The Core Problem

Actually, there are two core problems.  First and foremost, its still true that women are paid less than men in virtually every occupation.  There has been improvement but BLS data shows the average woman over age 25 working full time earns 83 percent of the male average.  For those with college degrees, its 76 percent.  That of course is progress compared with the 60 percent decades earlier but its not adequate.

That pattern is consistent across a long list of occupations; the table shows 2018 weekly pay data for 10 common job families selected from a long list in BLS reports.

Those data are best seen as macro data and unfortunately are the most readily and frequently used by writers.  Digging deeper, the data ignores the differences in industry sectors, locations, size of employer etc.  Clearly, however, there is a continuing problem.

Those data also mask an important aspect of the problem.  Women are often passed over for a promotion and stuck in jobs where they are overqualified.  That makes their pay look better.  But it’s not evident in market pay data.

The second problem is that labor markets are dynamic; salaries are determined by the balance of supply and demand for skills.  Demographic and retirement trends also affect pay levels.  Additionally, salaries in government and not-for-profit employers tend to be lower than in the private sector.  Realistically high growth industries tend to offer higher salaries and pay increases than slow growth or declining industries.  All of those considerations and more impact relative pay levels and the patterns change over time. 

That’s reflected in the high demand for technology specialists.  Their starting salaries and pay increases have been above average year after year.  The pandemic and the sudden importance of front line nurses and workers like EMTs, paramedics, and ambulance drivers are likely to trigger big increases that will show up in the next round of pay surveys.  An important and possibly difficult question is how the pay increases for high demand workers will affect the pay increases for other employees.

A key point is that the policies of all employers are affected by the need to compete for talent.  Salary management is always a balancing act, trying to remain competitive in dynamic labor markets while maintaining the belief internally that employees are paid fairly.  Government is known to pay below-market salaries which, if the economic theory is correct, affects the caliber of employees who apply.  Today, many companies ignore internal considerations and align salaries with market pay levels.  Some pay by policy above-average salaries to enable them to attract better-qualified applicants.  That’s pay strategy.

Pay Equity Laws Today

Today only Mississippi has not enacted pay discrimination legislation.  Alabama was the most recent state to enact equal pay legislation.  In 2019 more than 30 states considered new equal pay legislation; 11 states passed new stronger laws.  Several cities have enacted similar legislation.

At the federal level, the Equal Pay Act of 1963 makes it illegal for employers to pay unequal wages to men and women who perform substantially equal work.  The Paycheck Fairness Act, proposed first in 1997, has been re-introduced several times, as recently as 2019. It was passed by the House and now awaits Senate approval.  The bill would make fair pay closer to a national policy by punishing “employers for retaliating against workers who share wage information, puts the justification burden on employers as to why someone is paid less and allows workers to sue for punitive damages of wage discrimination.”

There are two important trends in the newly enacted laws:  

• One permits employees to discuss pay with co-workers without the fear of punishment. That makes it easier for women to learn if they are paid fairly. Open discussions make it much more important for employers to maintain fair salary programs.
• The second prohibits employers from asking job applicants what they were paid in previous jobs. That minimizes the possibility that discrimination carries over from one employer to the next. 

Although not at this point a trend, states are beginning to expand the fair pay requirement from “equal work” to “substantially similar work, when viewed as a composite of skill, effort and responsibility.”  That is from the recently enacted California law.  Locality differentials are a defensible factor in several states.

Colorado’s law stands out: it requires employers to list salary ranges for every job posting.

The state laws differ in coverage.  Most are limited to women or sex but several now extend coverage to race and ethnicity.

Conducting a Pay Audit

With the new legislation and increased attention to equal-pay issues, it makes sense for HR departments to conduct audits of pay levels as well as the effectiveness of their policies and practices.  Legal settlements can easily exceed a million dollars or more.

Research over the decades shows employees want to be paid fairly.  That does not mean wage and salary levels or annual increases need to be fully competitive.  Moreover, merit increase policies are consistent with the idea that high performance is valued.  However, when workers discuss their pay or read media reports about increased trends, they should feel their employer is committed to fair pay.

There was a time when employers never told their employees anything about pay.  Total silence.  Now of course there are multiple sites like Salary.com, PayScale, and Glassdoor that make market pay information readily available.  In the current environment, the more an employer tells workers about pay – assuming it’s honest and reasonably consistent with defensible practices – the better. 

In higher education, it’s common when pay programs need to be modified or pay levels reviewed to form a committee of employees covered by the programs.  It’s consistent with a collegial culture.  If the program covers, janitors, for example, there will be one or janitors on the committee.  It’s been my experience in consulting with colleges that employees take their role very seriously, debate issues thoroughly, and try to make sound decisions that address problems.  When they return from meetings, they discuss what they learned and current issues with co-workers.  They own and defend the program changes.  Experience confirms its an effective strategy to plan and review pay programs.

A related and solidly accepted practice in Germany is referred to as co-determination.  Employees at all levels are asked to play a role in assessing employment policies.  That’s broader than pay but experience shows employees want their organization to be successful.  Again, involving employees in assessing and managing pay programs increases the credibility of the decisions.  Involving employees works.

Audits can involve five complementary analyses.  The first step is assembling a database along with tables and graphs showing male and female salaries by job, years of service, etc. 

• The simplest audit identifies male and female-dominated jobs and compares salaries with market levels. That’s straightforward and is best when based on simple, descriptive statistics.  The purpose is to assess the salary planning process used with male and female jobs.  Thousands of surveys are conducted annually.  It’s important to focus on those that include organizations competing for talent.  The organization’s salary planning strategy along with recent results should be available to employees.  (They can easily develop their own analyses using less reliable websites.)  If a job evaluation system based on compensable factors is used to assign jobs to grades, the factors should be evaluated for their impact on female jobs.
• A second audit is a review of job descriptions, based logically on interviews with job incumbents and their managers. They need to be accurate and reasonably current.  Reviews used to be called desk audits.  Many employers rely on job classification descriptions that have not been updated in years. Now, however, jobs have changed in the response to COVID-19.  A suggested strategy is to schedule the review of departments or groups of descriptions throughout the year.  It is time-consuming and therefore costly — but a lawsuit can be far more costly.  There are several sources on the Internet of pre-written job descriptions but that is only the starting point.
• A third audit focuses on the policies and practices involved in the management of compensation. There are multiple sources of best practices, starting with the websites of consulting firms.  More important is the application of the practices in planning and managing salaries.  A core issue is how starting salaries for men and women compare with market pay rates and salary grade minimums.  If there is a pay for performance policy, differences in male and female ratings and increases need to be assessed.  Recent promotions and, if the data are available, career promotion patterns should also be analyzed.  If a job evaluation system based on compensable factors is used, they should be analyzed to determine their impact on women and minorities.  Perhaps the most important policy is to train everyone involved in pay decisions on the importance of fairness.
• A fourth audit analyses the pay and the linkage of pay and performance for executives and managers. It’s somewhat new and triggered by the work management changes prompted by COVID-19.  Supervising remote employees requires a different set of skills and redefines the criteria for selecting and promoting managers.  Here the audit focuses on the career and pay history of managers, comparing males and females.  If females have been promoted or recognized for accomplishments less often, the explanations should be defensible.  Year-end ratings and comments on performance and deficiencies need to be assessed for patterns and credibility
• The fifth is the typical statistical analysis of pay and pay increases. The common goal is to compare the pay of men and women in similar jobs.  Statistical analyses effectively summarize in a formula the data in the tables and graphs.  (A minor technical issue is the conversion of dollars to a logarithmic format.  It helps although the reason defies a brief explanation.)  In the analyses, male/female is entered as a dummy variable – 1/0.  Dummy variables are widely used in economic analyses.  An early decision (that may depend on the size of the workforce) is the definition of the employee data in the analyses – Whole organization?  Job family?  Comparable jobs?  Female salaries in male-dominated jobs?  The thread is learning if the defensible factors – job-specific experience, skills/education, seniority – explain pay differentials.  Performance is defensible if measures are credible.  Other business reasons need to be documented and tested.

With the completion of an audit, the basic conclusions should be shared with affected employees.  Employers need to commit to correct problems.  In some states, that may preclude litigation’

For additional reading, two books of mine discuss pay equity concerns:  Primer on Total Compensation in Government (IPMA, 2016), and Planning Wage and Salary Programs (WorldatWork, 2009).