Alex, an HR manager at a growing tech company, spotted a troubling pattern during a routine review. Two software developers with similar experience and performance ratings had a $25,000 salary gap. This wasn't just a numbers issue - it could lead to lost talent, damaged morale, and potential legal problems. Unaddressed pay gaps cost companies both their reputation and their best people. 

Sounds relatable? Similar instances of unaddressed pay discrepancies are common in many organizations. 

Companies need a clear, systematic way to find and fix these pay differences before becoming bigger problems. 

This guide walks you through identifying pay discrepancies in your organization and creating an action plan to address them, helping you build a workplace where people want to stay.

What is Pay Discrepancy? 

Pay or salary disparity happens when people doing similar work receive different compensation without clear business reasons. 

Here's what this looks like in practice:

Picture two marketing managers with five years of experience and strong performance reviews. Tom earns $85,000, while Lisa earns $72,000. They handle similar projects, manage similar-sized teams, and join the company simultaneously. We're looking at a pay discrepancy without valid factors like additional certifications or specialized skills to explain this $13,000 difference.

While this is a hypothetical example, there are several real-life scenarios too.  

Consider what happened at Google: The US Department of Labor found "systemic compensation disparities against women pretty much across the entire workforce." The agency called the discrimination "quite extreme, even in this industry." This case triggered a federal investigation and damaged Google's reputation as an employer despite their strong denials.

Even a company as powerful as Google faced public backlash when pay disparities came to light. Companies known for pay gaps struggle to attract top talent and may lose customers who value fair business practices.

Note that not every pay difference is a discrepancy. Valid factors can explain different pay levels:

• Extra years of relevant experience
• Special skills or certifications
• Higher performance ratings
• Different education levels
• Market conditions when hired

The key is whether the company can identify job-related reasons for the pay difference. Without these, a simple pay gap may signal deeper issues with how the company handles compensation.

Why Take Pay Discrepancy Seriously? 

In 2021, women were paid just 84 cents for every dollar paid to men in full-time roles - but the gap widens to 77 cents when including all workers. This isn't just about unfair wages. Pay discrepancy is a critical business risk that can trigger talent exodus, damage team morale, and erode company performance. With women increasingly becoming primary breadwinners for their families, inequitable pay practices don't just hurt individual employees - they damage the entire economy. 

Here's why organizations should take pay discrepancy seriously:

Lost productivity from systemic pay gaps

When systematic pay differences exist like those found at Google, they don't just affect individual employees - they impact workforce morale and productivity across all levels. Such gaps often indicate deeper issues in how companies value and reward work.

Talent drain from limited growth paths

Clustering certain groups into lower-paying roles while others dominate high-paying positions creates barriers to advancement. This unequal access to better-paying roles impacts motivation and retention across the organization.

Costly lawsuits and compliance violations

Companies face growing scrutiny over pay practices. Unaddressed pay gaps can lead to discrimination lawsuits, regulatory investigations, and compliance issues. When issues surface, the costs go beyond legal fees, including operational disruption and management time.

Damaged reputation blocking top hires

When pay discrepancies become public, it affects a company's ability to attract talent. In a connected world, candidates research company pay practices before accepting offers. Organizations known for pay gaps struggle to bring in top performers, especially from underrepresented groups.

Higher turnover cutting into profits

Companies with pay gaps face significant financial impacts from increased turnover. Beyond direct recruitment costs, organizations lose productivity during transitions, spend more on training new hires, and see project delays when experienced employees leave. When unfair pay drives employees to exit, the total cost combines lost institutional knowledge, reduced team performance, and the time needed to get new employees up to speed.

Different Types of Pay Discrepancies (+ Examples)

Pay discrepancy occurs in multiple forms across organizations, each affecting employees' total compensation differently. Some of the most common types include:

Base salary gaps between people in the same roles

When two marketing managers with similar experience and performance get different base pay. 

💡Example: Tom earns $85,000 while Lisa earns $72,000 for the same role and responsibilities.

Unequal bonus and incentive distributions 

When certain groups consistently receive lower performance bonuses or sales commissions. 

💡Example: Male sales representatives average 15% bonuses, while female representatives average 10% for similar sales numbers.

Different benefits packages for similar positions

When employees at the same level receive different health insurance options or retirement matches. 

💡Example: Full-time workers in one department get premium health coverage while similar workers elsewhere get basic plans.

Inequitable raise and promotion patterns

When some employees receive faster promotions or more significant raises despite similar performance. 

💡Example: One group averaging 8% annual raises while others with similar ratings receive 5%.

Inconsistent starting salary offers

When new hires in similar roles receive different initial offers. 

💡Example: A company offering a male candidate $10,000 more than a female candidate with identical qualifications for the same position.

How to Identify Pay Discrepancy in Your Company? 

Every company says they pay pretty, but finding the truth requires systematic investigation. Here are the steps to follow for identifying pay discrepancies in your current organization: 

Step 1: Collect detailed compensation data 

Your compensation analysts and HRIS team must gather complete records, including base pay, bonuses, equity, and benefits. Create standardized templates to track job levels, titles, locations, departments, and hire dates. Include critical context like performance data, experience, education, and certifications. Run data validation checks to ensure accuracy before analysis begins.

Step 2: Run regular compensation audits 

Quarterly audits by your compensation team or external consultants help spot developing issues early. Compare similar roles and levels while accounting for legitimate pay factors like experience and performance. Document your audit methodology carefully and maintain detailed records of findings to track patterns over time.

Step 3: Map out your pay ranges 

Your compensation manager and HR leadership should establish clear salary bands for each role and level. Document your market positioning strategy and define specific criteria for placement within ranges. Review these ranges against current market data regularly and update as needed to stay competitive while maintaining internal equity.

Step 4: Review hiring and promotion patterns 

HR business partners and talent analytics teams should examine offer acceptance rates, promotion velocity, and raise percentages across different groups. Track internal mobility patterns and compare performance ratings distribution to identify potential barriers or biases in career progression.

Step 5: Analyze pay by demographics 

Your people analytics and compliance teams must use statistical analysis to compare pay across groups while controlling for legitimate business factors. Maintain strict data privacy and security protocols during this sensitive analysis. Create a regular reporting cadence to track changes over time.

5 Best Practices to Address Pay Discrepancy 

“Once you understand the causes of the discrepancies, communicate your organization's pay policy transparently to all employees. This includes how salaries are determined, the factors influencing pay adjustments, and the steps the company is taking to ensure fair and equitable compensation. Address any identified discrepancies directly with those affected, explaining the reasons and the actions being taken to correct them. This transparency not only builds trust but also demonstrates the organization's commitment to fairness and equity.” - Folke Christoph Grigo, VP People and Culture at Everphone

To successfully address pay discrepancies, organizations require moving from manual processes to systematic, data-driven approaches that scale across the organization. Here are a few best practices to take into consideration when addressing pay discrepancy: 

Design data-driven pay bands 

Build comprehensive salary ranges based on multiple factors: location, function, level, and business unit. Use both internal and external benchmarking data to keep bands competitive. Create custom positions for unique roles without market data by blending similar job components and skills to determine fair ranges.

For example, you are hiring for an ML Infrastructure Engineer position for the first time. Here’s how you should go about it:

• Start with the Backend Engineer range
• Add ML Engineer premium (+10%)
• Adjust for location tier
• Result: Clear, market-aligned range ready for hiring

Automate compensation reviews 

Move from manual spreadsheet reviews to streamlined digital processes. Give managers real-time access to compensation data and analytics while maintaining security through role-based permissions. Use automated alerts to flag potential inequities before they grow into larger issues. 

Create transparent total rewards visibility 

Go beyond base salary to track total compensation, including bonuses, long-term incentives, and benefits. Give employees clear visibility into their total rewards package. Help managers understand the full scope of compensation when making hiring and promotion decisions. 

For example, a marketing director earning a $150,000 base salary might have a much larger total package. Here's how smart companies break this down:

Total package visibility:

• Base salary: $150,000
• Annual bonus (20%): $30,000
• Stock options: $40,000/year vesting
• Benefits value: $25,000
• Total: $245,000 annually

Implement systematic offer management 

Standardize your candidate offer process to prevent pay gaps at hire. Use market data and internal ranges to generate equitable offers. Build approval workflows to ensure new hire compensation aligns with existing team members and company pay philosophy. 

Monitor with advanced analytics 

Set up customized dashboards to track key metrics like compa ratios, pay equity gaps, and budget impact. Use data visualization to spot trends across departments and locations. Generate regular reports to measure progress and identify areas needing attention.

Looking for Software Solutions to Address Pay Discrepancy? Introducing Compport! 

Remember Alex, the HR manager who discovered a $25,000 salary gap between two similarly qualified developers? Spreadsheets and scattered data made it nearly impossible to spot such gaps before they became problems. As organizations grow, tracking and addressing pay discrepancies becomes increasingly complex.

Our findings show that managing pay discrepancy requires accurate data collection, regular audits, clear visibility into total rewards, and ongoing analytics. Modern compensation management requires moving beyond spreadsheets to purpose-built solutions that can:

• Design and maintain data-driven pay bands
• Automate compensation reviews and approvals
• Provide total rewards visibility
• Streamline offer management
• Deliver real-time analytics

Looking for a solution that does all these and much more? We recommend checking out Compport. 

Schedule a demo today!

FAQs 

What is a pay discrepancy? 

A pay discrepancy occurs when employees performing similar work with comparable experience and qualifications receive different compensation without valid business reasons. This can show up in base salary, bonuses, benefits, or other forms of compensation.

What is the meaning of salary discrepancy? 

A salary discrepancy refers explicitly to differences in base pay between employees in similar roles. For example, when two marketing managers with equivalent experience and performance levels significantly differ in their base salaries, factors like additional certifications or specialized skills can't be explained.

What is an example of payroll discrepancy? 

A payroll discrepancy happens when there's an error or unexplained difference in how employees are paid. Common examples include:

• A new hire being offered $10,000 more than current employees in the same role with similar qualifications
• Male sales representatives receive 15% bonuses, while female representatives with similar performance receive 10%
• Full-time employees in one department get better benefits packages than those in another department at the same level