We Have the Corrected Pay Gap, Now What?
Throughout the previous blog posts, we have explored the importance of using an advanced Equal Pay methodology, the available techniques, and their strengths and weaknesses. Calculating the gaps is a key milestone. But it is just that: a milestone, not the finish line. The real work lies in understanding what is behind that gap and deciding how to close it. So, you have those crucial figures: your gender pay gap and equal pay gap, now what?
Outlier Analysis: Who's Over- or Underpaid?
A powerful next step is identifying outliers: individuals whose salaries deviate significantly from those of their peers; colleagues with work of equal value. Not every deviation is necessarily unfair, but these outliers provide a valuable starting point for case-by-case review. Are they overpaid, underpaid, or are there justifiable reasons behind the discrepancy?
Under the EU Pay Transparency Directive, an absolute pay difference of more than 5% within a peer group must either be objectively justified or corrected through salary adjustments. Doing an outlier analysis helps with either finding objective criteria for pay differences or to spot the employees for which salary adjustments are needed. Therefore, this analysis is essential to help comply with this requirement, and more importantly, to ensure fairness within your organization.
Deeper Insights Through Pay Component Breakdown
The scope of pay components (e.g., base salary, bonuses, allowances, etc.) can significantly impact your observed pay gaps. To better understand what is driving the gap, it is useful to run the analysis with different scopes of pay components. You will see that the pay gap may appear smaller or larger depending on which components are included. Especially combined with insights from your outlier analysis, this helps you to identify which pay components contribute most to the gap and whether those differences are objective or potentially discriminatory. For the latter, corrective actions may be needed.
Simulating the Effect of Salary Adjustments
What if you increased salaries for certain underpaid employees, how would it affect the gender and/or the equal pay gap? By simulating the effect of hypothetical salary changes, you can:
- Test different scenarios before implementing them,
- Prioritize the most effective interventions,
- Estimate the cost of narrowing the gap.
This kind of what-if analysis empowers you to make data-driven decisions with confidence and clarity.
Informed Pay Decisions for New Hires
Your insights derived from an equal pay analysis do not just reflect the past; they can guide the future. When hiring new employees, you can use the salaries of peers and insights from the equal pay analysis to help set equitable starting salaries, based on relevant characteristics like years of experience and job level. This helps avoid introducing unfairness when hiring new employees and ensures your pay practices stay aligned with internal standards and external demands.
Final Thoughts: From Measurement to Movement
Having an equal pay gap figure is an achievement in itself, but the real impact comes when you act on what the data tells you. Whether it is exploring outliers, refining your pay structure, or guiding new offers; a lot is possible. And we, as Highberg, can help you!
And with that, we wrap up this blog series on Equal Pay methodologies. Have you missed anything in this blog series or do you want to know more, please reach out to Ninande Vermeer via ninande.vermeer@highberg.com or LinkedIn.