Follow a clear seven-step framework—from gathering workforce data and grouping roles to running statistical comparisons and planning remediation.
Patrick Evenden
Head of Thought Leadership, EMEA
Workday
Pay equity is the practice of ensuring that employees are compensated fairly for substantially similar work after accounting for legitimate, job-related factors. Those factors may include:
Role and level
Scope of responsibility
Location
Relevant experience
Performance
Specialised skills
Applicable collective bargaining requirements
Achieving pay equity doesn’t mean that every employee in a similar role must earn exactly the same amount. Rather, it means that differences in pay must be consistent, explainable and grounded in objective business criteria, and not influenced by gender, race, ethnicity or other protected characteristics.
A pay equity analysis helps organisations test whether their compensation outcomes meet that standard and identify where closer review or action may be needed.
Addressing compensation disparities is one of the biggest challenges in HR – but it’s also an opportunity to build pay practices that drive higher loyalty and trust. To do that effectively, pay equity analyses need a defined scope, reliable data, consistent methodology and plan to act on results.
These seven steps provide a practical framework for conducting a pay equity analysis:
Define the purpose and scope of the analysis
Gather and validate workforce data
Group employees for meaningful comparison
Establish legitimate drivers of pay
Evaluate pay outcomes and investigate gaps
Plan and implement remediation
Make pay equity part of compensation governance
Start by clarifying what the analysis is intended to assess: the full workforce, a country or business unit, a particular compensation cycle or a period of organisational change. Define the employee population, pay components, time period and demographic characteristics to be reviewed, subject to applicable laws and available data.
Base salary is often the starting point, but variable pay, commissions, bonuses and equity may also be relevant depending on the roles and compensation practices in scope.
Start by bringing together the information needed for a complete view of the workforce, drawing from HR, payroll, compensation and talent systems. This should include core employee and role details such as job family and level, location, employment status, pay, tenure, experience, performance, promotion history, credentials and – where appropriate – demographic data.
The quality of the analysis will depend on the quality of its data foundation. Before moving forward, review the data for gaps, duplicate records, inconsistent job classifications, currency variations and outdated employee or pay information. Resolving these issues upfront creates a clean and aligned data set that stakeholders can trust.
The quality of a pay equity analysis depends on the quality of its data foundation.
Determine which employees perform substantially similar work and should therefore be compared. Organisations commonly use job family and level as a starting point, adding location, business unit or labour market where those factors meaningfully affect pay.
Groups should be specific enough to reflect comparable job responsibilities but large enough to produce useful results. Clear job architecture, levelling criteria and salary ranges make this work substantially easier.
Document the business-related factors that may appropriately influence compensation. These may include role and level, scope of responsibility, location, relevant experience, performance, specialised skills, certifications, shift differentials and collective bargaining agreements.
Only include factors that reflect actual, consistently applied compensation practices. For example, if performance affects pay, performance ratings should be reliable and clearly connected to compensation decisions.
Use a combination of descriptive analysis, statistical analysis and individual case review. Broad comparisons of average or median pay can identify patterns for further investigation, while regression analysis can help assess whether differences remain after accounting for approved pay factors.
Statistical results should not be treated as final conclusions. Review individual employee histories, hiring decisions, promotion timing and market adjustments to understand the context behind potential gaps.
Review findings with the appropriate HR, compensation, finance and legal stakeholders. Determine whether a difference is supported by a legitimate explanation or requires a pay adjustment, additional review or a change in process.
The plan should outline required adjustments, budget, timing, approvals, documentation and any changes to hiring, promotion, salary-range or exception-management practices. The goal is not only to address current gaps, but also to reduce the likelihood that they recur.
A pay equity audit should be a recurring compensation practice. Many organisations conduct reviews annually in connection with merit or compensation planning, while periods of rapid growth, restructuring or expansion may call for more frequent analysis.
Use the findings to strengthen salary structures, hiring guidance, promotion decisions, manager training and compensation controls. Clear ownership for data quality, remediation and leadership reporting helps make the process sustainable over time, leading to better pay structures and stronger pay transparency.
Pay equity is not a one-time compliance exercise or a narrow review of salary differences.
Pay equity is not a one-time compliance exercise or a narrow review of salary differences. It is an ongoing discipline that ensures the decisions shaping compensation – offers, promotions, performance-based rewards, market adjustments, pay exceptions and the like – are applied fairly and consistently across the organisation.
Leading organisations use pay equity findings not only to address immediate concerns, but also to strengthen the systems and practices that influence pay over time. That means strengthening job architecture, clarifying pay practices, improving data quality and creating greater accountability for compensation decisions.
When embedded into regular compensation processes, pay equity gives leaders a stronger foundation for making pay decisions that are consistent, explainable and aligned with the organisation’s values and workforce strategy.
Is your approach to strategic workforce planning reactive, not proactive? Download this whitepaper from Workday and KPMG to learn how you can gain agility by unifying HR and finance data.
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