A well-structured pay equity analysis helps organizations maintain fair compensation practices and strengthen employee loyalty and retention.
Blaise Radley
Editorial Strategist
Workday
Pay is one of the clearest expressions of how an organization values work. When compensation practices are consistent, explainable, and aligned with job titles, employees have greater confidence in the company’s decisions.
That confidence matters: Workday research finds that fair compensation is the top driver of loyalty among tenured employees, at a time when 50% of global organizations report difficulty retaining their best talent. Identifying pay disparities and addressing them should be top of mind for leaders.
A proactive approach to compensation is a powerful lever for employee retention and engagement. A pay equity analysis gives organizations a structured, data-driven way to validate compensation outcomes, reinforcing employee trust and ensuring their practices consistently support their people strategy.
Fair compensation is a top driver of loyalty among tenured employees.
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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
Specialized 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 organizations 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 organizational 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. Organizations commonly use job family and level as a starting point, adding location, business unit, or labor 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, leveling 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, specialized 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 organizations 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 organization.
Leading organizations 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 organization’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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