Navigating Pay Equity Analysis in the Hybrid Work Environment

Hybrid work is the future of work.

A recent Accenture survey of more than 9,000 employees worldwide found that 83% prefer a hybrid work model. However, hybrid work environments present unique compensation challenges. Work from home experts say unexpected distortions in hybrid work environments can exacerbate inequality.

Luckily, a pay equity analysis can help your company avoid unfair pay disparities. Below you will find out what is necessary.

What is a pay equity analysis?

A pay equity analysis involves identifying pay disparities that may arise between groups of employees who perform substantially similar work due to factors such as race, age, gender, length of service, etc.

Regulations and laws such as the Civil Rights Act, the Americans with Disabilities Act, and the Equal Pay Act may require a pay equity analysis, but conducting this analysis is also critical to building a company culture of fairness and equality for all.

It is important that you carry out an equal pay analysis not just once, but regularly. According to the 2022 WorldatWork Pay Equity Study, 70% of companies surveyed took pay equity measures in 2022, an increase of 10% from 2019 and 4% from 2021.

5 Steps to Conduct a Pay Equity Analysis for a Hybrid Workplace

If your company has already adopted a hybrid work model or is planning to implement such a model, you should conduct a data-driven pay equity analysis at least once a year to identify and address any pay discrepancies. This way you ensure that all your employees receive equal pay for equal work, regardless of where they work. Below are five steps you can follow when conducting this analysis.

1.Define and communicate your compensation philosophy

Your compensation philosophy is your North Star, which serves as your mission and goal for conducting a pay equity analysis. It determines how you compensate new employees and employees who are being considered for promotion.

Consider the core factors that underlie your compensation philosophy. These questions will help you figure out what's important to your business:

• How much should the expenses for compensation be?
• Do we want to pay at or above market levels?
• Do we focus on compensation for specific departments or functions (e.g. senior managers or engineers)?
• Will we set compensation policies for the entire company or for individual regions?
• Should we pay a remote employee and an on-site employee or a hybrid employee in the same role and at the same level the same?
• How will we ensure equal pay and access to promotions if some employees are not present in the office all the time?

Be prepared to explain your compensation philosophy and the “why” behind any compensation changes to your hybrid workforce. Communicating this information provides clarity and transparency in decision-making, which can avoid confusion among employees and ensure company-wide acceptance of your decisions.

2.Collect data

Look for data both externally and internally to support your pay equity analysis.

Externally, it is important to look at companies in your own industry to provide a true comparison, as compensation for the same role can vary in different sectors. Research what other companies in your industry pay their employees based on experience level, role, department, location and company size. Also consider total compensation: salary, cash and stock, benefits, etc.

Group employees internally by the same variables (experience level, role, department, location) and compare them to your external data to get a better understanding of how your salaries compare to the industry standard.

3.Understand how workforce demographics influence pay equity

Pay equity does not exist in a vacuum. You can't work towards fair pay without also considering how different your employees' circumstances and needs are based on their demographic characteristics, such as: where they live and who they are.

Location

Compensation planning for hybrid teams can be complex when considering the differences in compensation for a distributed workforce, as the market price can vary from region to region. Consider both the advantages and disadvantages of value- and location-based compensation models.

With a value-based compensation model, also known as location-independent compensation, every employee, regardless of where they live, receives the same compensation based on just two variables: the national market rate and their experience level. Reddit is an example of a company that uses this model, tying its compensation to the market rate for the highest-paying areas in the United States. Value-based pay may be fairer, but market-based pay based on the most expensive areas like Reddit can be very costly. If you instead go by the national average, you risk losing talent who live in areas with higher costs of living.

With a location-based compensation model, you adjust compensation based on location and pay employees based on their local market rates. While value-based compensation is arguably equal pay, location-based compensation is considered fair compensation because it takes into account the differences in the cost of living in different regions. This approach can result in compensation savings because you can still pay employees who live in less expensive markets a fair wage without breaking the bank.

However, location-dependent compensation also presents challenges. So calculating the average value for each employee's city can be very tedious. One way to address this challenge is to introduce tiers, like Slack does - dividing cities and metropolitan areas into tiers based on cost of living and setting salary ranges that adapt to new locations.

Protected groups

When planning compensation, you cannot simply make changes to your employees' compensation without considering the bigger picture, especially for those who belong to protected groups based on gender, age, race, disability, religion, sexual orientation, etc.

Even if employees are willing to take a pay cut to work remotely, not everyone may be okay with it. Robert Half's 2023 State of Remote Work Survey found that 18- to 25-year-olds (42%) and working parents (41%) are most likely to be willing to take a pay cut to work fully remotely.

Differential pay between office and field workers could also widen the pay gap for working parents, especially mothers. Research shows that college graduates with young children are 30% more likely than men to want to work from home five days a week. Additionally, women are disproportionately affected by child care compared to men. According to a survey of telecommuters with children, mothers are twice as likely as fathers to say they have a lot of child care responsibilities while at work. Consequently, a pay cut for remote work may not be fair to your employees who are working mothers.

And sometimes the benefits that employees find most valuable aren't about putting more money in their pockets, but rather about improving their quality of life. Before making compensation adjustments, consider whether you offer benefits such as flexible work schedules or support structures to accommodate parents at work, whether through compassionate remote work policies, childcare subsidies, or otherwise.

The injustice continues when considering who has access to promotions - and therefore better pay. Recent data shows that workers who are protected racial minorities – 88% of Asian workers, 83% of Black workers and 81% of Hispanic or Latino workers – are more likely to prefer flexible work arrangements, including working from home. And only 3% of Black knowledge workers compared to 21% of white knowledge workers want to return to working in the office full-time.

However, research from a Chinese work-from-home experiment has shown that remote workers are less likely to be promoted. Moving forward, it will be critical to ensure that all employees have the opportunity to learn and be promoted, regardless of where they work, by giving them equal access to training resources and implementing policies that eliminate bias against employees Eliminate on site during transport.

Eliminating bias in the compensation equation means understanding how certain factors affect remote work and avoiding discriminatory practices that unfairly pay protected workers less simply because they perform remote or hybrid work.

4.Determine salary differences

Now that you have the data and a better understanding of your employees' problems, you can identify salary differences.

First, analyze the factors you can control and compare the salaries of employees with similar titles and experience levels. Then compare by the variables you can't control: demographics like gender, race, age, sexual orientation, disability and veteran status. Historically, pay equity analyzes have focused on comparing wages by gender to ensure that women and men are paid equally for the same work. While that is changing - 43% of America's 100 largest employers conduct pay equity analyzes with a particular focus on race and ethnicity - we still have room for growth.

Are you finding pay disparities in your own data? If so, can you justify this? Pay equity dictates that compensation depends primarily on the work and experience employees bring to the company. Therefore, justified reasons for wage differences are strictly job-related, e.g. length of service, geographic location, education level, job performance, etc. Unjustifiable or illegal pay disparities are based on protected demographic characteristics such as gender or race, and these are the ones you should address immediately.

5.Strategies and measures to ensure equal pay

Knowing what doesn't work is half the battle; The final step in conducting a pay equity analysis is figuring out how to eliminate pay disparities and pay gaps.

The short-term goal is to eliminate pay inequality for current employees. The Equal Pay Act prohibits companies from reducing the pay of employees in order to eliminate inequalities. Instead, you must reallocate funds to increase compensation when necessary - with approval from accounting and human resources.

Your long-term goal should be to eliminate the causes of wage inequality. Document your annual or quarterly results and develop salary policies that ensure new hires and promotions are compensated accordingly. Publish your compensation philosophy internally and use it as a basis for compensation planning and to ensure pay equity in the future.

Take responsibility by advocating for fair pay

Regardless of how you address pay inequality, communicating the results of your pay equity analysis and any steps you take to eliminate pay disparities - both internally and publicly - will help you earn the trust of your employees and steer the company toward pay transparency .

And these efforts can pay off big. The Josh Bersin Company's "Definitive Guide to Pay Equity in 2023" shows that companies that strive for pay equity have a positive impact on business and employee outcomes. For example, these companies are 1.6 times more likely to exceed their financial goals, 1.5 times more likely to engage and retain employees, and 1.7 times more likely to adapt well to change.

Investing in pay equity analysis not only fosters fairness but also enhances employee trust and organizational performance. With tools like IceHrm, achieving pay transparency becomes simpler, paving the way for a more equitable workplace.