Businesses today are under increased pressure to fully understand and thoroughly respond to the issue of pay equity. And neither of these two broad undertakings is particularly easy.

First, fully understanding what pay equity is and whether and how it’s played out at your company calls for research, analysis and perhaps some difficult discussions. The second part, responding to it in practical and effective ways, can entail changing long-standing employment processes and investing in additional training and communications initiatives.

Philosophy and practice

Simply defined, pay equity is the philosophy and practice of “equal pay for equal work.” That doesn’t mean everyone receives the same amount of pay. It means compensation is free of unjust biases historically related to demographic factors such as age, race, gender, disability, national origin and sexual orientation. Employees’ pay, both upon hire and as adjusted through raises, should be determined on the basis of objective, relevant factors such as education and training, experience, skills, performance, and tenure.

As mentioned, determining whether pay inequities exist within your business will entail a careful and honest assessment. Many companies conduct a formal pay equity audit. This is a thorough statistical analysis of compensation history, policies and structure. The audit’s objective is to identify any inconsistencies, gaps and incongruities that can’t be rationally explained.

Best prevention practices

To prevent instances of inequitable pay at your company, here are some best practices to consider:

Use only initials or random ID numbers during early screenings of job candidates. Minimizing the ability to distinguish candidates by ethnicity or gender can reduce the likelihood of biases in hiring and initial compensation decisions.

Refrain from asking candidates their pay histories. Women and people of color are more likely to have been paid less in their previous positions. Using historical compensation to set their current salaries only compounds pay disparities.

Generate objective criteria for recruiting, hiring, compensating, evaluating and promoting employees. Implement standard pay ranges that reflect each position’s value to the business.

Limit the ability of managers or supervisors to singlehandedly adjust pay for specific individuals. Such one-off decisions can lead to pay inequities.

Help managers and supervisors understand pay equity. Training will help them recognize how to best develop a culture that embraces pay equity and discuss the issue with their employees.

Communicate openly and regularly with staff. Let employees know how you set compensation and reassure them that they can discuss pay with their supervisors without fear of retaliation. More transparency tends to foster greater pay equity.

Tough questions

Make no mistake, pay equity is a tricky issue that can raise a lot of tough questions. Dealing with it won’t be a “one and done” activity. However, establishing your business as one that pays equitably will bolster your “employer brand” in today’s competitive labor market. Our firm can help you conduct a pay equity audit as well as better understand all aspects of your compensation structure.

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Polk & Associates

Large enough to serve a diverse clientele, yet small enough to maintain a hands-on approach, we are committed to maintaining the highest accounting and ethical standards with continuous education, extensive research resources, and excellent quality control.

Polk and Associates is a member of the Michigan Association of Certified Public Accountants, and the American Institute of Certified Public Accountants. The firm participates in the AICPA Peer Review Program, and has always received the highest level of award for its audit practice and quality control.