By: Susanna Vogel, Associate Consultant
In 2020, employers increasingly want to share pay data with employees, boards of trustees, and other relevant stakeholders to demonstrate their commitment to equal pay and transparent pay practices. In pursuit of this goal, they may use terms like ‘closing the pay gap’ and ‘providing equal pay’ interchangeably. However, these terms refer to distinct methodologies that answer unique questions about compensation. To understand the results of the compensation analysis performed for your organization, it is important to understand the distinctions between each type of study, and the strengths and limitations of both.
What is a Pay Gap Analysis?
A pay gap analysis answers the question: how much are protected groups paid relative to favored groups across the company’s workforce? This analysis can reflect an unadjusted pay gap, i.e., the difference between salaries without accounting for job related factors, or an adjusted pay gap that takes into account pay related variables, like geographic location or role.
A pay gap analysis groups all employees into a single analysis and answers the question: in general, how do males compare to females, for example? A pay gap analysis provides a high-level view of pay and can provide information on broad pay disparities but does not identify where those disparities exist (or offer guidance on how to adjust pay to fix the disparity in pay).
What is a Pay Equity Study?
A pay equity study answers the question: among similarly situated employee groupings, how are protected employees paid relative to favored groups? ‘Similarly situated’ refers to employees who perform similar work that requires similar skills, qualifications, and levels of responsibility.
A pay equity study analyzes employees within similarly situated employee groups and can identify disparities within the context of a particular role. The analysis allows consultants to identify specific disparities in pay within the company and, if necessary, propose adjustments to address these disparities.
Which Study Is Appropriate?
| Pay Gap | Pay Equity |
| Provides a companywide view of pay. Useful for benchmarking pay practices in comparison with competitors or external reporting | Provides the necessary level of detail to identify factors that contribute to discrepancies in pay and suggest adjustments |
| It is not an analysis conducted in accordance with legal standards | Evaluate compensation practices through a Title VII framework |
| It is not a thorough evaluation of why differences may exist between similarly situated employees | Results are dependent on quality of SSEG groupings |
| Can identify issues related to the distribution of protected class members in higher or lower paying jobs | Pay equity studies will not provide information on possible glass ceiling issues |
