Pay Equity vs. Pay Equality: What’s the Difference?

You’ve likely heard of the gender pay gap, or maybe you’ve seen articles around mid-March about Equal Pay Day—celebrated each year on March 15, Equal Pay Day shows how far into the next year women have to work to make as much as men have the previous year.

The unfortunate reality is that pay gaps based on gender, along with race or other protected characteristics, are still very present for your employees. Globally, women make only 77 cents to every dollar men make. To recognize and solve such equity gaps, we need to understand the difference between pay equity and pay equality. These terms are often used interchangeably but actually mean different things.

Because both are so important and related to solving equity gaps, let’s talk about their differences and how your company can approach achieving both.

Pay Equity: Equal Pay for Similar Work

Pay equity means paying employees with similar job functions comparably similar wages, regardless of their gender, race, ethnicity, or other status. Within a company, this means employees in similar job roles, like two engineers or two customer service representatives, will receive similar compensation because they provide substantially similar work. The employer pays them based on their job role and not the person doing the role.

How to Determine Pay Equity and What Constitutes Unequal Pay

Employees performing similar jobs won’t necessarily be paid exactly the same wage. It’s perfectly reasonable and legal for employers to consider the following factors when determining compensation:

For example, going back to the two engineers, if one engineer has a decade more experience than the other engineer, their employer would be within their right to offer the more experienced engineer a higher wage since that employee would presumably be able to take on more responsibilities or require less supervision.

Unequal pay becomes a problem—and illegal—when you eliminate all these factors and see pay discrepancies that can only be accounted for based on race, gender, or other protected characteristics.

When employers discover these discrepancies, the Equal Pay Act requires they raise the salaries of the affected employees, rather than cutting salaries for other employees in the business, to achieve pay equity.

We’ll go into more detail about how employers can solve pay equity problems below. But first, let’s look at the definition of pay equality and how it differs from pay equity.

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Pay Equality: Everyone Has the Same Opportunities

Pay equality is a broader concept than pay equity, examining whether all employees have the opportunity to earn the same wages. This goes beyond comparing people in similar roles and looks at compensation across positions to determine if there’s equal representation of gender or race in positions across the pay spectrum.

Pay Equality in Practice: The Gender Pay Gap

To illustrate the concept of pay equality, let’s compare our two hypothetical engineers again. This time, let’s add in gender, with one being a woman and the other being a man. If they both have the same level of experience and education, they should be paid the same—that’s pay equity.

If these engineers aren’t paid the same, that’s both illegal and an example of unequal pay. It also fits in under the larger umbrella of pay equality. While both pay equity and pay equality point to systemic bias against certain employees, pay equality is concerned with the ways in which that bias prevents people from even getting the opportunity to attain certain positions, staying in those positions once they get them, and from advancing at a commensurate rate with other demographics.

If pay were equal, you’d not only see female engineers being paid at similar rates as their male peers with similar backgrounds, but you’d also see women across all occupations being paid equal wages to men across all occupations. But that’s not really the case, which is why it’s so important to pay attention to this aspect of pay inequality.

Due to persistent bias and societal pressures, women earn less than men in general (82 percent less in the U.S.), and they also accumulate less wealth. There’s also fewer women and historically underrepresented minority groups in leadership roles, which creates a discrepancy in overall pay rates. While women make up to 50.7 percent of the college-educated labor force in the U.S., less than a quarter of C-suite jobs in the top 1000 companies are held by women.

Again, these differences in pay and career attainment come from biases and prejudice that go beyond just a single bad employer. For example, one myth surrounding the pay gap is that women just need to ask for pay raises more often, but women who ask for raises are seen as demanding and are less likely to receive them. Likewise, in a phenomenon referred to as the motherhood penalty, men who become parents are seen as more reliable while women get marked as unreliable, unproductive, and unfit to take on leadership activities.

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Use Pay Equity as a Foundation Toward Pay Equality

Tackling both pay equity and pay equality can feel like an overwhelming task, but working to solve these problems can pay huge dividends for your company. According to research by McKinsey:

So making sure you solve any pay equity or pay equality disparities within your organization is an important step.

If your company is looking to get started, work on pay equity first. It’s a specific and quantifiable way your company can track whether you’re removing biases in compensation practices. While pay equality is important, it cannot be achieved until you’ve created a foundation of pay equity throughout your organization.

Here’s a guide to calculating, implementing, and maintaining an equitable pay structure in your organization.

How Do You Calculate Pay Equity?

It can feel like a big job to get started on an equal pay analysis, but here’s where to get started:

  1. Begin by gathering data. This data needs to track compensation, gender, race, education, experience, performance, job descriptions, and whatever else your company may use to calculate compensation.
  2. Analyze the data. Control for different factors like gender or educational background to see where and why pay inequities may exist.
  3. Find and correct unequal pay. Discrepancies in pay that can’t be explained by legitimate reasons need to be examined and corrected.

How Do You Address Pay Disparity?
What do you do if you find a pay disparity in your organization? It’s a problem many companies face. The good news is that it likely won’t be hard to fix. When Adobe did an internal pay equity audit, they found pay disparities affected less than 5 percent of its global employees, and they were able to provide an equity adjustment in salaries that accounted for less than 0.2 percent of its annual payroll costs.

Intel also did a pay equity analysis. By 2018, Intel achieved pay equity based on salaries alone. But as Intel continued to audit its compensation strategy, it found large equity gaps due to some employees receiving company stock shares. By 2020, they achieved pay equity based on full compensation, including stock grants and other benefits.

How Do You Maintain Pay Equity?
Once you’ve adjusted your current employees’ compensation to ensure all employees are compensated fairly, you can begin to address how to ensure pay disparities won’t become a problem in the future.

Here are some ideas:

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What Are the Benefits of Pay Equity?

Salary is a big reason people stay at or leave jobs. Ensuring your employees are paid market rates and that those rates are the same as other employees doing similar work will have a range of benefits, including:

When employers show they care about issues that affect their employees, like pay equity, employees are more likely to want to help their employer succeed.

And once you’ve established a foundation of pay equity, you can begin to analyze how to achieve pay equality. Because you’ve already begun gathering data for pay equity, you can now start to dig deeper into the external issues that are preventing your company from creating truly equal opportunities for employees across a spectrum of experience, capabilities, potential, and performance.

Analyzing Pay Equality to Give Everyone Equal Opportunities

Once you’ve set up, how do you determine pay equality? Look at the salaries of women in your organization, regardless of role, and compare them to the salaries of men in your organization (and also compare the salaries of white employees to those of employees of color). Are the rates equal? Is there a difference? If there’s a difference, that’s pay inequality.

Discovering these pay discrepancies doesn’t lead to quick and easy solutions. Companies will need to examine why these discrepancies across gender, race, and roles may have happened and look at long-term solutions to fix them. For example, if women aren’t being promoted as frequently as men, you can dig deeper into why that is by asking:

Start with Your Promotional Process

You might think your promotional process is already ironclad, but there’s plenty of room for bias to creep in. According to research from MIT, though women receive higher performance ratings than men, they’re promoted less frequently because they’re seen as having less potential, which then results in fewer women being promoted.

That’s why promotions are the number one thing you need to change if you want to move toward greater pay equality. Base promotions on performance and tenure, not potential. Basing your promotions on an employee's potential opens the door for unconscious bias because it’s not based on observable behavior.

Other ways to create more equal opportunities include:

As employees move through these programs, are promoted, and begin to hold more positions across the pay spectrum at the company, that’s when you’ll see pay disparities begin to shrink.

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