Why data is essential for both pay equity and pay transparency

Pay equity and pay transparency both play a critical role in the modern employment landscape. Get it right, and businesses can demonstrate that they are committed to inclusion and fairness, while cultivating a culture of trust and honesty that in turn will boost job satisfaction, as well as enhance engagement, performance, and productivity.

Yet what exactly do we mean by pay equity and pay transparency? What is the difference between the two and how do they relate to each other?

“Pay equity is when an employee is paid the same as colleagues who carry out work that is of equal value within the organisation; it is about making sure that employees are paid fairly for their work compared to their colleagues – nobody should be paid differently due to a protected characteristic they possess such as age, race, or gender,” explains Kate Palmer, employment services director at Peninsula.

“Pay transparency is about employers being more open on how much they pay their staff,” she continues. “Whilst employers may not want to disclose the wages of individuals, pay transparency could include a clear salary structure and pay progression scheme to maintain pay and fairness across the board.”

So, while the two concepts are quite distinct, they are also connected, because when employers embrace pay transparency, by openly disclosing salary information, they are taking an important step towards pay equity, by promoting fairness and fostering an open and honest dialogue about equal pay for equal work.

“Pay transparency can help identify and address pay inequities by allowing employees to compare their compensation with others in similar roles,” comments Lucye Provera, senior compensation consultant at Mercer. “By increasing transparency, organisations can proactively address any pay disparities and work towards achieving pay equity.”

Driving progress through data

HR leaders will be in a better position to move towards the goal of equal and transparent pay if they use the tools at their disposal – namely, data. By taking a data-driven approach, HR and business leaders will have a much clearer vision and understanding of how to embed pay transparency into their culture, as well as create real pay equity.

“Data is essential to both pay equity and pay transparency because it provides the necessary insights for monitoring progress and identifying disparities,” says Sophie Bryan, founder at Ordinarily Different. “By analysing this data, HR can pinpoint areas where pay gaps exist and take appropriate actions to address them. This results in a more equitable and transparent pay structure.”

Data is the answer to whether we have achieved what we set out to do, adds Anthony Poole, partner at Aon Talent Solutions. “We can reference many different initiatives, actions and working groups, but the answer to whether we have ‘achieved’ pay equity lies in the data.”

However, research in 2023 by XpertHR found that 45% of HR leaders struggle to access the relevant data to address pay inequity. It’s therefore vital that HR uses data and technology in the right way to better understand, identify and tackle pay equity and transparency issues.

“The first step is to ensure the data available is quality and accessible,” advises Leon Gordon, data analytics expert and CEO of Onyx Data. “Tools can then be used to automate data collection, provide insights into pay differentials, and track key metrics related to pay equity. Using a data-driven approach, HR can then build on this by conducting regular pay audits, reviewing salary structures across the organisation, and defining key metrics to track for anomalies and outliers.”

Elly Tzouvanni, head of people at Silver Cloud HR, says that HR teams can use data to show how they are performing right now. “You can also use that data to determine where their greatest areas for opportunity are. Then HR teams can use this baseline figure to create realistic goals that are Specific, Measurable, Achievable, Relevant and Timely (SMART). They can use the areas of opportunity as their strategy for achieving these goals and can use data to track their progress toward them. You can also produce an anonymised report, with that data, to share with the wider team to foster better pay transparency.”

Lucye Provera adds: “HR can leverage data to drive progress and achieve both equal and transparent pay by conducting pay equity analyses, implementing data-driven compensation practices, establishing pay transparency initiatives, setting benchmarks and targets, providing training and education, and monitoring and reporting on progress. By utilising data effectively, HR can play a crucial role in creating a fair and inclusive work environment.”

Once an organisation is clear on who is paid what, it is then a question of why, says Kate Palmer. “If such an analysis raises issues, then a plan can be put in place as to how the organisation can tackle any pay equity issues. If issues are identified, there is unlikely to be a quick fix. Consequently, making sure that there are clear structures in place to govern why certain roles are paid a certain amount, as well as carrying out regular pay audits, is likely a top priority for many businesses to prevent issues arising.”

Tracking key metrics

When it comes to pay equity and pay transparency, there are key metrics that need to be tracked, however they may vary depending on the organisation’s specific goals, industry, and available data.

“Organisations should consider a combination of quantitative and qualitative metrics to gain a comprehensive understanding of pay equity and pay transparency within their specific context,” advises Lucye Provera. “Regularly tracking and analysing these metrics can help organisations identify areas for improvement, measure progress, and make data-driven decisions to achieve fair and transparent compensation practices.

“For pay equity, we encourage companies to calculate and track both unadjusted and adjusted pay gaps, as well as understand the Equal Pay Gaps by category of workers,” she continues. “When looking at pay transparency, we can consider broader metrics, such as attraction, retention and progression rates; employee and candidate perceptions towards pay; as well as general employee engagement scores.”

Using HR tech to foster fair payment practices

By leveraging HR software, employers can therefore gain insights, highlight trends, and identify any gaps in pay.

“HR and payroll software can help you capture payroll data and parse through it with diversity demographics in mind,” remarks Elly Tzouvanni. “If your software has analytics capabilities, it can help you identify trends in that pay data and give you ways to visualise it and drill down deeper to explore it. Some software can also provide industry-wide data that you can use to benchmark your organisation against and see how you stack up. These platforms can help you identify unjustified pay gaps much more quickly. But they do need regular maintenance and audits to make sure the data they are using is accurate and relevant.”

HR software can also compare employee salaries based on various factors such as job title, experience, and performance, adds Lucye Provera. “This analysis can help identify any pay gaps or disparities that may exist within the organisation. By leveraging the data and analytics capabilities of HR software, organisations can make informed decisions to promote fair and equitable compensation practices.”