Step 1: Job Evaluation
Pay equity analysis rests on comparing similar employees doing similar work. The foundation of this is ensuring that employees are either grouped into job classifications, where each employee is doing substantially similar work, or that each job is evaluated on a consistent point system. When using job classifications, the groupings should be small enough that employees are directly comparable. Yet job classifications should also have enough employees in each group to make comparisons.
Step 2: Collect relevant employee data
There is often salary variability within job roles that is explained by other bona fide determinants of pay. Some of these determinants can be universally applicable, like years of experience or level of education. Others can be specific to the company. These additional variables included in the model are up to the user and should reflect the organization’s compensation strategy. The most important thing is that the variables included are consistently measured and are job-related factors that have a legitimate relationship to pay. In this step, the compensation variable should also be defined and collected. For example, many organizations run models for both base salary and total compensation.
Step 3: Run the analysis
The adjusted pay gap is measured by using regression analysis. The regression model measures the effect each variable has on employees’ salaries. It then quantifies the difference in pay between genders after other factors have been accounted for. This average difference in pay, after accounting for the other variables in the model, is the adjusted pay gap. PayAnalytics automatically calculates the regression, but any statistical software package can be used.
Step 4: Refine the model
The first round of pay equity analysis will often be incomplete. Examining the employees who are paid significantly more or less than the regression model predicts can help identify factors that should be included in the model. Model building often requires iteration to refine the variable definitions and choice of variables.
Step 5: Take action
Once the salary model has been finalized and the pay gap has been measured, the gap should be addressed. This means giving raises to close the pay gap. PayAnalytics helps identify the underlying drivers of the pay gap and targets raise suggestions to close the gap in the fairest way possible.
