What is a Pay Equity Software? Why Do You Need One?

In its early stages, a company has but a handful of employees. 

Based on instinct and limited knowledge, compensation decisions are often made arbitrarily during this formative period.

More often than not, the workforce expands exponentially after that, and the intricate and diverse needs of a vast employee base cannot be appropriately addressed through random factors alone, leading to a lack of objective compensation structure.

With this comes issues like pay disparities, one of the primary reasons for employee discontent. There is a theory by John Stacey Adams, the Equity Theory, that employees who feel their contributions are not duly rewarded tend to become disengaged due to a lack of workplace equity. 

This article will discuss the role of pay equity software and how it can help you achieve a fair and transparent compensation structure for your employees. 

What is pay equity software?

Pay equity software is an AI-driven solution that helps organizations create a more fair and equitable pay structure for their employees. It also helps you understand the deep-rooted biases in your compensation structure to reduce the pay disparities existing in your organization by doing an equity analysis.

Pay equity software integrates with the existing HR systems in an organization to derive real-time data on compensation and benefits to help detect any pay inequities and hence gives you a chance to adjust your pay bands to create equitable workplaces.

What are the benefits of using pay equity software?

There are numerous benefits of using pay equity software:

• Using pay equity software reflects your efforts to make your compensation structure more transparent and fair which builds employee trust and therefore leads to improved employee engagement and retention for your larger organization. 
   
• Since pay equity software is AI-driven, it provides us with data-driven insights that make your compensation planning more objective and accurate with ongoing monitoring of internal pay equity to understand your employee behavior better. 
   
• Labor laws for pay transparency and pay equity are different in different geographies. Pay equity software ensures compliance with labor laws and transparency laws to help you avoid legal consequences in the long run.
   
• If a company employs pay equity software in its compensation structure, it improves its reputation as an employer of choice for establishing a fair and transparent compensation process and makes your organization attractive to top talent by keeping up-to-date with the latest compensation trends. 
   
• It is important to consider market fluctuation and changing HR trends to make sure your compensation offerings remain equitable and competitive for the entire workforce. Pay equity software provides real-time compensation data to help you create market-competitive pay bands that promote fair pay practices. 
   
• Pay equity software contributes significantly to the DEIB efforts in an organization. As you identify the gender pay gap, and pay gaps based on race, ethnicity, and other factors, it builds employee trust and confidence for lower employee turnover rates. 

What are the important pay equity analytics?

Studying the right metrics is important to establish a streamlined process of eliminating pay disparities. Let’s have a look at some of the major pay equity analytics that you need to consider when planning your employee compensation:

Adjusted vs. unadjusted pay gap analysis

An unadjusted pay gap determines the total difference in average compensation between two specific groups like different ethnicities, races, genders, and more factors. This study can be done by using pay equity analysis software and create more inclusive workplaces.

Adjusted pay gap is a study of pay inequities arising due to factors like job levels, job roles, functions, geographies, and more. This pay gap can be calculated through regression analysis where employee compensation is the dependent variable and the factors mentioned above are independent variables. 

Compa-ratio analysis

A compa-ratio analysis is one of the best ways of detecting pay disparities existing within an organization. There are several ways to study the compa-ratio of employee compensation:

• If the compa-ratio of an employee is 100%, this means that the employee is being paid exactly at the mid-point of the salary range.
   
• A ratio below 100% indicates that the individual is being paid below the mid-point in the salary range and hence needs to be compensated fairly.
   
• Compa-ratio of more than 100% suggests overcompensation so you might need to do a pay adjustment for the employee or promote them to a higher level.
  
  

Pay distribution analysis

Understanding overall patterns in your equity audits is the key to reducing pay disparities in an organization. Doing a pay distribution analysis will help pay equity experts understand the existing trends in your salary distribution by finding various clusters like:

• Skewed distributions - indicate systemic pay gaps at an employee level.
   
• Clustering of lower pay - indicates a shortage of career advancement opportunities.

Time in position and tenure analysis

Time in Position (TIP) and tenure analysis is an automated analysis that helps compensation professionals find how long an individual employee has been in a role without getting a promotion. Let’s have a look at some of the terms related to TIP:

Average TIP by Demographic - If the average TIP is longer, this indicates delays in promotions and a situation of under-compensation that needs to be rectified with equitable pay practices.

Tenure-Pay Correlation - This is used to compare the pay of employees with similar tenure to adjust any pay gaps that were detected in the organization with equity solutions. 

How do you choose the right pay equity software?

Let’s talk about some features that you should consider while choosing pay equity software for your pay equity issues:

• The platform compatibility with your existing HR processes is very important if you want to have a seamless and efficient experience. Look for solutions that have customizable integrations, provide customizable reports, and reduce the scope of manual processes by employing statistical methods. 
   
• The overall dashboard should be easy to navigate so that compensation professionals can process complicated pay data to identify gaps in the pay structure. So, the software should be tech-focused to provide a better user experience and a comprehensive analysis.
   
• Labor laws are evolving consistently given the dynamic nature of the HR industry. Pay equity software should provide adequate regulatory compliance support to help companies avoid any legal consequences and also boost employee morale by abiding by the pay equity regulations.
   
• Having detailed insights into market pricing, pay equity trends, and compa-ratio analysis helps you create fair compensation practices and the right software will provide you with dynamic compensation benchmarks to help achieve your pay equity goals. 
   
• Select software that has scalable and agile analysis tools. Since your organization keeps evolving in terms of compensation maturity, your pay equity software should have essential tools to be able to keep up with a rapidly evolving compensation structure by providing a detailed analysis of your pay structure.
  
   

Role of CompUp in Eliminating Pay Disparities

CompUp is a compensation management solution that has multiple features that help organizations move towards fairer compensation practices with a detailed action plan.

• CompUp provides real-time compensation data to help compensation managers create market-competitive pay bands that are fair and equitable for a bias-free workplace.
  
   
   
• The compensation management software has an increment distribution dashboard that will provide an overview of the employee pay gaps across different roles and functions in the entire organization. The holistic view helps rewards teams determine any pay gaps in their salary structure with a comprehensive compensation analysis.
  
   
   

• CompUp also allows companies to do specific pay gap analysis based on factors like gender, race, ethnicity, and more for a better grasp of the pay inequities existing within the organization. The advanced analytics leads to companies making informed decisions in their compensation planning. 
  
   
   

  

Try the platform now to learn more about how CompUp can help you make fair pay a reality for your employee lifecycle by bringing in a pay equity revolution.