Guide to Gender Pay Equity for Smaller Companies

Are men and women being paid the same salaries for doing the same work within your organization? According to Forbes, 92% of employers believe they are paying staff fairly, while only 65% of employees believe the same.

In a highly competitive talent market this difference might keep you up at night. Most guides for identifying and acting on gender pay equity issues assume your company has 500+ employees, plenty of salary data to crunch, and some skill with statistical analysis tools. But the reality is that out of the approximately 6 million businesses operating in the US, 90% have fewer than 20 employees. Small and medium-sized businesses account for 50% of the total employment in the US. Smaller employers face unique challenges when it comes to finding and addressing gender pay issues in the workplace:

Despite the challenges, attention to pay equity is tremendously important for smaller employers from a business, social responsibility, and compliance standpoint. Promoting equal pay practices improves employee efficiency and productivity, helps attract the best employees, reduces turnover, and increases employee commitment. Here is a three-step approach to tackling gender pay equity for smaller employers.

Step One: Understand the Issue

The Equal Pay Act of 1963 and later Title VII of the Civil Rights Act of 1964 together tell us that employers must pay equal wages to men and women who perform jobs that require substantially equal skill, effort, responsibility, and working conditions. An employer cannot deny women equal pay for equal work which broadly includes access to transfers, promotions, pay increases, and benefits.

Gender stereotypes and biases – conscious or unconscious – influence managers and HR people alike. Women are generally perceived as thoughtful, caring, and willing to compromise while men are perceived as ambitious, assertive, and self-reliant. These biases can lead to women receiving fewer promotion opportunities, being passed over for training, and not being given central roles on large projects. Unintentional gender bias can disrupt pay equity throughout the employee life cycle especially during:

  • Recruiting and Hiring – Research shows that men and women take different approaches during salary negotiation. Negotiation is often viewed as assertive masculine behavior. Women are reluctant to attempt salary negotiations because of anticipated backlash from the company. Women who express masculine behaviors are often viewed negatively, assertiveness can be seen as aggressive or demanding. Also, companies which gather prior candidate pay and adjust starting offers up and down based on that information can be inadvertently continuing gender pay gaps job after job. Even the composition of the hiring team can unconsciously impact the number of men or women your business hires. If an interview team is comprised exclusively of male interviewers, they may be more likely to find common ground with male candidates.
  • Work Schedules – Women are disproportionately expected to handle childcare and household matters compared to their male counterparts. This means women are more likely to need part-time arrangements, telecommuting options, flexible working hours, and request leaves of absence for themselves or to care of family members. Employees seeking these kinds of arrangements are sometimes viewed as less ambitious than other employees, are given less responsibility at work, and are considered less often for promotion into senior management. Financially, women returning from leaves of absence, maternitybeing the most common leave in the US, often experience lags in their salary growth because of absence during annual performance and merit cycles.
  • Opportunities for Advancement – Women make up only 29% of senior level management in the US and only 2% of CEOs. There are fewer women than men in the leadership pipeline, receiving mentorship from existing leaders, or being offered career development plans.

Step Two: Find the cause

You don’t need a compensation analyst on staff to analyze pay gaps. Use this simplified approach:

  • Use simple compensation management software to download a report including name, gender, and base annual salary for all your employees.
  • Arrange employees in groups by similar role. Title might not be enough if your organization doesn’t have standardized titles. Look for employees who perform similar work and group those together.
  • Compare the salary of employees in the same, or similar jobs and identify any instances where employees are paid differently and are also different genders.

Expect to find differences in how people in the same role are paid, don’t panic or pretend those differences don’t exist. A pay difference doesn’t necessarily mean there is a gender pay issue. Focus on figuring out why the differences exist, identify patterns, investigate the largest gaps first.

Here are some things to consider:

  • Did the male employee negotiate more firmly than the female employee during recruiting?
  • Is your company missing job descriptions or a formal recruiting process and leaned heavily on the candidate’s prior pay information rather than established salary ranges for the position?
  • Are performance ratings for male and female employees in the same role similar, yet are they paid differently?
  • Are female employees regularly being rated lower than male employees by certain managers, or across your organization?
  • Are female employees being paid at their pre-leave salary when returning from work, even though they are achieving the same performance results as male colleagues in similar roles?
  • Are male employees asking for pay increases more regularly than female employees?
  • Are male employees being formally or informally mentored with greater frequency than female employees?

Step Three: Take action

Creating an action plan within your organization can correct and prevent gender pay equity issues. The best approach to building your business case is to collect and list gender pay differences that cannot be explained, and those that can be explained but are not justified because of the influence of some factor from step two. Discuss this list with appropriate managers and senior leadership to determine how the gaps you’ve identified can be corrected in line with the budget and overall business strategy.

The most proactive things you can do to ensure gender pay equity going forward are:

  • Create a written policy and guidelines about bias-free recruiting.  Ensure interviewing teams are diverse. Avoid basing starting pay decisions on a candidate’s prior salary (if known), and instead on the value of that job within your organization.
  • Talk to managers about fairness and consistency in the performance review process. Make pay decisions based on skill and contribution.
  • Create and follow a consistent, transparent process for promotions, transfers, and pay increases.

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