To address gender pay gaps, improve compensation strategies, and recognize high performance, businesses can identify the root cause of pay inequity and equitably allocate raises to the most underpaid women. That’s the finding of recent research from the University of Florida.
A fresh approach
In partnership with numerous businesses worldwide, ranging from 75 to 130,000 employees, the researchers have created an approach that has helped most companies eliminate the gender pay gap either immediately or within a few years.
Compared to other methods that prioritize minimizing costs, their latest analysis is superior. The previous cost-minimization approach can suggest unreasonable and unjustified salary increases, and it fails to identify the root causes of pay inequality. As a result, organizations are unable to implement permanent improvements to their compensation policies.
“Because the firm’s human resources goals are embedded in the structured approach, you’re improving the degree to which people are paid more for high performance, education or other desirable factors,” the researchers explain. “You’re also allocating pay in a way that seems like it’s the fairest, because the people receiving raises are the people who are most underpaid vis-à-vis the pay drivers that your organization would like to reward.”
Tackling the pay gap
Many news articles present the unadjusted gender pay gap, which compares the earnings of all men and women in a particular industry or even an entire nation. However, social scientists, regulatory agencies, and courts typically focus on adjusted pay gaps, which account for legitimate factors that can influence pay, such as job title, education, experience, exposure to risk, or overtime.
Despite the fact that adjusted gender pay gaps tend to be smaller than unadjusted pay gaps, most studies demonstrate that women still earn several percentage points less than men for comparable work and experience in the majority of industries. As a result, new regulations in many countries and pressure from shareholders and employees are driving businesses to disclose and rectify gender pay discrepancies.
“We start by sitting down with senior managers and human resources, brainstorming about what they think should be explaining pay in their organization. What we found is that organizations typically don’t know as much as they think they do about what is driving their pay,” the researchers explain.
When they conducted the exercise in one company, they found that they were underpaying women by around 1.3%. This finding prompted a change in the company to try and achieve pay equity.
Closing the gap
A novel methodology was proposed by the researchers to examine the extent to which men and women are compensated for a particular factor, such as their level of education, and to compare the two. The approach involves analyzing each element that contributes to pay differentials within the company. In instances where disparities exist, the system can then classify workers based on how much they are being inadequately compensated for these factors.
“Then, taking into consideration a firm’s budget for raise allocations, the method developed by our team allocates raises starting with the people who are most disadvantaged and stops when one of two things happen: You close the pay gap or you run out of money,” the researchers explain.
According to the researchers, businesses that are unable to immediately address the gender pay gap can utilize the analysis repeatedly over a span of years to eventually eliminate the disparity. This approach can also aid companies in maintaining their pay equity. Additionally, the method can be employed to tackle pay differentials attributed to race, religion, and other demographic variables.
The structured method provides firms with valuable insights into how they are compensating their workers, and consequently, it can help enhance the consistency between a company’s stated compensation objectives and their practical implementation.
“Irrespective of the gender pay gap, many of the firms we’ve worked with have found they weren’t achieving the goals they set out to achieve with their stated compensation policies. By applying this system, they’re able to enact a compensation plan that does what they always wanted it to do,” they conclude.
