Why Pay Equity & Transparency Are Integral Components Of Your DEI Strategy

Created By: Jessica Shatzel
May 25, 2021

Diversity, Equity and Inclusion are not new concepts in business culture and policy. However, for many, the civil unrest and public protests of race-based violence and injustice in 2020 led to a reevaluation of how these tenets are exemplified and embodied by both for-profit and nonprofit employers. Among the issues raised: inequity in compensation along race and gender lines.

In the United States, the wage gap persists across both race and gender. Payscale’s 2021 examination of the wage gap reveals that women earn 82 cents on average for every dollar paid to men. Black men earn 87 cents and Hispanic men, 91 cents on each dollar earned by white men. The issue is far more pervasive when analyzing the wage gap for women of color, with American Indian and Alaskan Native women earning the least at just 69 cents for every dollar paid to a white man.

In the nonprofit sector specifically, the gender wage gap is magnified at the executive level. On average, female executives earn 8.9% less than males; in organizations with larger budgets, the gap widens up to 20%. As many organizations work to strengthen their Diversity, Equity and Inclusion initiatives, pay equity – and transparency – play an integral role in the conversation.

WHY DOES THE WAGE GAP EXIST?

Pay disparities are a result of systemic and institutionalized racism and sexism in the workplace. For decades, women and people of color have been paid less than their white, male counterparts. As such, requesting salary history and making decisions based on previous compensation is problematic. It perpetuates the cycle of pay inequity, with hiring managers justifying paying less than market rate for talent. At the state and local level, change is underway with several states making it illegal to ask for a candidate’s current compensation or salary history. This policy instead encourages employers to ask for a candidate’s salary expectations or desired compensation range. However, challenges persist with this line of questioning as well. Demographic groups who have been historically underpaid or unfairly compensated are often times not equipped with the knowledge of competitive market rates or are not empowered to ask to be compensated at that level. Furthermore, studies have shown that women are far less likely to negotiate their salary than their male counterparts, widening wage gaps and furthering pay inequity. This has proven especially true in the nonprofit sector.

Employers committed to anti-racism and the tenets of equity in their organizations can take the following actionable steps towards bridging this gap:

1. Determine an organizational compensation philosophy.
2. Structure pay scales and salary bands based off of objective market research.
3. Commit to pay transparency internally and externally.

1. Determining an organizational compensation philosophy

Making compensation decisions based on candidate expectations or requiring candidates to negotiate their salaries does not support or develop equitable pay practices. Rather, employers must evaluate their own pay philosophy and establish hiring practices around predetermined salary bands and rates. Orr Group has been working with several clients undertaking this transformational work, leading compensation assessments and classification studies and partnering with organizational leadership to leverage market data to inform decisions. Through deep investigation of pay scales based on the intersectionality of geographic location, industry, and experience level, we are supporting our clients in determining titling structures and salary bands, while rewriting job descriptions and bringing current staff titles, responsibility and pay into this new framework.

2. Structuring pay scales and salary bands based off of objective market research

With internal structures and policies in place, future hiring and compensation decisions are rooted in equitable practices based on research and data; there is policy for hiring managers to reference. For example, salary bands ensure that employees with the same title level are compensated equitably and allow room for justifiable adjustments within the band based on tenure or education level.

3. Committing to pay transparency internally and externally

To advance pay equity, there has been an increased demand for pay transparency. Understanding the problematic nature of asking for candidate salary expectations or encouraging negotiation, many organizations are adopting transparent policies and including compensation ranges on open job postings. By leveraging established salary bands and internal pay philosophies, employers are becoming increasingly comfortable publishing numeric ranges rather than the elusive statement, “Salary commensurate with experience.” Additionally, an increasing number of external job boards are requiring compensation to be included on any postings published to the board. The Association of Fundraising Professionals is one such site, stating, “Aligned with our commitment to gender and racial pay equity, AFP is now requiring salary ranges for all positions posted on the AFP Global Job Board.” Transparency in pay takes the guesswork out of the process, eliminates the often-dreaded conversation around compensation and confirms if personal salary expectations are met in advance for all applicants. As more organizations adopt transparent pay practices, more compensation insights will become available, and the industry at large can move forward with equitable compensation practices across positions.

Diversity, Equity and Inclusion are not siloed pillars in your organizational culture. In order to attract and retain diverse talent, practices and policies must be equitable and inclusive, especially with regards to compensation.