Your worst nightmare has just landed in your inbox. An employee just asked why they are paid less than a coworker in a similar role—and you don’t have a solid answer. Maybe it is an innocent discrepancy, or perhaps a hidden pay equity issue that could snowball into low morale, legal risks, or even public scrutiny. The solution? An in-depth pay equity analysis.
This isn’t just a compliance checkbox; it is a business-critical process. So, if you don’t know where to start, this guide has got you covered. We will walk you through exactly how to conduct a pay equity analysis and give you real-world examples, downloadable templates, and best practices to increase employee retention.
Clear & Simple Pay Equity Definition & Why It’s Important
Pay equity compensates employees who perform substantially similar work in equal value, regardless of their gender, race, or other protected characteristics. This ensures that any differences in pay are based on neutral, job-related factors, like skills, effort, responsibility, and working conditions.
Here’s why it matters:
- Enhances Employee Engagement: Fair compensation creates a sense of value and respect, which increases motivation and commitment.
- Attracts Top Talent: When your organization is known for equitable pay, it will appeal to high-quality candidates. This will give you a competitive edge in recruitment.
- Mitigates Legal Risks: You can prevent potential discrimination lawsuits and ensure compliance with evolving regulations if you adhere to pay equity standards.
Check Out These Related Reads
???? How To Unlock Effective Team Performance With GRPI Model
???? Organizational Life Cycle: Definition & Managing Key Stages
☄️ What Is A Chief People Officer? Role & Impact Explained
Pay Equity vs Pay Equality: What’s The Difference?
Pay equity ensures employees receive fair compensation for similar work and considers factors like experience, skills, and responsibilities. On the other hand, pay equality means everyone receives the same pay regardless of their role, performance, or qualifications.
8 Core Elements Of Effective Salary Equity Analysis
Focus on these 8 core elements to spot and fix pay disparities.
- Job Comparisons: Analyze jobs based on responsibilities, skills, and experience instead of job titles alone. Focus on comparable work rather than surface-level distinctions.
- Pay Data Collection: Gather compensation data across departments, locations, and demographics. Include base salaries, bonuses, equity, and other perks.
- Benchmarking Against Market Rates: Compare your salaries against industry standards with the help of reliable compensation data. This prevents pay compression and ensures competitive offers.
- Pay Gap Analysis: Use statistical models to spot disparities across gender, race, and other protected categories. Identify gaps that job-related factors can’t explain.
- Root Cause Identification: Look beyond numbers. Assess hiring, promotion, and performance review practices to spot unconscious bias or systemic issues.
- Actionable Pay Adjustments: Don’t lower anyone’s pay if you need to adjust salaries. Set a structured plan to correct disparities over time.
- Transparency & Compliance: Document your analysis process and decision. Make sure your practices meet legal requirements and communicate your findings to leadership very carefully.
- Ongoing Monitoring: Pay equity is not a one-time fix. Plan regular audits and embed equity checks into hiring, raises, and promotions.
How To Perform A Pay Equity Analysis Or Audit: 8 Steps
Follow these 8 Steps to conduct a structured, data-driven audit that reveals disparities and helps make real improvements.
Step 1: Pinpoint The Scope Of Your Audit
You’ll drown in data without clear insights if you don’t set clear boundaries. Before you crunch numbers, decide what you want to solve. Are you investigating gender-based pay gaps or departmental inconsistencies? The narrower your focus, the more actionable your findings will be.
Narrow it down:
- Which employees? Company-wide, leadership roles, or specific departments?
- What’s included? Base salary, bonuses, stock options, benefits, and perks.
- Are there legal obligations? Do state or federal laws require specific disclosures?
Step 2: Use “Shadow Banding” To Spot Pay Disparities
Titles don’t always reflect responsibility. A “Senior Analyst” in one team may be equivalent to a “Manager” in another. Your HR databases are full of pay grades, but do they actually match reality? Employees with the same job title might earn drastically different salaries based on old compensation decisions.
Expose hidden pay gaps:
- Forget job titles: Group employees into ‘shadow bands’ based on actual pay.
- Hunt for outliers: Are employees with similar experience earning drastically different salaries?
- Check the history: Have certain groups been placed in lower pay bands consistently?
Step 3: Track Pay Velocity To Find Systemic Issues
A pay gap isn’t just about what someone earns today. It’s about how fast they move up the scale. For example, if you notice pay inequity, you may also find biased promotion pipelines.
Measure these salary growth patterns:
- Starting salary vs. current salary: Do certain groups start lower and never catch up?
- Raise frequency: Do some employees get raises more often than others despite similar performance?
- Promotional trends: Are career paths slower for women or minority employees?
Step 4: Compare Internal Pay Data To External Market Rates
Even if your internal pay equity looks fair, it could still be below market rates. Companies often underpay roles that historically attracted women or minorities, even if those roles require the same skills as higher-paying ones. You have a pay stagnation problem, not a pay equity problem, if external market pay is higher than what you offer.
Benchmark the right way:
- Use at least 3 sources: Compensation databases, HR reports, and competitor salary insights.
- Adjust for location differences: Remote work changed salary expectations and geography matters.
- Watch for pay compression: Are new hires getting paid more than tenured employees in the same role?
???? Did You Know?
Replacing an employee costs 3 to 4 times their salary.
(Source)
Step 5: Conduct A Regression Analysis To Spot Bias
A proper pay equity audit identifies gaps and proves whether they exist for the right or wrong reasons. If you still notice disparities after accounting for legitimate factors, you’ve found a real pay equity problem.
Control for these variables:
- Job role & level: Is pay consistent within the same job grade?
- Performance ratings: Are raises tied to actual performance or something else?
- Experience & tenure: Are newer employees making more than veterans?
Step 6: Go Beyond Pay—Audit Promotion & Performance Bias
Pay gaps don’t appear in a vacuum. They often arise based on who gets access to higher-paying roles. Fixing salaries won’t fix the problem if underrepresented employees in your organization don’t move up the ladder.
Dig into these career growth indicators:
- Who gets leadership-track roles? Do underrepresented groups have the same access to career progression?
- Performance review bias? Are some groups consistently rated lower despite delivering similar results?
- Who gets stretch assignments? Are men more often given high-visibility, career-boosting projects?
Step 7: Create A Pay Equity Action Plan That Avoids Pay Chaos
Many companies panic-adjust salaries after an audit. But this often backfires if you don’t do it strategically. The inequities will creep back in if you override pay bands without justification.
Fix pay gaps the right way:
- Prioritize the biggest gaps: Fix high-impact disparities first instead of throwing raises at everyone.
- Set salary bands & stick to them: Prevents inconsistent pay decisions that widen gaps again.
- Be radically transparent: Clearly explain how salaries and raises are determined.
Step 8: Set Up “Red Flag” Triggers For Future Pay Gaps
A pay equity audit shouldn’t be a once-a-year drill. Build proactive checks into every stage of employee compensation; otherwise, you’ll always be behind.
Set up real-time pay equity tracking:
- Trigger alerts if new hires are paid more than current employees in the same role.
- Require manager justification for any pay exception decisions to avoid bias.
- Pre-check raises & promotions to ensure salary changes don’t create new gaps.
2 Real-World Equitable Pay Examples + Free Spreadsheet & Report Template
Review these 2 real-life examples to learn how companies tackle pay inequities head-on. Plus, use our free pay equity analysis report templates to conduct your own analysis.
>>> Download The Free Excel Spreadsheet Here
>>> Download The PDF Report Template Here
1. Salesforce’s Commitment To Closing The Gender Pay Gap
In 2015, Salesforce, a leading cloud-based software company, conducted a comprehensive pay audit and discovered disparities in compensation between male and female employees.
Analysis Steps
- Data Collection: Gathered detailed salary information across all roles and levels within the organization.
- Statistical Analysis: Compared compensation for employees in similar positions to identify pay discrepancies and account for experience and performance.
- Adjustment Implementation: Allocated $3 million to rectify identified pay gaps and ensure equitable compensation for all employees.
Outcome:
As a result of this initiative, approximately 6% of Salesforce employees received salary adjustments, which reinforced the company’s dedication to pay equity and enhanced employee trust and satisfaction.
2. The Coca-Cola Company’s Global Pay Equity Analysis
The Coca-Cola Company has long emphasized the importance of equal pay for equal work as a core component of its diversity, equity, and inclusion strategy.
Analysis Steps
- Regular Audits: Conducted routine pay equity analyses in the United States to ensure fair compensation practices.
- Global Expansion: Extended gender pay equity analysis to international offices to promote fairness across all locations.
- Collaboration with Experts: Partnered with external specialists to identify and address unjustified pay disparities within the organization.
Outcome:
Through these ongoing efforts, The Coca-Cola Company has reinforced its commitment to equitable pay, which has built an inclusive workplace culture and set a standard for global pay practices.
ℹ️ Interesting Fact
Half of freelancers have faced late or missing payments.
(Source)
5 Best Practices For Fair Pay To Always Keep In Mind
Use these 5 pay equity best practices to move beyond compliance and create sustainable pay equity.
a. Use A “Total Compensation” Approach Instead Of Just Salary
Salary is only one part of an employee’s total compensation. Employees with similar base pay might get unequal bonuses, stock options, or perks. Analyze total earnings, including benefits, allowances, and incentives, to get a complete picture of compensation fairness.
b. Set A Rule For Salary Offers—Don’t Let Negotiations Decide Pay
Companies often let salary negotiations dictate pay, which creates huge pay gaps over time. Standardize offers based on experience, performance, and market rates, not just what candidates ask for. Use structured salary bands to prevent unintentional bias.
c. Audit “Pay Velocity” To Catch Long-Term Inequities
Pay equity isn’t just about what employees earn today—it’s about how fast they progress. If men receive raises every 2 years but women every 4 years, pay gaps widen over time. Track pay velocity to ensure promotions and raises happen equitably.
d. Identify Pay Compression Before It Becomes A Retention Risk
Pay compression is when new hires earn more than loyal employees in the same role. If an experienced employee trains a newcomer but earns less, it kills morale. Regularly benchmark pay bands against external market rates to maintain fair internal salary progression.
e. Run “What-If” Scenarios Before You Make Pay Adjustments
Fixing inequities without a structured plan can create new salary imbalances. Before adjusting pay, run simulations:
- How will it impact your budget?
- Will it disrupt existing salary bands?
- Does it create new gaps in other departments?
Use HR analytics tools or spreadsheet models to test adjustments before you roll them out.
???? Food For Thought
Over 39% of career changers switch jobs for higher pay.
(Source)
Pay Equity Labor Laws & How To Address Pay Gaps
Review your policies against existing labor laws and pay equity legislation to ensure compliance.
- Equal Pay Act (EPA) – Federal Law: The Equal Pay Act of 1963 mandates that men and women receive equal pay for equal work within the same establishment.
- Title VII of the Civil Rights Act – Federal Law: Prohibits pay discrimination based on race, color, religion, sex, or national origin. Unlike the EPA, this law covers all compensation aspects, like bonuses, overtime, and benefits.
- Fair Labor Standards Act (FLSA) – Federal Law: Establishes minimum wage and overtime pay standards to prevent employers from underpaying certain worker groups.
- State-Specific Pay Equity Laws (Examples):
- California Pay Transparency & Equal Pay Act: Extends protection beyond gender to cover race and ethnicity.
- New York State Pay Equity Law: Covers all protected classes, like gender, race, age, and disability. Employers must justify pay differences and cannot use salary history to determine wages.
- Colorado Equal Pay for Equal Work Act: Pay scale disclosure laws like these require employers to disclose salary ranges in job postings and justify pay differences with documented business reasons.
- Illinois Equal Pay Act: Mandates regular pay audits for companies with 100+ employees and requires submission of wage data to the state.
After you have identified the pay disparities, you need a structured plan to fix them without pay compression or budget strains.
- Use statistical analysis to compare salaries across gender, race, and other protected categories. Identify discrepancies not justified by job-related factors.
- Set salary bands for each role based on market data and performance criteria to eliminate subjective pay decisions.
- Establish clear criteria for salary increases so promotions don’t widen the pay gap.
- Offer employees salary range insights and documented explanations of compensation decisions.
- Conduct annual or semi-annual audits to ensure compliance and fairness. Pay equity isn’t a one-time fix.
Conclusion
Pay gaps don’t fix themselves. The longer they go unchecked, the deeper the cracks in your company’s foundation—lower morale, higher turnover, and potential lawsuits that could cripple your reputation. This guide has given you everything you need to run a pay equity analysis that actually works, from step-by-step audits to real-world examples and ready-to-use templates.
But here’s the truth: even the best pay structures crumble if you don’t have the right people in place. Pay equity starts with hiring the right talent at the right cost—and that’s where Genius comes in.
Think about it. Most companies overpay for mediocre talent, while top global professionals remain underpaid. With Genius, you don’t just save 80% on salaries—you hire pre-vetted, high-performing talent that integrates seamlessly into your team.
Stop overpaying for talent. Start hiring smarter. Tell us what you need—it takes 1 minute.
FAQs
What industries have the highest risk of pay inequities?
Pay disparities are most common in industries with historically male-dominated leadership, like tech, finance, and manufacturing. However, inequities can exist in any sector where salary negotiations, performance-based pay, and promotions lack transparency.
What role does job classification play in pay equity?
Inconsistent job classification can increase pay disparities. Employers should standardize job descriptions and salary bands to prevent employees with similar responsibilities from being paid unequally due to inconsistent job titles and achieve pay equity.
Can pay inequities exist in commission-based roles?
Yes. Even in commission-heavy roles, inequities can arise from unequal access to high-value accounts, better territories, or biased performance evaluations. You should review commission structures to ensure fairness.
How does parental leave impact pay equity?
Employees who take parental leave—especially women—often experience slower career progression and smaller raises. Companies should track pay velocity post-leave to ensure returning employees don’t fall behind in salary progression.
