Pay Equity? Pay Transparency? What's the difference?
Anita Lettink
Future of Work Speaker | Payroll & HR Tech Advisor | Pay Transparency | Author | Linkedin Top Voice
It's a question I often receive, so let's see if I can bring some clarity on the topic. Let's start with definitions:
Pay transparency: the openness and communication about compensation within an organization. It involves sharing information about salary ranges, pay structures, and sometimes even individual salaries with employees.
Pay equity: ensuring fair compensation for employees doing similar work based on objective criteria. It's about addressing and correcting pay disparities that may exist due to bias or historical inequalities, gender or other protected characteristics.
Pay transparency is about openness into compensation processes, while pay equity is about fairness in pay outcomes. You can have pay transparency without pay equity, but that will make your employees very unhappy. You can also achieve pay equity without transparency, but why would you not share this with employees?
While the EU Pay Transparency Directive seems to focus on transparency based on its title, you will also want to address equity. Let me explain why in five questions.
Is it better to focus on pay transparency first, or should we prioritize equity?
With the EU Pay Transparency Directive (and other global legislation) coming soon, this is a question I often get. Ideally, these efforts go together. But if you must prioritize, start with an internal equity audit. This allows you to identify and address the most obvious disparities before increasing transparency. As you make progress on equity, you can gradually increase transparency. This approach can help prevent the potential backlash that might occur if significant inequities were suddenly exposed through a transparency initiative. But a word of caution: when disparities are substantial, and you correct this on a one-by-one base, you won't be able to keep this quiet. People talk. And especially when they receive large, unexpected raises. So carefully think through the order.
Can we achieve pay equity without pay transparency?
Not all companies are subject to pay transparency legislation, so it's a fair question. And while it's technically possible to work towards pay equity internally without full transparency, it's challenging. Pay transparency exposes pay gaps or disparities. As mentioned in the answer to the first question, after the initial audit you might want to address pay equity issues privately before implementing broad transparency measures. The key is to be proactive in analyzing and correcting pay gaps, even if you're not yet ready to share all pay information openly. It's a toss-up to what comes first: some companies choose to correct the widest gaps first, then report, while others report first and then correct. When I talk to companies about this, there is no right answer. It often depends on the internal culture and the communication style, and an assessment about what will resonate with employees.
There is another reason why it is more challenging to achieve equity without transparency. It’s harder to spot and correct disparities when employees aren't aware and can't ask questions. When pay is transparent, equity can be more effectively monitored and maintained, because inequities don't remain hidden.
We've implemented pay transparency, but we're still struggling with equity. Why?
Transparency alone doesn't guarantee equity. It's a method that can help identify disparities, but addressing those disparities requires deliberate action. You might need to reassess your job evaluation methods, review your performance metrics, or adjust your compensation structure. Also, organizations aren't static. People join (see next question) and leave, are promoted and rewarded. Every compensation adjustment changes the balance. And that means that after you've established pay transparency, maintaining pay equity is an ongoing process that requires continuous monitoring and adjustments.
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How do we balance market competitiveness with internal equity?
This is a common challenge: you want to hire a new employee, but their compensation request upsets your internal balance and creates inequities. What do you do: hire them anyway? But this could also be a signal that your internal salary structure is not competitive anymore and needs to be reviewed. You can't offer new hires better compensation packages than your current employees for the same role. Which means you might need to adjust internal salaries to maintain equity. You could also offer alternative benefits to long-term employees to offset higher starting salaries for new hires as long as total compensation is equitable. Transparency about your approach is crucial. Your compensation philosophy should outline how you'll deal with such situations. It's important to discuss and agree this with your leadership team before it happens. Because it will.
Can you maintain pay transparency and equity without technology?
Yes, you can, but it will be a challenge for any company with hundreds of employees. You are analyzing a lot of data (HR, pay, compensation, benefits, time) that also constantly changes. You won't be able to perform complex analyses that might reveal (subtle) patterns of inequity when you rely on a spreadsheet. And tracking changes and progress over time is more challenging without a technological system in place. So, I'd recommend that you spend some time to carefully think through your approach and evaluate what you currently have. And even though HR solution vendors are offering Pay Transparency Dashboards, and these overviews show your progress on the pay gap, it's unlikely they have enough capabilities to give you insights into pay equities. And while it is possible to establish pay equity without technology, using a focused solution can significantly enhance the long-term success of your pay equity efforts.
If you want to read more about this topic, Zev J. Eigen wrote an excellent explanation of the difference between ‘Pay Equity’ and the ‘Pay Gap’ with some great visuals.
Have a great day, Anita
Do you have a question? Leave a comment or, if you want to remain anonymous, send me a DM! I'll answer them in an upcoming edition.
Via hrtechradar.com