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Getting started on pay equity analysis in 5 easy steps

It’s becoming more important for companies to take action on pay equity. This shift is driven by new legislation and by increased awareness on the part of both consumers and employees. The journey begins with collecting employee data, grouping similar employees, and running a pay equity analysis. This article tells you how.

Person walking up stairs.

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. 


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Ireland Rolls Out New Pay Equity Law
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Ireland Rolls Out New Pay Equity Law

This summer, Ireland implemented a far-reaching pay equity legislation, the Gender Pay Gap Information Act 2021. This legislation requires employers to begin reporting on their gender pay gaps. Companies will need to report differences in the mean and median pay between male and female employees. And if there’s a pay disparity, the company will need to provide a written explanation for it and outline any steps planned to close the gap.