5 ways to close the gender pay gap

HR leaders want to know how to close the gender pay gap. Why? Because time and time again, research has shown that improving pay equity improves not only talent management and employer brands, but also and financial outcomes. Still, progress on closing the gap has been slow. On March 12, 2024, the US Department of Labor reported that the national gender pay gap for full-time employees was 16%.

The causes of gender pay gaps are multiple and varied. Though paying men and women differently for the same or equivalent work—an illegal practice—still happens, there are several other more impactful factors that contribute to the gender pay gap. According to the International Labor Organization, these include:

• Representation gaps in leadership.
• Parenting responsibilities tending to fall more on working mothers, which leads to more part-time work or time out of the workforce.
• Feminized jobs that are undervalued and tend to pay less.
• Education in certain disciplines associated with higher paying jobs (i.e., STEM).

To make sustainable progress in reducing the gap, employers must consider these factors and how to influence them. In this guide, we set out five ways to do this.

1. Review policies and documents

Review policies and documents related to pay to ensure that they are fair, objective and transparent.

Policies and documents related to pay, such as the organization’s compensation policy and compensation philosophy, can have a significant impact on the organization’s pay gap by influencing not only pay practices, but also perceptions.

A compensation policy describes the organization’s practices related to employee pay. This includes setting initial pay, how raises are calculated and other pay-related processes. A compensation philosophy, describes the organization’s approach to compensation, and its market position relative to other employers.

Employers should regularly review the scope, content and implementation of these and other pay-related documents to check that they account for legislative changes and are fair, objective and transparent.

When reviewing policies, consider the following:

2. Practice pay transparency

Promote pay transparency wherever possible with current and future employees

Providing salary information in job posts is a proven method of ensuring that pay practices are fair and free from gender bias.

In fact an analysis by Brightmine, formerly XpertHR, found that where an employer is transparent over salary in job posts, they’re more likely to have a lower gender pay gap. The same applies to the gender bonus gap. Our analysis also found that the proportion of females occupying top roles was highest in organizations that reported all job posts contained salary information.

3. Limit managerial discretion

Limit managerial discretion over pay, and where it exists, ensure pay decisions are reviewed independently

Research from the University of Florida and Emory University found that managers continue to hold both express and implicit gender biases, which increases the likelihood of biased decision-making. Biased decisions related to an employees’ performance, promotional opportunities, and development will contribute to gender wage gaps over time.

To prevent biased decision-making, limit managerial discretion in decisions that impact employee pay either directly or indirectly. In cases where some level of discretion is necessary, put checks in place to review decisions independently. Two important decisions of this nature include starting pay and performance reviews.

Starting pay

Starting pay has a significant impact on pay inequity and pay gaps within the organization. This is because every time an employer fills a vacancy, it needs to make decisions about what pay and benefits it will offer to the successful job applicant.

To reduce the likelihood of pay inequities and pay gaps in starting pay, it’s important to always confirm that the job is correctly benchmarked against internal comparators. This can be done through a job evaluation exercise.

A job evaluation exercise is the process of assessing the content of a job by reference to its core components, such as skill, effort and responsibility, to place jobs in order of hierarchy. It establishes a basis for all stakeholders (including management, employees and trade unions) to agree on the relative value of jobs to form the basis of career structures within the organization and to establish a fair pay system.

A job evaluation is the most reliable way for employers to identify where women and men are doing work of equal value, for equal pay purposes. And, it provides an independent review of starting pay decisions.

Performance reviews

Another decision that contributes to pay gaps is the performance review. Performance reviews generally lead to incremental pay increases (also known as merit pay), and they’re also used to determine whether an employee should recieve a promotion or qualify for development opportunities. They’re also referred to when an employee would like to transfer within the organization.

Unfortunately, performance reviews are often fraught with managerial bias, and there’s a level of unavoidable discretion. But there are strategies to increase objectivity, such as:

• Training managers and anyone else involved in performance on avoiding bias.
• Using evaluation rubrics.
• Including review prompts for managers that limit discretion (e.g., prompts that require managers to highlight a specified number of employee strengths).
• Including a second level review of all performance reviews.

4. Monitor decisions over time

Monitor the impact of decisions that may influence pay trends or patterns along gendered lines

Over time, decisions influencing pay that initially seem objective may begin to show trends or patterns along gendered lines. This includes performance-related pay increases, promotions, development opportunities and other factors that can ultimately contribute to the pay gap. Monitoring these decisions over time can help you evaluate whether your policies and practices are reducing or contributing to the pay gap.

Yearly reviews

To monitor trends, review the distribution of assessments and pay increases across each grade or job level after each annual round of performance reviews. Where there is bias towards or against a particular group of employees, this should be investigated. In addition to reviewing how these assesments are distributed by gender, review other employee characteristics, such as employee ethnicity or disability status.

It’s common for part-time workers to benefit less from performance-related pay schemes, so pay particular attention to this group of workers and others on non-standard working patterns.

Monitor development opportunities

Similarly, it’s important to monitor selection for development opportunities by gender. Creating an environment in which all employees are encouraged to develop and realize their goals will help close the pay gap by promoting equity and improving the balance of representation in leadership and other historically gendered job roles.

Touchpoints that impact on employees’ ability to progress in the organization include:

• Learning opportunities.
• Mentoring schemes.
• Promotion opportunities.
• Knowledge, skills and competency development.

5. Conduct pay equity audits

Conduct pay equity audits to proactively identify and correct disparities

While employers are under no obligation to carry out an pay equity audit, they do have a responsibility to ensure that employees receive equal pay for equal work. The most effective way to be confident of this is to carry out an audit.

A pay equity audit is a structured risk assessment tool that enables you to:

• Identify where men and women are doing equal work and compare their pay.
• Identify and explain the reasons for any pay differences.
• Eliminate any pay differences that are either directly or indirectly discriminatory.

Pay equity audits also provide you with the information you need to make targeted adjustments that will ensure compliance with the law and help close the pay gap. If you have advanced pay equity software, you can also measure pay gaps across multiple demographics.

Though pay equity audits can be extremely effective, when done incorrectly, they can lead to innaccurate results, low morale and even lawsuits if identified inequalities are not addressed. If you’re conducting your first pay equity audit, take time to make thorough preparations. This includes the following:

• Acquiring the right data.
• Setting objectives.
• Gaining buy-in from stakeholders.
• Acquiring a pay gap software solution.

Accounting for Intersectionality

In addition to implementing the five strategies above, leaders need to account for one more factor: intersectionality. That is, the compounding discrimination people face when they hold multiple identities. When it comes to pay, data consistently shows that intersectionality plays a role in widening pay gaps, as women who are also black or latina face larger pay gaps than white women.

To account for intersectionality, you’ll need visibility over not only gender, but also other employee demographics that impact pay. It will also help to ensure that the pay equity strategy aligns with the greater diversity, equity and inclusion (DEI) strategy, and that DEI stakeholders are kept in the loop on pay equity initiatives.

Conclusion

Clearly, the answer to how to close the gender pay gap is not simple. It requires a holistic approach that includes implementing fair pay policies, promoting pay transparency, monitoring decisions and more. Still, by addressing these issues collectively, organizations can strive towards achieving equal opportunities, economic empowerment for all genders, and business success.