Employer’s guide to auditing equal pay

A combination of recent high-profile equal pay cases brought against well-known supermarket brands, UK gender pay gap reporting requirements and the impact of the Covid-19 pandemic have all helped to refocus attention on employee engagement, recruitment and retention. It’s no surprise that pay and compensation, and pay and compensation equity in particular, are high on the agenda for many potential and existing employees.

Often it is not the amount a person is paid that can lead to disengagement, but rather the inequity and lack of transparency in compensation processes. Valuable employees are increasingly voting with their feet and leaving organizations – often citing a lack of pay transparency as the main reason for their decision. Compensation-related grievances are also on the rise.

Many organizations are now considering undertaking equal pay audits to review their compensation practices. However, when reviewing such an audit, it is essential that there is adequate top-down stakeholder support with a genuine willingness to resolve any issues that may be uncovered during the audit process. ; it can be very damaging to perform an audit, find issues and then ignore them – in these circumstances, it’s best to avoid an audit altogether. An audit that is not carried out under legal professional secrecy will also be divulgable – is the organization ready for this?

An equal pay audit is different from a gender pay gap assessment – ​​they are entirely different measures. A gender pay gap is not necessarily evidence of discriminatory pay practices. An organization may publish favorable data on the gender pay gap, but have discriminatory pay practices. Conversely, a significant wage gap between men and women is not necessarily indicative of wage discrimination.

Equal pay means that those who do the same or similar work are paid the same. A gender pay gap measures a woman’s average hourly rate in a workplace compared to a man’s average hourly rate, without taking into account that they may perform very different job functions. If an organization wishes to consider an equal pay audit, it should consider the following five-step process:

  • Step 1: Determine the scope of the audit and identify the data required. This will involve identifying the project team within the organization and will go beyond HR (eg payroll, communications, etc.).

  • 2nd step: Perform an analysis of employees who do (or could do) equal work. If the organization does not have a job evaluation system, this will involve identifying employees who do “similar work” and/or “work of equal value”. Work of equal value is more difficult to assess because it involves the comparison of completely different roles. It will be necessary to assess what each role entails and how each role is valued within the organization. Job descriptions should be considered to understand the demands of roles in terms of effort, skill, and decision-making responsibility. A generic job description is a good starting point, but it won’t be detailed enough to determine whether two jobs can be of equal value to each other. It will be necessary to probe organizational knowledge about the roles.

  • Step 3: Gather and compare salary data to identify any significant pay gaps. Each element of the overall remuneration of the employees concerned must be taken into account to identify inequalities in remuneration. This aspect of the project may involve working with experts in data analysis if the expertise does not exist in-house.

  • Step 4: Check the results. The next step is to carry out a detailed examination of the results in order to establish any significant salary differences and to assess whether they are discriminatory and/or whether they can be objectively justified. This would include exploring factors such as seniority, market forces on recruitment and retention, etc.

  • Step 5: Prepare the audit report. This should include an action plan. An equal pay action plan should be developed to identify how issues will be addressed and resolved in the short term. It should also include how current policies and practices can be adapted in the future to ensure that transparency and pay equity improve.

Daniella McGuigan is a Partner at Ogletree Deakins International