Hybrid work is the future of work.
A recent Accenture survey of over 9,000 global employees revealed that 83% prefer a hybrid work model. However, hybrid work environments come with unique compensation challenges. Work from home experts say that unexpected biases in hybrid work environments may exacerbate inequality.
Fortunately, a pay equity analysis can help your organization get ahead of unfair differences in pay. A pay equity analysis is the process of finding pay gaps that might arise based on factors like race, age, gender, length of employment, and more between groups of employees who perform substantially similar work.
While regulations and laws like the Civil Rights Act, Americans with Disabilities Act, and the Equal Pay Act may require a pay equity analysis, it’s also crucial to conduct one to cultivate a company culture of fairness and equality for all.
You also can’t just conduct a pay equity analysis once — you should do so regularly. According to Syndio’s 2021 Pay Equity Trends report, 70% of companies analyze pay equity once a year or less, while nearly a third (30%) analyze it quarterly or every six months.
If your company already has or is planning to introduce a hybrid work model, make sure to conduct a data-informed pay equity analysis at least once a year to identify and resolve any wage gaps that arise. This ensures that you provide equal pay for equal work to all your employees, wherever they are. Here are five steps you can follow to conduct this analysis.
1. Define and communicate your compensation philosophy
Your compensation philosophy is your north star, serving as your mission and purpose for conducting a pay equity analysis. It drives how you compensate new employees as well as existing ones who are eligible for promotion.
Consider the core factors that fuel your compensation philosophy. These questions should help you determine what’s important to your company:
- How much should we prioritize compensation spending?
- Do we want to pay at or above the market rate?
- Do we prioritize compensation for certain departments or roles, i.e. executives or engineers?
- Will we establish compensation policies for the entire organization or by region?
- Should we pay a remote employee and on-site or hybrid employee at the same role and level equally?
- How will we ensure equal pay and access to promotions if some workers aren’t in the office all the time?
Be prepared to explain your compensation philosophy and the “why” behind any changes in compensation to your hybrid workforce. Communicating this information provides clarity and transparency behind your decision-making, which can eliminate employee confusion and secure company-wide buy-in for your decisions.
2. Gather data
Look for data to inform your pay equity analysis, both externally and internally.
Externally, it’s crucial to look at companies in your own industry for a truly apples-to-apples comparison, as compensation for the same role across sectors may vary. Research what others in your field pay employees by experience level, role, department, location, and company size. As you do so, be sure to consider total compensation: salary, total cash and equity, fringe benefits, etc.
Internally, group employees by those same variables (experience level, role, department, location) and compare them to your external data to get a better understanding of how your pay rates compare to the industry standard.
If you want to conduct post-COVID compensation planning to get a better idea of how to stay competitive in a post-pandemic job market, your data needs to reflect that — look for data from 2020 or more recent.
3. Understand how employee demographics factor into pay equity
Pay equity doesn’t exist in a vacuum. You can’t work toward fair pay without also considering how different your employees’ lives and needs are based on their demographics, such as where they live and who they are.
Location
Compensation planning for hybrid teams can be complex when taking into consideration the differences in pay for a distributed workforce, as the market rate can vary across regions. Consider both the pros and cons of value-based and location-based pay models.
With a value-based pay model, also known as location-agnostic pay, everyone receives the same pay based on just two variables: the national market rate and their level of experience, regardless of where they live. Reddit is an example of a company that follows this model, tying their compensation to the market rate for the highest-paid areas of the U.S. They chose this model to help boost employee retention, since this approach gives Reddit employees more flexibility in choosing where they live. Value-based pay may be more equitable, but paying market rate based on the most expensive areas like Reddit does could be very costly for employers. But, if your rate skews toward the national average instead, you risk losing out on talent who reside in areas with a higher cost of living.
With a location-based pay model, you adjust compensation based on location and pay employees based on their local market rates. While value-based pay is arguably equal pay, location-based pay is considered fair pay as it evaluates differences in the cost of living across regions. It also can benefit the company by saving on compensation since you can still pay a fair wage to employees who live in less expensive markets without breaking the bank. Additionally, location-based pay enables you to expand recruiting and hiring into different regions. Calculating the average for every employee’s city can be taxing, though. One way to ease this challenge is to introduce tiers, like Slack does — aggregate cities and metropolitan areas into tiers based on the cost of living and establish salary bands to scale to new locations.
Location-based pay does come with its challenges though. For example, once they are unshackled from daily commutes under remote and hybrid work, some employees take advantage of the opportunity to move away from expensive cities. In these cases, should you ask employees to take a pay cut? Maybe. Companies like Redfin shifted their pay strategy to give employees who relocated as much as a 20% reduction in cash compensation in exchange for indefinitely working remotely full-time. Redfin isn’t alone: Facebook, Twitter, Google, and more also offered employees who wanted to work from home permanently a chance to relocate — if they took a location-based pay cut.
You could also incentivize relocation if it’s more favorable to your company by offering a bonus. For example, Stripe offered their workers $20,000 to leave the notoriously pricey New York and San Francisco areas, but with a pay cut.
No matter what you choose, consider how your employees are distributed and what will accommodate their lifestyles the best. Always be sure to communicate any changes associated with relocation well ahead of time so employees can factor that into their decisions.
Protected groups
When it comes to compensation planning, you can’t just execute changes to your employees’ pay without considering the full picture, especially for those who are in protected categories based on gender, age, race, disability, religion, sexual orientation, etc.
Even if employees say they’re willing to take a pay cut to work remotely, not everyone may be on board. Gartner’s Improving Employee Engagement Survey found that younger employees are roughly 1.5 times more likely than employees ages 50 and older to consider taking a pay cut if they relocate due to remote or hybrid work.
Paying remote and in-office employees differently could also widen wage gaps for working parents, especially moms. Research shows that among college graduates with young children, women are 30% more likely to want to work from home five days a week, compared to men. Additionally, childcare disproportionately impacts women compared to men. Moms are twice as likely as dads to say they have a lot of childcare responsibilities while working, according to a survey of teleworkers with children. As a result, cutting pay for remote work may not be fair to your employees who are working mothers.
Sometimes the benefits that workers consider most valuable aren’t always about putting more cash in their pockets but, rather, improving their way of life. Before making adjustments to compensation, consider offering benefits like flexible schedules or support structures to accommodate parents at work, whether through compassionate remote work policies, childcare subsidies, or otherwise.
The unfairness continues when you consider who has access to promotions — and, consequently, better pay. Slack’s research finds that workers who belong to protected racial minority groups — 80% of Black, 78% of Hispanic, and 77% of Asian respondents — are more likely to prefer a flexible working experience, either through a hybrid or remote-only model. However, research from a Chinese experiment on work from home showed that remote employees are less likely to be promoted. Going forward, it will be critical to ensure that your workers get the opportunity to skill up and earn promotions, regardless of where they work, by providing equal access to training resources and establishing policies that eliminate biases favoring on-site workers for promotions.
Removing bias from the compensation equation means understanding how certain factors drive remote work and avoiding discriminatory practices that might unfairly pay protected workers less just because they pursue remote or hybrid work.
4. Identify pay gaps
Now that you have the data and a better understanding of your employees’ pain points, you can use it to identify pay gaps.
First, analyze the factors you can control, comparing pay rates for employees with similar titles and levels of experience. Then, compare by the variables you can’t control: demographics like gender, race, age, sexual orientation, disability, and veteran status. Historically, pay equity analysis has focused on comparing pay by gender to ensure that women and men are paid equally for the same work. But that’s changed: 98% of respondents to Syndio’s survey on 2021 Pay Equity Trends said they analyze both gender and race.
In our annual Charting Better Workplaces report, we found that the wage gap between Black and White employees is double the gap between men and women. While men who are individual contributors still earn 22% more than women, White employees who are individual contributors earn 44% more than their Black counterparts.
Do you find any pay differences in your own data? If so, can you justify them? Pay equity dictates that compensation be determined primarily by the work that employees do and the experience they bring to the table. Therefore, justifiable reasons for pay gaps are strictly job-related, such as seniority, geography, level of education, work performance, etc. Unjustifiable or illegal pay gaps are based on protected demographics like gender or race, and these are the ones you should work to close immediately.
5. Strategize and take action to ensure pay equity
Knowing what isn’t working is half the battle; the final step of conducting a pay equity analysis is figuring out how you’ll fix pay disparities and wage gaps.
The short-term goal is to fix pay inequity for current employees. The Equal Pay Act prohibits companies from reducing compensation for anyone to fix inequality. Instead, you need to reallocate funds to boost compensation where necessary — with approval from accounting and HR.
Your long-term goal should be to address the root causes of pay inequity. Document your yearly or quarterly findings, and develop pay policies that make sure new hires and promotions are compensated accordingly. Publish your compensation philosophy internally and use it to inform compensation planning and ensure pay equity moving forward.
Take accountability by advocating for fair pay
No matter how you address pay inequity, communicating the results of your pay equity analysis and any steps you’re taking to close wage gaps — both internally and publicly — will help you earn your employees’ trust and steer the company toward pay transparency.
Gartner finds that fewer than 20% of organizations communicate their pay equity analysis findings, either externally or internally. But you can be the difference: take responsibility by addressing your employees’ questions and concerns on what you’re doing to ensure fair pay.
Understand how your company’s wage policy compares to other businesses. Check out the Charting Better Workplaces: 2020 Report to see data on the tech industry’s wage gap.
