Pay Equity Strategies to Embed in Your Hiring Process
For companies without a proactive plan, pay inequities often grow with each new hire. The consequences have long-lasting effects: Not only are there legal ramifications for pay inequities with an organization, but candidates are increasingly looking at how organizations treat the issue. Read below for research and strategies on what organizations can do to promote pay equity early in the pipeline.
CANDIDATES ARE PAYING ATTENTION TO FAIR COMPENSATION
As employers compete for talent in this new market, new data shows candidates are increasingly attracted to companies that prioritize pay equity. According to the Handshake Network Trends Report, Gen Z - the generation projected to be a third of the workforce by 2030- overwhelmingly supports pay-transparency measures as a means of promoting equal pay for equal work. In fact, 62% said they’d be more likely to apply to a company if the company had a commitment to equal pay.
Equal pay means compensating employees the same when they perform the same or similar job duties, while accounting for other factors, such as job performance and tenure. The concept seems simple. Despite this, 2021 census data shows Black women are still paid 63 cents to every dollar earned by white men, while Latina women make 55 cents. Why are pay inequities so rampant? While part of it has to do with our innate biases, part of it also has to do with differences in candidates’ negotiation skills. The fast paced culture of hiring along with vague or nonexistent pay policies further perpetuate the problem.
The more urgent question: how can organizations proactively promote pay equity early in the pipeline?
Solution #1: Replace salary negotiations with pay transparency
Salary negotiations occur quite often in the hiring process, so often that it’s sparked a plethora of online guides detailing insider “secrets” and “strategies that everyone in tech already knows — but you don't.” Knowledge of these strategies are a form of privilege, or the advantages granted to some groups, but not as readily to others (women, minoritized candidates, class migrants). Access to, and knowledge of your industry’s negotiation norms and salary ranges may come easily to industry veterans with extensive networks, or candidates with family members who may have previously navigated the hiring process. This knowledge may be far less accessible, however, to new hires who don’t have these types of social or family groups, or candidates who may be fearful of pushing back. If you come from a working-class immigrant family, for example, you might not know anyone who could share these insider strategies. Or if you’re already one of few Black or LGBTQ+ candidates, you might worry about risking your offer through contentious negotiations.
Several studies have found that salary negotiations exacerbate the pay gap for minoritized employees and the effect goes beyond the talent acquisition phase. Not only do salary negotiations place undue stress on recent hires to navigate these contentious conversations (and potentially lose income), they also often result in the perpetuation of internal pay inequities among their employees.
What your organization can do: Instill a no-negotiation policy and offer equal and transparent pay to new hires. Test prep startup Magoosh has eliminated salary negotiations by enacting clear salary tracks for each of their departments, all adjusted annually for market rates. Every six months, Magoosh’s HR team leads a committee-led leveling process for employees to progress in their salary tracks. This process helps companies attract and retain hires based on their actual merit, not their negotiation strategies.
Solution #2: Incorporate financial literacy throughout the candidate process
We often hear growing startups lament that they lose great candidates, especially great candidates from underrepresented backgrounds to the larger salaries of big companies. However, those same startups don’t always fully explain the financial upside of equity to candidates, and not everyone factors this critical aspect into their financial decision. A recent article in The Wall Street Journal mentions that the gender pay gap in terms of equity value is such that men average $104,902 while women average $26,361. The number one reason for this? Women often don't know what to ask for and when to ask. Another issue? The higher a woman rises through a company’s ranks, the more backlash she faces if she negotiates her salary assertively.
What your organization can do: Incorporate financial literacy in the hiring process. A lack of financial literacy is a key factor in perpetuating generational poverty in BIPOC communities. One of the organizations we work with provides their candidates a one-pager on equity. They detail what equity is, and provide an equity calculator to help candidates assess the financials of their offer. Even more, organizations such as Ellevest and GoodWealth host info sessions to help explain concepts of equity to job seekers. Investing in getting this right is critical: equity is a powerful competitive advantage for employers, as well as a wealth generator for candidates. Indeed, financial power is a tool for racial and gender justice, and can help minoritized employees build generational wealth in their communities.
Solution #3: Regularly Conduct Pay Equity Assessments
Here’s the thing: even companies that are proactive in their diversity, equity and inclusion efforts may not know the full extent of pay inequity among their employees. This is true especially for high growth companies that make numerous acquisitions and, in the process, inherit other companies’ people, culture, and pay scales.
What your organization can do: Regularly conduct pay equity assessments to truly close the pay gap across race, class, gender, and social differences. In 2015, Salesforce began conducting pay equity audits, working with outside experts to analyze their 17,000 employee population and determine potential unexplained differences in pay. The audit confirmed glaring pay gaps across departments—CEO Marc Benioff ultimately had to adjust the salaries of 6% of employees, mostly women. The Salesforce pay equity audits continue to occur annually to ensure equity even as Salesforce expands. Check out software such as Syndio which help auditing compensation a continuous process.
Why do these pay inequities occur in the first place?
National disparities in pay can be linked to histories of systemic racism and sexism. For Black communities, the legacies of slavery and rampant discrimination have limited opportunities for education and employment. Immigrant communities also face high rates of labor exploitation due to language barriers, citizenship status, and xenophobia. These histories explain occupational segregation, or the continued underrepresentation of marginalized people in high-paying industries like business and tech. Though history does play a huge role in pay inequities, these historical legacies do not absolve companies from their role in perpetuating the contemporary reality of pay inequities in our current workforce. Proactive efforts can help counter these realities.
Conclusion:
When companies address pay inequity in the hiring process, everyone benefits. Implementing strategies like these indicate that your organization is proactively working toward pay equity, and can also help prevent this issue from ballooning as your organization scales. As Salesforce, Magoosh, and other organizations have shown us, strong commitments like these show that your organization is truly putting in the work.
ModelExpand is a diversity, equity and inclusion consulting firm focused on radically accelerating the presence of historically underrepresented people in the workforce. ModelExpand’s work has been featured in Harvard Business Review, Forbes and CultureAmp. Need support embedding Diversity, Equity and Inclusion within your organization? Contact us below.
About the authors
Paria Rajai
Paria the CEO of ModelExpand, a DEI strategy firm that advances cultures of diversity, equity and belonging through strategic consulting, workshops, and events. ModelExpand has worked with organizations such as Lyft, Twitch, and Hulu. Paria has been selected as a mentor for the State Department’s Techwomen.
Victoria Huynh
Victoria is a writer, educator, and PhD student of Ethnic Studies at UC Berkeley. She's worked in grassroots organizing and social justice education for the last five years. In her spare time, she volunteers in Oakland with the Asian Prisoner Support Committee & the Center for Empowering Refugees and Immigrants.
