Six tips for reducing pay gaps
There is no universal solution to closing a pay gap because every company is different, but here are some tips we feel are crucial to getting to grips with this key area, firstly in how to structure things and then in ongoing business practice.
1. Build a robust reward framework
Job evaluation
Building a framework that enables you to differentiate one job from another can help flag potential pay gaps.
For instance, if you have two roles at the same level being paid very differently, the exercise will help understand if there is a clear rationale for that difference, and whether it is justifiable and defensible.
There are different kinds of job evaluation frameworks. Ideally you would use an analytical system such as Evaluate that enables HR and business leaders to look at the key requirements of a role in order to establish the overall value it brings.
Pay benchmarking
Pay benchmarking is key to understanding how your pay compares with other companies in the market.
A good salary survey methodology enables you to match roles ensuring you are comparing apples with apples.
Ideally you would ally this with a compensation philosophy that determines where you would like to position pay in the market.
This can vary for different roles and comes down to business criticality.
If a business relies heavily on certain commercial roles, it might rank them as 'critical' and choose an upper quartile pay stance, while it might rely less heavily on operational roles - or feel they can be more easily replaced or recruited for - in which case pay might be aligned to the median.
By understanding how roles compare against the market, you can identify where there may be gaps, particularly in the same role for people doing the same work.
Ask yourselves: can we explain why people are being paid differently? Can we justify and defend it?
Using technology can speed up analysis and help you quickly identify your market comparability and where pay gaps might exist.
2. Continually measure performance and pay structures
If job evaluation is the building of the car and pay benchmarking the annual MOT, this is the service and maintenance that keeps the engine ticking over.
It must be regular, consistent and objective and should include pay equity analysis reporting every year or at least every other year.
This will ensure pay ranges stay clear, pay gaps cannot emerge or worsen, pay progression can be managed and, with it, any promotions.
3. Review pay equity by department and level
Again here, we cannot shy away from the tough questions:
- Do we have any specific job levels where pay differences exist?
- Do we have any specific departments where pay is generally higher?
- Why is this, and is it justifiable?
- Are these departments predominantly male or white employee dominated?
4. Scrutinise in-cycle vs out-of-cycle pay increases
Out-of-cycle increases is a leaky bucket that often contributes to pay gaps because it is not always well monitored.
If you do not know how much you spend out-of-cycle and who it goes to, you cannot begin to understand the impact it will have on your pay gaps.
5. Audit internal progression and promotion
Whether it is a regulatory requirement or not, knowing the percentage of men vs women or white compared to ethnic minority employees receiving internal promotions and pay increases are key statistics.
Similarly, knowing how long these groups of employees occupy roles and at what level they are being promoted gives a more rounded appreciation of your position and pay gap risk profile.
6. Think recruitment
Consider the language and imagery being used in recruitment and whether it is cutting out swathes of the market.
Look carefully at whether new appointments might inadvertently be creating gaps by causing existing staff to fall behind, especially if the market has moved.
There is no defence for the fact that “the market has moved since hire” so create a strategy to mitigate pay gaps, even if it is laid out over a period.
In partnership with Innecto Reward Consulting
We have more than 20 years' experience in getting employers' pay and reward working harder for them.
