Pay equity is a tool to boost morale and retain talented employees
Pay equity means that wages are free of bias based on gender or race. Employees are compensated based on factors such as skills and performance, not demographic background.
In an age where salary information is widely available online, pay equity is more relevant than ever. This is an area where nonprofits — held to high standards for nondiscrimination and rewarded with tax-free status — can lead the way.
If your organization's compensation policies were featured in the news, would you be able to convince a reporter that pay equity is effectively implemented? Take steps now to make sure.
Review the laws
Wage differences are due partly to differences in experience, education and length of time in the workforce. But even when those factors are accounted for, wage gaps remain.
In the United States, various major laws address the issue at the federal level:
- The Equal Pay Act. All employers must pay equal wages to women and men who do essentially the same work in the same conditions. Unequal compensation can be justified only if due to seniority, merit or incentives — factors other than gender.
- Title VII of the Civil Rights Act of 1964. Employers with at least 15 employees are barred from discriminating on the basis of race, color, religion, sex or national origin. Title VII specifically prohibits steering women into lower-paying jobs and unfairly denying them promotions.
- The Lilly Ledbetter Fair Pay Act of 2009. Each new paycheck that's tainted by a prior discriminatory pay decision is actionable under Title VII and triggers a new filing period for a charge with the Equal Employment Opportunity Commission. This act makes it easier for employees to file charges and successfully sue employers.
- Executive Order 11246. Federal contractors and subcontractors are prohibited from discriminating on the basis of race, color, religion, sex or national origin.
- The National Labor Relations Act. Most private sector employees are allowed to act collectively — even without a union — to improve wages and working conditions. Employers can't retaliate against nonsupervisory employees for discussing these issues.
- The Age Discrimination in Employment Act and Americans with Disabilities Act. Both embrace Title VII's approach by prohibiting discrimination in pay on the basis of age and disability, respectively.
In addition, most states and many cities have passed laws prohibiting discrimination in employment based on a wide variety of protected categories.
Dispel the myths
Many arguments against pay equity aren't grounded in fact. For example:
- Pay equity will reduce wages for white men. False. The laws mentioned above make it illegal to remedy discrimination by reducing any worker's wages.
- Pay equity requires a national system for setting wages. Actually, no federal law calls for this. Employers are only required to compensate based on factors directly related to a job — not a worker's gender, race or ethnicity.
- Pay equity is too costly. The facts don't bear this out. The National Committee on Pay Equity offers examples: Minnesota spent less than 1 percent of its annual budget to align wages for state employees with pay equity legislation. The state of Washington met the same goal with less than 3 percent of its personnel budget.
Watch for red flags
Organizations with no formal system for setting and reviewing employee compensation are ripe for unequal pay. The Women's Bureau of the U.S. Department of Labor suggests listening for comments such as these:
- It's not our fault if they're bad negotiators for their own salaries.
- We should be able to pay our workers what we want to pay them.
- We can't talk about pay at work.
- I assume everything is fair because no one is complaining.
- I'm not sure who checks our compensation system for equality, but I know it's not me.
- I'm not sure what was used to decide this salary.
Take positive steps
Your organization can take immediate steps to comply with anti-discrimination laws and build a culture of pay equity:
- Link compensation to market value. When deciding how to compensate new hires, don't focus on their salary history or negotiating skills. Instead, find out what other organizations with a capacity similar to yours are paying for similarly qualified people in a comparable position. Turn to your state association of nonprofits, Bureau of Labor Statistics and online job postings. Also consider these best practices for employee compensation.
- Create a pay equity team. Direct the team to review federal, state and local laws for any provisions that affect employee compensation. Make appropriate adjustments based on the findings, being sure to document your reasons for making the changes.
- Involve the board in regular assessments. Work with the board of directors or trustees to evaluate your compensation system for potential pay disparities based on sex, race or ethnicity. Look at all forms of compensation — salary, benefits, overtime, tuition reimbursement, severance pay and opportunities for advancement — and make adjustments as needed. Do this at least once a year.
Pay equity is about much more than avoiding lawsuits. It's a tool for boosting morale, attracting talented applicants and enlisting them as long-term allies in your mission.
Harvard Business Review: What HR can do to fix the gender pay gap by Deborah Ashton (2014)
PayScale: Does your company have internal pay equity? by Stacey Carroll (2009)
Human Resource Executive Online: Pay Equity: New Pressures, New Strategies by Stefan Gaertner, Gail Greenfield and Brian Levine (2016)
National Committee on Pay Equity: Questions & answers on pay equity
U.S. Department of Labor: An employer's guide to equal pay (2012)
U.S. Department of Labor: Equal pay
U.S. Department of Labor: Infographic on wage gap