The State of Pay Equity 2023-24

Ensure pay equity to maximize organizational performance

Pay equity has been a critical but too-often taboo topic for years now. However, social and legislative changes in 2023 have brought the topic front and center for many organizations.

With recent legislation around pay transparency, the issue of pay equity has become a business imperative. For many organizations doing business in the U.S. pay equity is not just the “right thing to do” anymore. Not complying with regulations could have serious implications. From compensating affected employees for the deprived wages (plus interest and litigation costs) to being charged with a misdemeanor, consequences of non-compliance could lead to loss of money, time, and brand image. Equitable pay, on the other hand, is often associated with higher productivity and reduced turnover.
 

In this era of a shift towards greater pay equity and transparency, this HR Research Institute research study delves deeper into the state of pay equity today.

Key Findings

1. A majority (7 in 10) rate their organizations as mediocre or below in the area of pay equity but the same proportion believe their organization will become more equitable over the next two years.
2. Pay equity is an organizational priority of varying importance in almost 8 in 10 organizations.
3. A majority of organizations struggle with pay transparency and just two-fifths post salary ranges in all job postings
4. External market analysis is the most popular method for developing salary Ranges.
5. Just half the organizations actively leverage data to improve pay equity and largely rely on a couple of demographics and job-related factors for analysis.
6. While organizations employ several techniques to ensure pay equity, under half are looking to close pay gaps at all levels.

Reality of Pay Equity Today

To gauge the effectiveness of pay equity in organizations, respondents were asked to rate their organization’s pay equity on a scale of 1 to 10. Almost half (47%) rate their organization 6 or below in the area of pay equity. Another one-fifth (22%) rate their organization 7 on a 10-point scale.
More equitable organizations are likely to be at a higher level of development when it comes to pay equity compared to less equitable organizations. More than a fifth of more equitable organizations are at the expert level of pay equity compared to none of the less equitable organizations. More equitable organizations are also more than 20 times more likely to be at the advanced level than less equitable organizations (44% vs. 2%).

Almost a quarter of respondents (23%) believe pay equity is not viewed as an organizational priority. Over two-fifths say it is one of many competing priorities but not near the top. Encouragingly, in over a third of organizations, it is among the top five priorities (27%) or it is the top priority (7%).

Are organizations looking to close pay gaps across the board or are they focused on specific employee levels? About three-fourths (74%) focus on closing pay gaps for individual contributors and about the same proportion (72%) look to close gaps at the management, VP, and Director levels. Pay gaps at higher levels may be more visible and can be a source of contention if publicized.

Current State of Pay Transparency

Two-thirds of respondents believe their organizations are average or below when it comes to pay transparency. Just over one-tenth believe they are excellent (12%) and another one-fifth believe their organizations are above average (22%).

What causes most organizations to struggle with pay transparency?
In addition to concerns about lowering morale and productivity among underpaid employees, organizations may resort to weakening performance-based incentives since they are often harder to justify than parameters such as seniority. This can bring down the overall performance of the organization. Respondents who said their organizations post salary ranges, were asked to elaborate on how these salary ranges are developed. When developing salary ranges, the primary concern for most organizations seems to be if they are paying competitively compared to market ranges. 7 in 10 organizations engage in external market analysis to determine salary ranges. Over half also utilize internal reviews (56%) and internal market analysis (48%). This helps ensure internal equity within the organization.

What factors influence pay decisions during hiring?
Primarily, organizations rely on the compensation levels of others holding the same job within the organization (69%) and years of relevant experience (68%).

Organizations’ Approaches and Actions Toward Pay Equity

When asked about specific practices related to resolving pay equity issues in organizations, the most common practice seems to be to take specific actions to close pay gaps if inequities are found. While 8 in 10 organizations claim to do this, it is remarkable that 20% of organizations take no action to close pay gaps even when inequities are found. With growing legislation surrounding this issue and the risk of potential lawsuits, this seems to be a risky stance to take. This could perhaps be linked to the low proportion of respondents (28%) saying there is a formal budget allocated to closing pay gaps.

Just 6 in 10 respondents replied affirmatively that their organization has strategies in place to detect pay equity gaps and less than half (48%) sets goals to actively investigate and solve inequalities within the workplace.

Next is the issue of what is done with the information from pay equity analysis. Two-thirds (65%) of organizations have plans to achieve sustainable pay equity. However, just over half (53%) utilize pay equity information to modify recruitment policies and practices.

What specific actions do organizations take to achieve pay equity?
7 in 10 organizations look to solve the problem at the source i.e., by making hiring offers based on factors other than past salary history. This is unlikely to perpetuate already existing pay inequities in the market. Almost the same proportion (68%) look to increase salaries for underpaid employees. About half (49%) look to solve pay inequities resulting from lack of representation by increasing hiring from a diverse applicant pool and almost half (47%) aim to achieve pay equity by ensuring pay transparency.