Diversity Considerations in Compensation: Part 1

This is an excerpt from our recent ebook collaboration with BambooHR entitled How to Turn Diversity Into a Major Asset for Your Organization. Download the full ebook here.

The big connection between diversity and compensation is fair pay. (Note: Fair pay and equal pay are not the same thing. Paying fairly involves examining pay based on a number of key factors, and making sure that you’re being both compliant and consistent with your stated values, company culture and business goals.)

One key piece of ensuring fair pay is having a compensation plan that outlines how you intend to pay people, and that keeps you in compliance and out of legal disputes. Do your practices need an audit? Let’s take a look at the whats and whens.

Identifying and Resolving Inequities

It’s a good idea to review your compensation plan on a regular basis, ideally at least annually. Not only does this help you catch any differences among jobs or employees, but it’ll also ensure your compensation plan is current with the market. Depending on your particular organization’s speed and preferences, you may find you need to evaluate your comp plan more frequently. At PayScale, we have clients who evaluate their comp plan quarterly; do whatever works best for you.

So when you’re performing compensation audits, what are you really reviewing? The first thing you want to check is that your ranges are still relevant to the market. And if you’re looking at market data, particularly data for any hot jobs you have, you’ll get into employee pay, which is extra relevant to our topic of diversity.

At this point you’ll evaluate whether you need to do any equity adjustments to ensure you have fair pay within the employees for the jobs. Let’s look at an example:

This is data for two employees in an HR manager position. Something to notice here is that Vanessa, a woman, is below range — currently 9 percent below (see the Range Penetration box). She is green-circled. And then we’ve got Adam, who’s a man, and he’s at 41 percent range penetration.

Next we need to take a look at performance rating. You’ll see Adam is not currently meeting expectations, yet he’s progressed pretty far into his range. Vanessa has not, but she’s meeting expectations.

Is this is a problem? It may or may not be, depending on your organization’s policies around outliers. Regardless, it’s definitely a concern, and one that you should work to rectify quickly.

Important note: Once you do an audit and have an inequity discovery in writing (and email counts as a written record), you now have documentation that you’ve identified a potential issue — so you should be prepared to act on it, and you need to act right away. Be ready to solve the issue as soon as possible, and if you’re at all concerned or if you have specific questions, be sure to talk to an attorney.

Equity Pay Self-Audits: Pros and Cons

You can make audits part of your annual compensation review, and there may be times when you want to do a more formal equity audit, which you would do with an attorney.

A formal audit is a great way to determine whether pay inequities exist, and if so, to correct those inequities on the company’s terms, as opposed to in reaction to a Department of Labor request, for example. You may want to do this kind of audit for two reasons:

  1. You’d be working with an experienced attorney who will ensure you do it right, which is important
  2. An attorney can help with protecting your information in terms of privileged and discoverable correspondence, in case there is legal action down the road

Either way, you absolutely should be prepared to act on what you find. So as an organization, think about: Are we willing to take action? And remember that if you don’t, and later you’re challenged on a comp decision and it’s determined that not only do you have an inequity, but you knew you did and didn’t work to rectify it, it’ll be a lot rougher (and more expensive) road than if you had just acted in the first place.

Stay tuned for part two on “workplace currency” and manager favoritism.

Interested in a further deep-dive on diversity? There’s a lot more info in the ebook—grab a copy today!

Tell Us What You Think

How often does your organization audit internal compensation practices? We want to hear from you. Tell us your thoughts in the comments.

Image: WOCinTech Chat/Flickr

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