Equal Pay Audits Should Include Consideration of Equity-Based Pay

Too often, when business executives consider pay equity, they think about two factors: base compensation (e.g., salary) and rewards-based compensation (e.g., bonuses). A recent study entitled “The Road to Inequity is Paved with Good Intentions: Examining the Gender Pay Gap in Equity Awards” by Felice B. Klein, et al. (Academy of Management, Annual Meeting Proceedings), illustrates in detail why this myopic view of pay equity misses the mark. (The study is available here). Instead, to effectively tackle the gender pay gap, businesses must also consider equity-based rewards, such as stock and option grants.

As part their study, Klein and her colleagues were granted access to wide-ranging data from companies that 1) have been recognized as leaders in their pay equity efforts, and 2) utilize equity-based compensation. This data included the following: “employee compensation data, including equity-based awards, base pay, and performance-based rewards, as well as typical predictors of pay within firms including prior performance ratings, firm level, department, and job family.” What the authors found was striking. Even where companies take significant efforts to reduce gender-based pay disparities in terms of base pay and bonus pay, such disparities are still present when equity-based pay is considered.

The authors are careful to acknowledge that examining pay equity in equity-based compensation is a relatively new concept in the field of comprehensive compensation analyses. Klein, et al. write, “To our knowledge, no study has examined gender pay gaps for equity-based awards within the same job and establishment while controlling for many of the typical reasons that women earn less than men.” What this means is that companies seeking to achieve their pay equity goals in 2020 and beyond must consider base pay and total pay (including equity-based pay) in order to effectively reduce gender-based pay disparities and stay ahead of the curve.

Companies should consider a pay equity audit with a vendor that fully accounts for total pay in its analysis. A pay equity audit can be conducted under the attorney client privilege using a combination of gender pay gap software and expertise in pay equity regulations and statistical models. However the analysis is conducted, employers should keep in mind the Triangle of Trust^SM: trust in data, trust in software and trust in regulatory expertise. Click here to find out more about how Trusaic can help your organization achieve its pay equity goals.