Does your business practice pay equity? In other words, do you pay all employees fairly, regardless of gender, race, etc.? Or do you have a gender pay gap?
Most business owners would probably say that they pay people fairly, but how can you be sure unless it’s something you measure? In this tutorial, we’ll look at the issue of equal pay in detail.
We’ll discuss why pay equity important, how to measure it in your business, and practical steps you can take to move toward pay equity. Because the process is similar for various types of pay gap, we’ll use the gender pay gap as our main example, and then at the end we’ll discuss how to apply the same lessons to other types of pay inequality.
1. What Is the Gender Pay Gap?
Put simply, the gender pay gap is the difference between how much women earn and how much men earn on average.
The average pay gap for all OECD countries (members of The Organisation for Economic Co-operation and Development) was 13.8% in 2016 (the latest data available). That means that, on average, women earn 13.8% less than men in those countries (you can see a full listing of the countries in the linked data).
Some form of gender pay gap exists in all member countries, but it varies widely. Here are some statistics by country:
- Belgium’s pay gap is just 3.7%
- Korea’s is 34.6%
- The United States sits at 18.2% (higher than most European countries, but lower than Japan and Korea)
You’ll sometimes see the gap expressed in different ways: that women in the U.S. earn 82 cents for every dollar earned by men, for example, or that women effectively work more than two months for free every year. These are simply different ways of conceptualizing the same underlying data.
Different Types of Pay Gap
These statistics are “unadjusted”—they simply measure overall average earnings, so they’re not saying that women earn less than men for doing the same job with the same level of experience, but that women earn less than men overall.
That could be for a number of reasons, including pay discrimination, seniority, experience, the type of work and the hours worked, etc.
Some attempts to adjust for these other factors have shown much smaller gaps, leading to some articles referring to the gender pay gap as a myth.
But as this detailed report from the Economic Policy Institute shows, there are many different aspects of pay discrimination, and the gender pay gap persists even when adjustments are made. For example:
- “Women are paid less than similarly educated men at every level of education. And the wage gap tends to rise with education level.”
- “Women who work in male-dominated occupations are paid significantly less than similarly educated males in those occupations.”
- “After giving birth, women’s pay lags behind pay of similarly educated and experienced men and of women without children. There is no corresponding ‘fatherhood penalty’ for men.”
The report’s authors conclude:
“Switching to a fully adjusted model of the gender wage gap actually can radically understate the effect of gender discrimination on women’s earnings.”
You may be reading this and thinking that, although it’s an issue in the world in general, it doesn’t matter specifically to your business.
Here’s why pay equity does matter.
The most obvious reason is basic fairness, of course, but there are also other reasons why you should care. Here are four of those reasons:
One of the most important tasks for any business is to hire the best people. If you can show that pay equity is an issue you take seriously, you can use your commitment to it to attract the best candidates.
Many companies come up with nice-sounding slogans about their commitment to diversity and gender equality. If you measure the gender pay gap and keep it small or non-existent, you can give evidence of that and put yourself ahead of the competition in hiring top candidates.
Employee Satisfaction and Retention
Hiring the best people is important, but retaining them is also vital. A commitment to equal pay can help with that too.
Consider the results of this 2015 survey of UK workers:
“The extent of the gender pay gap matters to employees. 89% of respondents would feel more negatively towards their employer if the gender pay gap was relatively large in their organisation. On the contrary, if it was relatively small, 71% would feel more positively towards their employer.”
That’s a huge impact, so measuring and publishing your pay equity statistics can go a long way towards keeping your employees happy and committed to your company.
Promotion and Career Progression
Often, pay inequality within an organization can be a pointer to other important issues. Maybe women earn less on average because they’re under-represented in the top-paying leadership positions. Maybe they’re simply not being rewarded fairly. Maybe they’re being blocked from promotion or not getting the career help they need. Maybe you don’t have enough family-friendly benefits or policies to support the continuation of a career after parental leave.
Measuring your gender pay gap is the first step; figuring out the causes can reveal some vital issues for you to address.
As the above survey notes, large organizations in the UK are now required to measure and publish their gender pay gap statistics. That doesn’t apply everywhere, but most countries have some form of wage discrimination legislation. In addition to the other benefits we’ve covered, closing the gap can also help protect you from future lawsuits.
3. How to Measure the Gender Pay Gap in Your Business
OK, so now you know what the gender pay gap is, and you’re convinced of why you need to measure it. Here’s how you go about doing it.
The first step is to obtain a list of all your employees and their annual salaries in spreadsheet format. (If you also have workers who are paid on an hourly or weekly basis, you can simply multiply up to obtain an equivalent annual salary for comparison purposes.)
Remember that this is sensitive data, so you’ll need to store it securely. You should also anonymize it as soon as you can—but first....
In the salary spreadsheet, add a column for gender. Be aware that gender identity is complex and doesn’t always match the sex a person was assigned at birth. In this example, we’ll stick with a simple binary of men and women since that’s the data many companies will have. The more richness you can include, the better.
Add columns for job type, years of experience and seniority level, if they’re not already in the spreadsheet. At this point, you can remove the names and make the data anonymous.
Separate the data by gender and calculate the overall average salary for men and women. Let’s say, in this example, that it comes out to $50,000 for men and $40,000 for women.
Calculate the gender pay gap as a percentage, using this formula:
Pay Gap = 1 – (average salary for women / average salary for men x 100)
In this example, it would be 1 – (40,000 / 50,000 x 100) = 1 – 80% = 20%.
So to put it in simple terms, women at this hypothetical company earn 20% less than men. Or you could say that women earn 80 cents for every dollar earned by men.
Extending the Calculation
Now, you can use the data about job type, seniority and experience level to compare like with like. Here are some questions to consider:
- For senior sales managers with at least ten years of experience, how do women’s salaries compare with men’s?
- How about new hires?
- Do the ratios of men to women and their salaries change at different levels within the organization?
By extending the calculation in this way, you can get much more granularity in your gender pay gap statistics and start to identify patterns. Then you can use the detailed information you’ve gleaned to start putting together an action plan to achieve pay equity. We’ll look at how to do that in the next section.
4. How to Achieve Pay Equity
As we’ve discussed, there can be many reasons for a gender pay gap within an organization. So once you’ve established the overall figure, you’ll need to dig in and get more detail as described in the previous section.
Your action plan will be dictated by those results. Some companies might have a dearth of women in the top jobs, for example, while others might have women in senior positions who are underpaid. There are many possibilities, but here we’ll look at some common scenarios and how to start fixing them.
1. Same Job, Same Pay
The first place to start is by identifying any situations in which a man and a woman are doing the same job at different levels of pay. Go through them on a case-by-case basis and figure out how it happened.
Is there a real justification, e.g. has the man earned a higher salary through better performance reviews and merit-based pay increases? Pay equity doesn’t mean that everyone has to be paid the same—there can still be room for rewarding some people for outstanding work. But it does mean that you've got to justify any inequalities very carefully. Be sure that the reasons for the difference are real and aren't the product of unconscious bias. Learn more about unconscious bias in this tutorial:
If there's no logical reason for the difference, eliminate it immediately by giving the woman a pay raise to equal the man’s salary. This is pay discrimination, and you need to act on it right away. Continue doing this until you've eliminated all the glaring inequalities.
2. Break the Glass Ceiling
Even when you’ve eliminated the most obvious cases of pay discrimination, you’ll probably still have a gender pay gap in your business. The most likely culprit is a lack of women at the top.
If women tend to have lower-status jobs within your organization, they’re likely to have lower pay as well. So look at ways to help women move up and remove any barriers to advancement.
This is a huge topic, involving everything from mentoring schemes to revised hiring practices and benefits packages. Luckily, we’ve covered a lot of the best strategies for you in the following tutorial:
I’ve also got a tutorial coming up later this month on achieving boardroom diversity, so stay tuned for that.
3. Set Goals and Track Them
There’s an old saying in business, “You get what you measure.” So it’s important to measure your gender pay gap not just as a one-off exercise, but on a regular basis—at the very least on an annual basis, but perhaps quarterly or monthly if that makes sense for your business. Add it to the regular package of business metrics that you track.
Also set measurable, achievable goals. Keep in mind that while some changes can take place right away, others may take longer. So you could set an ultimate goal of closing the gender pay gap to zero, with milestones along the way to help you ensure you’re always heading in the right direction.
4. What Individual Employees Can Do
So far, we’ve been looking at pay equity from the point of view of a business owner or manager. What can you do if you want to change things in your company, but aren't in a managerial position?
The best strategy is to put together a solid case to help you convince your manager to take action. Look back to section 2 of this tutorial, Why the Gender Pay Gap Matters to Your Business. Feel free to use some of these points yourself, and arm yourself with more facts and arguments from sites like AAUW.
If you've got data you can use from within the company, that can be very powerful. But it may be hard to get that because people’s salaries are generally private, and some companies have rules preventing employees from discussing pay with each other. So don’t break any rules or invade your coworkers’ privacy to look for data. Instead, call for the company to make their gender pay gap statistics more transparent.
What you can do is raise awareness among your coworkers and try to get them to join you. Also talk to your union representatives and any other organizations that may be able to help. The more people you've got on your side, the better your chances. You want to show that this issue matters, not just to you personally but to a broad cross-section of employees and to the company as a whole, so brainstorm ways to demonstrate that. Perhaps you could even run an anonymous survey within the company, like the one we looked at back in Section 2.
If your manager isn't initially responsive, don’t let it go. Keep gathering evidence and building support, and look for another chance to raise the topic in future. This is an issue that regularly gets press attention, so you’ll have plenty of opportunities to return to the subject, hopefully armed with even more persuasive data and support each time.
5. Other Areas of Pay Inequality
In this tutorial, we’ve focused on the gender pay gap as an example, but there are plenty of other pay gaps out there. Take a look at our previous tutorial on the dimensions of diversity:
Examine pretty much any of those dimensions, and you may well see a pay gap in your business, because they exist at a broader level. Here are some other types of pay gaps to consider if you want to achieve equal pay in your organisation:
Sometimes, the different types of pay gap intersect with each other and lead to even greater inequality for certain groups. According to Vox:
“Nationally, black women working in full time, year-round positions make 63 cents to each dollar earned by a white man.”
If you recall that the overall gender pay gap is around 82 cents to the dollar, you can see that there’s a big difference here. And, Vox continues,
“other groups, like Latinas and Native American women, experience a gap that is even larger, making 54 cents and 57 cents per dollar, respectively.”
For each of these types of pay gap, the process is similar to the one we went through for the gender pay gap.
Start by measuring the gap on a high level, and then go into as much detail as you can by job type, seniority, experience level, etc.
Then put together an action plan based on the patterns you see. It may involve anything from changing your hiring process to implementing mentoring programs and instituting better processes for setting pay levels. Set a goal for closing the gap, and keep measuring to track your progress.
In this tutorial, you’ve learned what the gender pay gap is and why it matters to your business. You’ve learned how to measure it and how to take action to reduce it and ultimately eliminate it.
You’ve also learned about other areas in which pay equity is a problem, and how you can apply a similar process to dealing with those too. For more ideas, read through our essential guide to improving diversity in your business. There’s plenty in there to help you take practical steps towards progress in everything from revamping your hiring processes to building a more inclusive workplace culture.