Pay Equity Audits A Business Necessity As Equal Pay Regulations Increase in U.S.

A new report from Harvard Business Review Analytic Services, sponsored by Trusaic, looks at the role regulation is playing in driving the pay equity agenda, and how pay equity audits are crucial to helping organizations address new regulations

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Oct 21, 2019, 14:59 ET

LOS ANGELES, Oct. 21, 2019 /PRNewswire/ -- Pay equity audits are a valuable tool to assist businesses in addressing significant regulatory changes occurring in the U.S. around equal pay, according to a new report issued by Harvard Business Review Analytic Services and sponsored by Trusaic.

The report, "Navigating The Growing Pay Equity Movement: What Employers Need to Know About What to Do," looks at the current legislative movement and the role it is playing in driving the pay equity agenda, how pay equity audits (PEAs) are crucial to helping organizations address these new regulations, and the barriers discouraging businesses from undertaking PEAs.

To review the report, click here.

The report is based on a survey of 589 senior executives in the U.S. and U.K. It contrasts the use of PEAs based on pay equity regulations in the two countries.

"This report makes clear how regulatory and legislative changes, and their emphasis on accurate workforce data, are shaping the discussion around equal pay. It also highlights the need for businesses to be more proactive in taking steps to identify problematic pay disparities within their organizations," said Robert Sheen, CEO and Founder of Trusaic.

Findings of the report include:

Regulation, fear of litigation, and competition for talent are the greatest drivers of pay equity audits. Stricter regulatory pay reporting requirements seem to be driving the use of pay equity analysis in the U.K., while competition for hiring talent is the primary motivation in the U.S.

Fifty-four percent of U.K. respondents cited pay reporting requirements as driving them to perform pay equity analyses, compared to 28% of U.S. respondents.
Fifty-four percent of U.S. respondents said the competition for talent was their primary reason for conducting pay equity analyses, compared to 29% for U.K. respondents.
Twenty-eight percent of U.S. respondents said fear of litigation was a motivating factor, compared to 14% of U.K. respondents.

Pay equity audits can help change perceptions of the gender pay gap.

For example, 48% of respondents at organizations that haven't done a PEA say pay rates are to blame for gender pay gaps. That figure falls to 29% at organizations that have done a PEA.
Business factors such as prior compensation, performance, and job differences gain importance among respondents who have conducted pay equity audits. For instance, 48% of respondents at companies that haven't done a PEA say pay disparities stem from differences in prior salaries or wages, compared to 61% at organizations that have performed a PEA.

Fear of pay data information being used against them was a barrier to U.S. businesses pursuing PEAs more vigorously. The report noted, however, that "more than half (58%) of knowledgeable respondents who had conducted a PEA were satisfied with the attorney-client privilege of the audit."
Data inaccuracy was another barrier. Fragmented and incomplete workforce data, not enough data being tracked or made accessible, and the challenge of pulling data from disjointed systems were all noted as issues. More than 78% of respondents with knowledge of their software systems said they needed to be integrated in order to conduct a PEA.

"With only half of respondents, at best, compiling data on every employee's performance, job characteristics or employee characteristics, getting better organized with data is the only way to accurately move forward," said Alex Clemente, managing director of Harvard Business Review Analytic Services.

What drives U.S. companies to undertake PEAs may soon be changing as pay equity regulation continues to expand in the U.S. Notes the report: "The crush and overlap of legislative initiatives threaten to saddle organizations with more challenges instead of making things clearer when addressing gender pay gaps. Federal reporting requirements have been expanded and more congressional initiatives are in the works, while a groundswell of states and localities are changing their laws to fill in the gaps in federal enforcement of regulations."

The report concludes that conducting pay equity audits has many positive benefits that go beyond compliance with expanding regulation. "Beyond minimizing regulatory risk and potentially expensive litigation, there is a desire by most companies for the good optics of creating a level playing field for all workers," states the report. "Achieving this ideal takes directed effort, beginning with a proper audit of where a company stands on pay for all employees."

Among those quoted in the report are:

U.S. Representative Rosa DeLauro
U.S. Senator Richard Blumenthal
Fatima Goss Graves, President and CEO of the National Women's Law Center
Shantanu Narayen, Adobe CEO
Michael Corbat, Citigroup CEO
David Mayer, a professor in the management and organizations area at the University of Michigan, Stephen M. Ross School of Business
Ariane Hegewisch, Program Director, Employment and Earnings, at the Institute for Women's Policy Research (IWPR)

To review the report, click here.

Harvard Business Review Analytic Services is an independent commercial research unit within Harvard Business Review Group, conducting research and comparative analysis on important management challenges and emerging business opportunities.

Trusaic is a software and services company that simplifies complex data and complicated regulations to give employers the information and confidence they need to take their businesses to the next level. We provide regulatory compliance, data quality management, and business intelligence, done and done right. Go to trusaic.com to learn more.

SOURCE Trusaic