Senior Client Partner
Organizational Transformation
How to Achieve Pay Equity and Transform Your Workplace
Learn how equitable pay and transparent compensation practices can elevate your organization, attract talent, and boost morale.
Defining Fair and Equitable Pay
Wage information can be shared within organizations internally, publicly, or both. Shared information may include salary ranges, how pay is determined, or the promise to let employees discuss wages without repercussions.
Some regions now mandate specific methods of pay transparency. But if your organization isn’t operating in one of those regions, then it’s up to the business to decide how much and what type of information is disclosed.
Pay Transparency vs. Pay Equity
Both pay transparency and pay equity focus on addressing fair pay. Legally, this might include only the headline salary, but it more often includes the full package of compensation and benefits.
The two concepts differ because pay equity focuses on ensuring that people are paid equally for equal work, regardless of their background, while pay transparency makes relevant pay information more visible in the organization—which usually helps lead to equity.
“Pay transparency is a dimension of pay equity,” explains Tom McMullen, a senior client partner at Korn Ferry. “Pay equity is about ensuring that employees are treated fairly and consistently in access to roles, how they are paid, and in pay outcomes. Pay transparency is about ensuring that important pay-related processes are communicated with applicants and employees.”
Are Pay Equity and Pay Equality the Same Thing?
Pay equity and pay equality are similar but aren’t the same.
Just as “equality” refers to the quality or state of having the same rights and opportunities, pay equality ensures equal access to job opportunities for everyone, regardless of gender, race, religion, disability, or other factors.
That sounds a lot like pay equity, doesn’t it? It's close, so here's a simple way to think about it.
It's an established fact that more men hold CEO positions than women.
- Pay equity is about women receiving comparable pay to men for comparable work.
- Pay equality is about changing the system, so more women would have a chance to become CEOs and earn CEO-level pay.
Simply put, pay inequality means that underrepresented groups have fewer chances of getting higher-paying jobs. Pay equality aims to change that.
Is Pay Equity Required by Law?
Many countries have laws in place to govern pay equity. The specific rules you must follow will depend on your geographic region.
Failure to comply can result in lawsuits, fines, or other penalties.
“It’s also bad for optics,” adds McMullen. It can damage the company’s reputation and erode trust among employees and stakeholders.
In the US, the Equal Pay Act of 1963 states that men and women employed at the same business should receive equal pay for equal work. The Civil Rights Act of 1964 offers broader protection and also prohibits discrimination based on race, color, religion, and nation of origin.
The UK has the Equality Act 2010, which says that men and women in the same employment performing equal work must receive equal pay, unless any difference in pay can be justified. The law also protects against discrimination based on age, disability, race, religion, sexual orientation, and other factors.
The European Union is working on strengthening pay equity with new rules adopted in 2023, which will be mandatory starting in 2026. The rules require companies to share salary information and correct gender pay gaps of more than 5%. It also includes fines for employers who break the rules.
Of course, laws alone are not enough to solve pay inequality. After all, the Equal Pay Act was established in 1963, and many employees are still paid unfairly.
“Pay equity is not something that’s going to be fixed through governance alone,” says Vijay Gandhi, a regional director at Korn Ferry Digital. “Your culture should transcend whatever the local policy is.”
What’s the Business Case for Pay Equity?
Why should you focus on pay equity, pay transparency, and pay equality in your workplace? Because fair compensation makes good business sense.
In areas where it’s not required by law, there is often societal, shareholder, and employee pressure to do so. “Ethically and for the good of the business, it is often seen as the right thing to do,” says McMullen.
There are many reasons to examine your current practices and perform a pay equity analysis to learn more about your internal business practices. Here are a few factors to consider:
- Talent acquisition and retention: Recognizing the importance of pay equity and equality, and choosing to act with transparency, will make your company more attractive to today’s top talent, who are increasingly valuing fair pay practices and transparency when deciding where to work. Gen Z workers are particularly attracted to companies that operate with openness and practice social responsibility.
- Reduced turnover: “Fair and transparent pay practices help employees feel more engaged, which can result in fewer voluntary exits,” says McMullen.
- Enhanced productivity: Employees who feel valued have better morale, engagement, and productivity. In one study, employees were more productive when pay was made transparent (as long as the pay wasn’t inequitable).
- Less pay-related conflict: With pay transparency, employees understand how compensation is structured and are less likely to question pay differences. That leads to greater workplace harmony.
Best Practices for Achieving Pay Equity
“Following compliance guidelines is relatively straightforward,” says McMullen. Most HR and legal staff have the knowledge and capability to ensure it happens, he says, but if not, companies can hire an external advisor.
Reaping the full benefits, however, requires a more robust plan, he says.
"It’s getting the organization’s house in order to better enable pay equity and transparency that is often the heavier lift.”
If introducing pay transparency and pay equity is your organization’s eventual destination, here are some steps to get there:
- Understand regulatory requirements for compliance
- Conduct a pay equity analysis and assess results to identify gaps
- Ensure you have a solid job architecture to enable more consistent judgments about the value of jobs
- Be consistent with rewards delivery and ensure the strategy is clear
- Refine and sharpen communication messages and ensure managers can answer questions
- Assess the effectiveness of new practices and refine as needed
You can use our pay transparency road map to guide you through the process as you adapt your pay structure in your organization.
And whether you’re just starting to explore the implications of pay equity and transparency or are actively looking to create a culture of openness around compensation, you’ll find useful insights in our on-demand webinar, It Pays to Plan: A Strategic Roadmap for Pay Transparency.
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