuated inequality and systemic discrimination that can’t be resolved quickly and easily.

In an effort to promote fair payment practices, many employers are recognizing the importance of practices that promote equitable pay. But how can your team make strides to achieve pay parity?

In this article, we’ll explain, pay parity and its importance, and provide you with clear steps on how to make your pay practices more equitable.

The importance of pay parity

Aside from being an ethically responsible commitment for companies to strive to keep, equal pay practices are necessary to comply with federal and state laws, such as the California Pay Transparency Law. Additionally, having pay parity helps businesses to:

Attract more diverse and conscientious candidates in the hiring process.
Have a more inclusive brand image.
Increase loyalty and organizational commitment.

Pay parity vs pay equity

Although they are often used interchangeably, pay parity and equity are not precisely the same. Both terms are about having a compensation strategy that is not discriminatory.

However, pay parity is about providing employees with equal pay and eliminating any pay gaps regardless of their positions. Pay equity is a term specifically used to discuss equal payment between employees with similar backgrounds, qualifications, and experiences.

How to achieve pay parity

Making changes to reduce inequality is not always easy but it’s not impossible either. Employers can take action to achieve pay parity by recognizing gaps and modifying practices. Here’s a step-by-step outline of what this process looks like.

Conduct a pay audit

Before making a single change to your company’s pay strategy, the first step should be auditing your current framework as is. Try conducting a pay equity analysis to detect pay disparities across demographics. Note any external factors and reasons behind these pay gaps. Some possible contributing factors might include the following:

An underrepresentation of groups in positions with decision-making power in the hiring process.
Employees who lack the experience or qualifications for a more senior position.
Employees who switch roles due to childcare responsibilities and conflicting company policies.
Team members who are not receiving equal opportunities for career advancement.
Hiring practices that exclude or unintentionally discourage certain groups of candidates from applying for positions.
Team members who feel demotivated and excluded due to company culture.
Employees who have been looked over for promotions due to unconscious bias.

Address any pay gaps

After conducting an analysis and detecting possible causes of pay gaps, it’s time to look for opportunities to update your compensation strategy. Depending on your results and where you find evidence of unequal practices, you can make adjustments according to whichever processes are the most problematic. Here are some examples of ways to bridge pay gaps.

Promote more inclusive hiring practices for senior-level positions. For example, avoid coded words in job descriptions and ensure there are no biased interview questions.
Make sure your compensation framework is clear and transparent. Employees should understand how they can progress in their career path.
Provide employees with equal access to training programs, learning and development programs, and opportunities for career advancement.
Amplify your company’s paid parental leave policy, and include paid leave for employees regardless of their sex.
Include childcare options and flexible work options as a part of your company’s benefit plan. Studies show that women see a major salary drop after the birth of their first child, whereas men do not have the same problem.
Use diversity metrics to keep tabs on wage distribution, hiring, and promotion.

Create a compensation framework

Having a clear structure for compensation is advantageous for employers and employees alike. For starters, it makes it easier to manage and account for salary expenditure and it can help your company retain employees by ensuring competitive compensation. At the basic level, compensation frameworks provide transparent information about wages and earnings. Whereas more developed structures include benefits, commissions, health care coverage, and company stock.

To implement a compensation framework, follow these steps:

Firstly, research to find the value of each position in your company. This means benchmarking salaries with all of your close competitors.
Then, determine the possible career growth paths for each position and in every department. Perhaps you want employees to take a more active role in their career development by giving them the option to decide based on their professional goals.
Include any other compensation practices that your company adopts. Do employees receive a monthly variable based on their performance, or do certain positions receive a commission? Include all of the details.
Make sure your plan is equitable and fair. After developing a compensation grid for each department, take a step back and ask: Which positions have the most competitive salaries in comparison to the market rates? Are the salaries for senior-level positions more competitive than for entry-level positions? Try to make sure that the pay progression is logical.
Lastly, communicate your compensation framework to make sure that everyone is on board. Host a company-wide meeting and explain to employees why your company is adopting this new framework and how they can use it. Make sure that every employee knows where to find information about the company’s framework and pay policies.

Implement equitable policies

Achieving pay parity involves holistic thinking about company processes and policies and how they influence pay gaps. Here are some ways to make company-wide policies more equitable for everyone:

Ensure that performance reviews support diversity and inclusion. Do employees feel psychologically safe when giving feedback to their managers? Make sure evaluations are free of bias and done so in such a way that promotes feelings of trust.
Make sure that promotions are given to employees for their performance. According to research, employees are twice as likely to put forth extra effort and stick with a company long-term if they feel that its promotion strategy is fair.
Encourage pay transparency and communication. A great way to tackle wage disparity is by creating a stigma-free environment in which employees can openly discuss their salaries.
Provide the work conditions that your employees need to thrive. High-performing employees are those that feel comfortable and have a sense of belonging in their workplace. Try conducting anonymous surveys to see how your team feels about their working environment.

Prioritize inclusive hiring and promotion

When it comes to achieving pay parity, it often means revamping your company’s hiring and promotion practices. As mentioned before, underrepresentation in more senior-level positions is a leading cause of gender and racial pay gaps. To minimize these gaps, you will want to thoroughly examine hiring and promotion procedures and remove any traces of unconscious bias.

Here are some ways to make your processes more inclusive:

Determine and list criteria that candidates should meet. Whether you are considering hiring an external candidate or promoting someone internally, there should be a set of essential requirements that they need to fulfill in order to be considered.
Select a diverse interview panel. This can add more perspective to hiring decisions and provide candidates with a better overall experience.
Back up promotion decisions with numbers. Include which KPIs employees consistently met and statistics related to their achievements.
Provide diversity, equity, and, inclusion training for managers. It will help to promote awareness of existing biases and help them to adopt new approaches when making promotion decisions.

Regularly review compensation framework

When it comes to achieving pay parity, there’s no one-shot solution to get your company to the finish line. It requires a long-term strategic vision and commitment to equitable business practices. And after you’ve created the compensation framework that works for you and your team, plan to make regular adjustments and changes. The best way to do this is by regularly evaluating wage gaps with a DEI dashboard. This will allow you to see the impact of your efforts and make better data-driven decisions for you and your team.

How can Factorial help with pay parity?

Factorial is an all-in-one platform that acts as a centralized hub for all things HR. Make conscious hiring decisions with our ATS, conduct fair and thorough employee performance reviews, track time & attendance, and prepare payroll with our software. You can also stay on top of your HR data and KPIs with built-in analytics features. Book a demo with a product specialist now to learn exactly why you need HR software if you want to speed up and streamline your HR processes!

How to achieve pay parity: Employer’s guide