How to Conduct a Pay Equity Audit

5 minute read

The pay gap for both gender and race is alive and well today. A major way to dismantle this systemic inequity is by doing a regular pay equity audit. In particular, I am an advocate for biannual or quarterly company-wide compensation reviews to accompany your pay audit. However, doing the audit is definitely the first step. 

I will review the basic steps of conducting a pay equity audit. Bringing in an outside consultant and paying for data is an important piece of this work, so if you don’t have the budget, it can be a challenge to execute this correctly. However, doing this work pays dividends in the long run, and if you need to convince leadership to invest in it, I write about how to do that here.

When looking at pay equity company-wide, another piece to consider is the opportunity gap. Women of color experience the greatest obstacles when advancing up the ranks. Consider what your leadership looks like and what systematic barriers may be in place to achieving greater gender and race diversity on those teams.

If you are interested in learning more about this process so that you can conduct a pay equity audit yourself, check out our course, Cultivating Equitable Compensation. This four-week course will teach you have to conduct an audit from start to finish. Our next cohort begins February 7, 2022 and you can register here.

Here are the steps to creating a pay equity audit:

1. Set a Pay Strategy

Before you begin looking at the data, decide what you want your compensation to accomplish as well as how and why you pay what you do. This can include what markets you compare yourself with and how aggressively you want to pay compared to those markets. Within your pay ranges select what information you will use to determine where someone lands within their designated range. Do you value performance or length of service, or a combination of both?

2. Collect Data

This data should include demographic information like age, race, gender, veteran status, job title, job tier, and more. Ensure you are also collecting data on what you have decided will determine pay. If performance is important, what determines a high performer versus a medium or low performer?

Depending on your level of company pay transparency, when sharing this data it may be important to remove personally identifiable information (PII). For example you can share information in aggregate by grouping jobs together instead of sharing one individual's information.

 3. Group Data

Determine which employees have substantially similar work, this could include the same job in a different group, a different job within the same work group with similar responsibilities, or even a job at the same tier level as another job but in different groups in the organization. If there is a large difference between groups, can you explain why with data?

4. Analyze Data

Spend time moving the data around and compare it using categorical factors. Create ranges for jobs and look at people’s variance from the midpoint of the range.

5. Interpret the Results

• Where are the gaps in the data?

• Where are their wage discrepancies?

• Do you have a top performer at the bottom of their range? Any ranges below standard?

• Is there a difference in promotion rates or raise amounts?

• How do low range vs high range employees look across race, gender, etc?

6. Train Managers

Ensuring managers have the skills to discuss pay with their team is incredibly important for step 7 to go smoothly. They should be able to speak about pay in a way that aligns with the company’s strategies and values. 

7. Communicate Results

My preferred way to do this is to present it at a company all-hands meeting. The challenge is to ensure the message gets to everyone in a similar way. The same information should be communicated via email or another form for those who miss the meeting. And if managers are properly trained they can bring up the information in 1:1 meetings with their employees to be able to talk through any confusion someone has or if someone was afraid to ask a question.

This process can be daunting so ask for help when needed. Having an outside expert walk you through the process your first time can be incredibly valuable and can also assist with Leadership buy-in to have a second voice echo what you are saying.

Want to learn more? Register for Cultivating Equitable Compensation to dive deeper into this process.