Do I need a Pay Equity Audit? (Spoiler: Yes, You Do)

Nessica Birwadkar
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Published:
August 9, 2024
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Consider this:

  • Women earn 16% less than men on average
  • Latinas are compensated just 55% of non-Hispanic white men in 2024
  • Black women are paid 64% of what non-Hispanic white men are paid

These aren’t just random statistics in a Forbes Article; they’re glaring exhibits of unjustified disparities in the workplace.  

They compel you to address the elephant in the boardroom. Pay Equity.  

It isn't a nagging issue to be pushed off an organization's priority list. It’s a critical business imperative that directly impacts your bottom line, performance, and company reputation.

So how do we solve the Pay Equity Problem? The first step to solving any problem is acknowledging you have one, i.e., conducting a Pay Equity Audit to identify unjust inequities.  

But what if your pay practices are the gold standard? What if this has never been an issue before? Do you even need an audit?

Let’s assess:

Why conduct a Pay Equity Audit?

At its core, a pay equity audit answers one crucial question

Are we paying people fairly, regardless of their gender, race, age, or any other non-job-related factor?

A pay equity audit isn't just about sifting through spreadsheets or placating HR. It's your financial and cultural health check, all rolled into one.

It’s about:

  1. Attracting and keeping top talent
  2. Being compliant with every new law that emerge
  3. Catching pay discrepancies before they turn into costly lawsuits.

It’s also about putting your money where your mouth is. If you're touting diversity and inclusion, your pay practices must back that claim.

Now, we’re not going to lie to you. Diving into a pay equity audit might uncover some uncomfortable truths. But those issues exist whether you look at them or not.

Ignoring them doesn't make them disappear – it just turns them into ticking time bombs.

Benefits. Benefits Everywhere.

There are several advantages of conducting a pay equity audit. These include:

  • Streamlined budget planning
  • Accurately forecasting labor costs
  • Creating transparent pay structures
  • Anticipating areas of potential financial risk
  • Aligning pay with performance more accurately
  • Identifying areas where you're overpaying/underpaying

The Hidden Money Drain

The financial implications of pay inequity extend far beyond surface-level compensation issues.

In this section we'll explore the tangible financial risks of potential litigation, the substantial costs linked to increased employee turnover, and the long-term impact on brand value due to reputational damage.  

Understanding hidden costs helps recognize the urgency of conducting thorough pay equity audits and implementing robust, fair compensation strategies.

Good intentions could spark costly lawsuits

You might believe you're paying employees fairly, but good intentions don't hold up in court. Just ask Oracle, who shelled out $25 million to settle a pay discrimination lawsuit. Or Google, who coughed up $118 million for similar issues. These aren't just outliers – they're wake-up calls.  

The Talent Pipeline becomes an expensive Sieve  

Picture this: You've spent months and a small fortune recruiting top talent. They're brilliant, they're driven, and they're... leaving? According to Gartner, negative employee perceptions of pay equity can result in a 15% decrease in intent to stay, 13% increase in job searching activity, and 13% decrease in employee engagement. The cost of replacing an employee can go up to 2 times their annual salary. Your talent pipeline looks more like a money pit.  

Social media plays Judge, Jury and Executioner

In the age of viral tweets and LinkedIn exposés, your pay practices are just one disgruntled employee away from becoming front-page news.

Remember the BBC gender pay gap scandal? It didn't just trend – it tarnished. The reputational damage from perceived pay inequity can send customers running and top candidates ghosting. An ounce of prevention (aka a thorough pay equity audit) is worth a pound of crisis management.

The bottom line? Pay inequity isn't just unfair – it's expensive.  

The Undeniable ROI of Pay Equity

Many organizations view pay equity as a cost center or a compliance issue, but this perspective overlooks its potential as a powerful driver of business performance. When implemented strategically, pay equity can transform your compensation structure from a potential liability into a robust asset that enhances multiple facets of your organization.

Let’s explore what happens when organizations get pay equity right:

The Skeptic’s Guide to Pay Equity Profits

If after all this, you’re still contemplating the positive impact of auditing and implementing pay equity, let's break it down with some hard statistics:

Retention Savings: It’s a universal fact that retention trumps acquisition. US businesses are losing a trillion dollars every year due to voluntary turnover. Fair pay, on the other hand, reduces intent to leave by 27%. Do the math – that's a lot of zeros.

Productivity Boost: 82% Employees say they’re more productive and fulfilled by their work when they perceive themselves to be paid fairly. And this has far-reaching impact on factors like rate of project completion, error rates, customer satisfaction and absenteeism.  

Litigation Avoidance: Pay discrimination cases don’t just burn a hole in your pocket, they tarnish your reputation for years to come. When small cases turn into class action lawsuits (quite often), companies are forced to shell out money in the millions. Do a quick search on Google to see it for yourself.  

Suddenly, the cost of an audit doesn’t seem so bad, does it?

What’s your move?

We've laid out the facts and the verdict is clear: pay equity isn't just a moral imperative – it's a business necessity.  

So, the question isn’t “Should I do a Pay Equity audit?” the question is “Why haven’t you done it yet?”

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