Step #1 of Bridging the Gender Pay Gap: Do the Audit Already

If your organization hasn’t conducted a pay audit yet, it’s not alone.

But it’s time.

And if your leadership team hasn’t begun serious discussion about conducting a pay audit, it’s way past time to do so.

Sidestepping the issue by avoiding taking a close look at your organization’s pay practices won’t make it go away. It’s clear that attention to and demands for action on gender pay equity in the U.S. will continue to gain momentum.

i4cp’s research on pay equity found that while 45% of the 365 business professionals we surveyed reported that their organizations already conduct pay audits to determine if men and women are paid equally for comparable work, those from high-performance organizations were 3x more likely to report currently conducting audits—or planning to do so soon.          

But a combined 42% of survey respondents told us that their organizations have not done an audit and  have no plans to do so in the future (16%) or that they didn’t know whether or not their organizations have conducted an audit (26%). 

There is no argument that pay equity is a fraught issue, and there’s so much more to it than simply auditing and adjusting pay. We need to take a closer look at the policies and cultural issues in our organizations that perpetuate pay disparities. But while hopefully none of the senior leaders in your organization walk around the office declaring “Nope, we haven’t done a pay audit and we have no intention to!” avoiding the audit can communicate this very message. So too does shutting down the conversation altogether, admonishing employees to not discuss salaries, and reprimanding those who do.  

In ongoing discussions i4cp has had with CHROs and other senior executives on this topic, the shared concerns about pay audits are common:

If we conduct a pay audit, I’m not sure we’re prepared to deal with what we find.

It may sound easy in theory to simply raise pay across the board for anyone affected by pay gaps, until you consider that depending on the breadth and depth of the gaps, doing so could cause the company to miss earnings estimates, causing shareholders to sue, layoffs to happen, etc.  

Obviously, that’s a disaster movie scenario, but organizations do need to have a plan for how to proceed before, during, and following the completion of an initial pay audit. The plan should be created in partnership with the CFO, head of total rewards, legal counsel, communications, etc. Developing a communication strategy early-on is absolutely key to this discussion too (see below). 

We’re committed to auditing for gender pay equity, but how far back should we go?

This is a tough decision to grapple with, but one that must be determined upfront. Add to that, the exact messaging both internally and externally about pay auditing can be perilous. If you tell an employee “We’re adjusting your pay because we've discovered that we haven’t been paying you fairly,” the obvious question in response could be “Okay—and how long have you been doing that?” Companies could face more expensive liability than just the cost of raising salaries. So, timeframe planning needs to begin with legal counsel in the room.  

We’re global—but beyond the countries that require us by law to audit and report, we don’t know where to start.

The pay gap isn’t a U.S. issue—it’s a global one. Worldwide, women make on average half of what men make, according to the World Economic Forum.    

Global companies face complex challenges dealing with pay equity across multiple countries. It’s a complicated undertaking with many variables—it’s more expensive to hire talent in London or San Francisco than it is in Bangalore, for example. And women are underrepresented in the workforce, particularly in leadership roles, in many regions worldwide 

Some U.S. organizations with operations abroad are already auditing pay and reporting the information. The UK’s Gender Pay Gap reporting regulations, which went into effect in April 2017, requires that organizations with more than 250 employees publish differences in gender pay on their corporate websites and upload the data to a government website annually.

Bloomberg calls the UK’s reporting law a shaming initiative—suggesting that employers having to publicly report their gender pay gaps (their raw, unadjusted data—how much, on average, women make in their organizations versus men) will bring a reckoning (employers aren’t required to change their pay policies—but they must report their data).  

Going public with pay data can and will bring all sorts of implications and attention, both positive and negative, which can lead to policy reform. Ability to attract talent is a big one—both women and men are likely to think twice about applying for a job with an organization that clearly has a pay equity issue.  

Most of our leadership is on board with pay auditing and corrective action, but our CEO isn’t.

We recently spoke with the head of total rewards at a global retail organization about pay equity. The executive admitted that she’s worried about this issue—although she’s all for conducting an enterprise-wide pay audit, some of her C-suite colleagues (and the CEO) are hesitant.

There’s a lot of apprehension about transparency and what it means. “There’s fear about losing control of the message by putting the data out there, even to just the leadership team. Not everyone wants to do this—it’s a hard sell,” she said.

Another of the retailer’s concerns is that it has acquired several organizations over the past three years, and more acquisitions are in the works. What might a pay audit reveal about the organizations they’ve acquired? Have they inherited truly major pay gaps that will need to be addressed? Should they have done pay audits as part of the pre-acquisition due diligence (they haven’t, but the head of total rewards is recommending that this become a standard step going forward)? And what happens post-audit?

Okay, say we do the audit—what’s next?

The Institute for Corporate Productivity (i4cp) ascribes to a four-part cycle of pay auditing: 

It’s important to develop a post-audit action plan informed by the facts that provides a narrative that can be shared both inside and outside the organization. This requires commitment on the part of leadership as well as a clear strategy about how to communicate about pay practices. 

Should employees know that an audit has been conducted? We think so. Employees and potential employees need to know that at the very least, there is good faith effort on the part of the organization to map out a plan to get to pay equity, especially in view of the fact that some pay intel is already out there; it's not as if pay secrecy is what it once was (thank you, Glassdoor and others). Being upfront about an audit is both smart and strategic. 

Once an audit is done, the results should be discussed at the senior leadership level, adjustments made, and the cycle should repeat, says Salesforce CEO Marc Benioff, who discussed the ongoing pay audits and adjustments happening at Salesforce on the CBS news show, 60 Minutes.

“We're going to have to do this continuously. This is a constant cadence,” Benioff said.

What if the painful truth is indeed painful?

Avoiding an audit may allow some organizations to dodge the pain. For now. Some are conducting pay audits because, as we noted, they’re required to by law (e.g., the UK’s new law), but this legislation came to pass after companies were urged by lawmakers to voluntarily make pay data (and gender gaps) public. Not surprisingly, few companies shared their information voluntarily. Now that reporting this data to the government is mandated, with the risk of fines imposed for not doing so, the results of pay audits reveal a lot of pain in some cases—gaps in median pay of as much as 60% have been reported. 

But beyond the mandatory reporting, what those employers in the UK do with the information they (and now everyone else) have about pay gaps and practices is entirely up to them. This presents an opportunity for employers to strengthen their cultures by having candid conversations with their workforces that outline plans for bridging existing gaps and preventing new ones.

Will this sort of gender equity reckoning forced by legislation happen in the U.S.? Probably not anytime soon. One  critical factor—in the UK, 32% of the seats in Parliament are held by women, whereas only 20% of the U.S. Congress are female.

Another factor to consider is that employers in the UK follow a formula for calculation provided by the government. So, even though a small but growing number of organizations in the U.S. are voluntarily publishing their pay audit data, there’s no common formula for calculating these figures, so the picture isn’t all that clear.

But as more women take public office in the U.S., things will likely change. This spring, a federal U.S.  judge cleared the way for the Equal Employment Opportunity Commission to start requiring companies with 100 or more employees to collect and report their pay scales broken down by gender and race.  

And as the 2020 campaign cycle heats up, pay equity is a common talking point for candidates. Sen. Kamala Harris recently announced that pay equity is a pillar of her presidential campaign. Her proposed plan would require companies with 100 or more employees to earn “equal pay certification” by proving they pay men and women equally for performing work of the same value, or face fines of 1% of their profits for every 1% wage gap. The plan also calls for employers to report on the number of women in leadership positions, forbid them from asking about salary history, and prohibit forced arbitration to handle pay discrimination claims.

"When you lift up the economic status of women, you lift up the economic status of families and communities and all of society. But yet in America today, women for the same work—for the equal work on average make 80 cents on the dollar," Harris said. "Black women make 61 cents on the dollar. Latinas make 53 cents on the dollar and this has got to end."

Should the pay audit be an inside job?

In follow-up conversations to i4cp’s gender pay gap survey, several executives interviewed said that their organizations have conducted pay audits internally (and did so with close involvement of legal counsel in the process), and they plan to have a third-party conduct the next one.

Some plan to do their own audit and compare the data to the findings of a third-party audit done in parallel to determine if they are missing anything or just too close to the data to be completely impartial.

“I expect to have push back no matter who does the audit, but I think going with a third-party will help people feel a little more comfortable with it,” a total rewards executive told us.

Others said that they are doing an internal audit and sharing the results with senior leadership, but not announcing broadly that the audits are taking place or what the data shows. But again, letting employees know that the issue is being addressed is a key element and indicator of a healthy culture—one that is committed to treating its workforce equitably.

Whatever approach an organization chooses to take, it's not going to be easy. There will be stumbles, plenty of tough decisions, and awkward, even painful moments. But it also clears a way to move forward. The time to do a pay audit is now.

Lorrie Lykins is i4cp's vice president of research and editor of @shesuite