What Is Pay Equity & How Is it Related to Employee Motivation?

What Is Pay Equity

Work is a cycle. Employees put in their effort and time in exchange for the value they offer employers or clients. That value translates to compensation in the form of wages, salaries, and benefits. The money in workers’ wallets gets used to pay for food, shelter, clothing, transportation, and other essentials.

When this cycle works well, we have a healthy system. Money flows towards employees and then back into the economy, where it buoys businesses so they can hire and pay workers more. Everyone wins. On paper, of course.

Unfortunately, our system is not always healthy. There is a fundamental inequity in the way we’re paid, and the consequences are far-reaching not only for individual workers, but for the economy as a whole.

What Is Pay Equity?

Pay equality means that two workers doing the same or similar job are paid the same wage, including any same bonuses and commissions. In the United States, the Equal Pay Act requires that women be paid the same as men for equal work. Title VII of the Civil Rights Act of 1964 (Title VII), the Americans with Disabilities Act of 1990 (ADA), the Age Discrimination in Employment Act of 1967 (ADEA), the Rehabilitation Act of 1973, and the Genetic Information Nondiscrimination Act of 2008 (GINA) make it illegal to discriminate against workers because of their religion, sex, race, color, gender identity, sexual orientation, disability, national origin, age (if they are 40 or older), pregnancy status, or genetic information. These laws make it illegal to pay two workers different wages on the basis of one or more of these protected characteristics.

A working pay equity definition is slightly more nuanced. Pay equity refers to employees getting the same pay for work that adds the same value to employers. This can be tricky. Workers may have different levels of experience and education as well as different job titles but may be contributing the same value. To ensure pay equity, employers need to look at the contributions each worker makes to the company, not just the average wage paid for the role.

Pay equity doesn’t mean every worker is paid the same. Unlike pay equality, pay equity doesn’t just refer to some workers with protected characteristics. Rather, it’s an idea that everyone deserves fair pay for what they contribute.

Why Is Pay Equity Important?

Not everyone earns the same amount. In 2022, National Equal Pay Day was held on March 15. This date represents how long women have to work, on average, to earn equal amounts as men. Women have to work from January to December and then to March of the next year to earn what men earn, on average, from January to December alone.

Put another way: in 2019, the median wage was $53,544 for men and $43,394 for women. There are many reasons for this, including hours worked, age, education, and childcare responsibilities. Industry also plays a role. Some sectors, such as private equity, have historically been male-dominated.

The wage gap isn’t just based on sex. LGBTQ+ employees in the United States make about 90 cents for every dollar earned by the average worker. Workers living with a disability earn 26% less when compared with employees who do not live with a disability. Black men make an average of 88 cents and Black women make 76 cents for every dollar made by white men. Latina women face the largest pay gap, earning just 57 cents for every dollar made by white men in 2021. This pay difference can amount to losing $1.2 million over the course of a Latina woman’s career.

Unequal pay also affects every part of a person’s life. Those who earn less may not be able to access the same quality educational opportunities for themselves and their children when compared with workers who earn more. Employees who earn less may need to work longer hours to make up a wage gap, enjoying a less healthy work-life balance. In fact, lower pay has been linked to worse educational outcomes, worse physical and mental health, and a host of other challenges.

When we address pay equity, we show we value workers. We improve their lives and the lives of their families. We create a better workplace and a better economy. When workers are paid fairly, they have more disposable income to invest in businesses, which boosts the entire economy.

How Is Pay Equity Linked To Employee Motivation?

Uneven pay sends a message about which workers are valued the most. We’re perpetuating injustice through unequal pay.

We’re also impacting employee motivation. If a team member sees they are paid less than others at the same company, that employee may feel less loyal and less motivated. In fact, one of the top predictors of job satisfaction is whether an employee feels they are paid fairly. Employees are highly motivated by pay, with studies showing that managers undervalue its importance as a motivating factor.

When workers feel they are paid unfairly, they may feel resentment. They may not be motivated to make a larger contribution because they already have to work harder just to earn as much as someone else.

What Can We Do To Ensure Pay Equity?

Now that we know pay equity is important, how can we make sure it happens? No company sets out to pay unfair wages, especially with laws prohibiting it. Often, gaps in wages happen when we don’t question our processes. Here’s how to change that.

  • Try pay audits. At least once a year, look carefully at who is earning what at your company. Evaluate how you calculate wages at your organization. Consider whether there might be a fairer way of calculating compensation, based on how much each worker contributes.
  • Use metrics. When running your audits, look at pay rates based on gender, age, & race. This can help you determine whether there is a wage gap within your own company.
  • Evaluate hidden biases. Once you look at pay rates based on gender, age, & race, you may notice that higher-paid positions & promotions routinely go to white workers or male employees. If you do notice a gap, evaluate whether unconscious bias may be contributing to unfair pay.
  • Be open about pay. Let employees understand how pay is calculated & give workers a path to increase their income. Studies have shown when workers felt their employer was transparent about pay, 91% agreed that their employer also paid teams fairly.
  • Commit to workplace Diversity, Equity, & Inclusion (DEI). Pay equity doesn’t happen in a vacuum. Subtle exclusion in the workplace can affect workers’ ability to earn a fair wage. For example, if deskless workers are routinely left out of work discussions with leadership, their contributions may not be seen, & their pay may not reflect the value of their work. On the other hand, by promoting & mentoring employees across departments & roles, you may be helping workers earn what they are worth by giving them the chance to show & grow their talent.

How Can Diversio Help?

To address pay equity, you need to address Diversity, Equity, and Inclusion (DEI) at your company. By making your organization fairer and more inclusive overall, you open the door to fairer compensation, too.

You don’t have to embark on this alone. Diversio offers field-tested, AI-powered, and people-first solutions to make a measurable difference. Diversio can help you gather, analyze, and benchmark DEI data, so you can see whether some workers are being left out of opportunity at your organization. Diversio Academy offers training to help you update recruitment and hiring practices, address unconscious bias, and more. We partner with you to help you fulfill your commitment to equal pay, equal opportunities, and creating an inclusive culture.

See for yourself. Schedule a demo today.

Diversio DEI Expert
Diversio DEI Expert
Diversio's DEI expert shares everything about diversity that you need to know.
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