Pay Equity, Part 1: What Is Pay Equity?

Team discussing pay equity

By Katie Kiernan Marble and Karim Sampson.

Pay equity can be a difficult concept to understand. Generally, employers do not intentionally pay employees differently based on gender, race, and other protected categories. However, several factors play a role in pay equity, including historic pay practices, implicit biases, behavioral norms, and other non-work-related impacts. 

This blog is the first in a series of posts to help you better understand pay equity, regional requirements around pay equity, and concrete steps your business can take to ensure fair and equitable pay practices. Two questions that seem easy to answer but are not: What is pay equity, and why does it matter?

What is pay equity?

Pay equity is the process by which employers work towards reducing pay disparities among employees based on race, gender, and other protected categories. The goal is to reach pay equality, where employees receive equal pay for equal work, meaning that individuals receive the same compensation for materially similar work, regardless of personal attributes. 

Gender, race, and gaps in pay

Gaps in pay based on protected categories such as race and gender are not new. For example, while the data varies, women now earn 82 cents for every dollar a man earns. Ten years ago, the number was about 78 cents per dollar. While the gap is closing, based on historical data, women are probably 25+ years away from achieving true pay equality.

Women of color furthest from pay equity

While pay gaps have closed over the past few decades, these gaps have and continue to exist; women of color are further away from pay equality than white women. For example, Forbes Advisor reported that the pay gap is wider for women of color, with Black women earning roughly 66 cents on the dollar and 55 cents for Hispanic women. Because most laws requiring employers to focus on pay equity are relatively new, it’s up to employers to ensure they are taking proactive steps. 

Beyond gender: the many contributors to pay disparity

Does pay equity refer only to the difference in pay between men and women? The short answer is no. Though pay equity is frequently discussed as a reference to a gender gap, there is not just one root cause for disparities in compensation. 

Equal compensation is complex

Only compensating men and women equally for similar work would not eliminate the pay gap. There may be disparities between people of different ages, ethnicities, races, and others, and when you can identify those, more discrepancies may appear. Simply adjusting compensation for men and women working similar roles might not address what caused pay inequality in the first place or eliminate other types of disparities, which might include family caregivers, generational differences in educational opportunities, and societal gender norms. 

It is critical for employers to understand the entire picture when looking at their pay equity programs; otherwise, they will not be able to achieve true pay equality. This means looking beyond gender and race and having a holistic approach to pay equity. For example, we know that LGBTQ+ employees earn only 90 cents on the dollar (according to the Bureau of Labor Statistics) and that the pay gap increases as women age.   

Why does pay equity matter?

Pay equity helps employees feel valued and empowered, which will lead to employees who are motivated and productive; employees who do not feel treated equally or that there is a path for professional growth will likely lack the motivation to be effective, which ultimately hurts the business and adds unnecessary cost and risk. Pay equity is also important because it allows companies to comply with laws and regulations, avoiding unnecessary penalties. 

Revenue and employees are interwoven

Employees are the main factor contributing to a business’s success and, ultimately, revenue. If treated unfairly, not only will employees likely leave, forcing companies to invest in attrition replacement and training, but it may also expose businesses to unnecessary liability. It is in a company’s best interest to be preventive instead of reactive, as these reactions can cost a lot, not only economically, but in reputation as well.

Legal support can help businesses achieve pay equity

Companies taking proactive efforts to ensure pay equity will have better luck with employee recruitment, retention, and satisfaction, leading to a higher-performing workforce and avoiding the high costs of employee turnover. For businesses, understanding and taking proactive steps to achieve pay equity is a necessity, and a legal advisor with employment expertise in your corner can provide tremendous value. At modCounsel, our Global Employment lawyers can provide businesses with the support they need to navigate pay equity requirements across jurisdictions efficiently, using their experience as in-house attorneys to ensure a business-oriented approach. . 

Stay tuned for Part 2, which will cover pay equity laws in the United States.

About: modCounsel provides a legal team-as-a-service for growth companies. Clients ranging from start-up founders to public companies leverage modCounsel for flexible and integrated expertise across employment and other areas of business. modCounsel is a minority- and women-owned law practice founded by in-house legal executives with a global team now across three continents.

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