pay-equity-analysis

name	pay-equity-analysis
description	Use when running pay equity audits — covers method, privilege, axes to examine, remediation, and counsel involvement.

Pay Equity Analysis

Critical Legal Caveat

Pay equity work has serious legal implications. Conduct pay equity analyses under attorney-client privilege when remediation will follow. Engage qualified employment counsel before running the analysis, not after. The agent flags; counsel decides.

Disparate findings without privilege can be discoverable in litigation. Privileged analyses can be remediated discreetly.

Why Run It

The evidence on unexamined pay distributions is consistent: gaps emerge and grow without intentional examination. Hiring biases compound (salary history, negotiation premium, manager pressure). Performance rating biases affect comp adjustments. Time at level biases delay promotion-driven raises.

Regular pay equity analysis is the audit; it doesn't fix the underlying mechanisms — but it surfaces them.

Method (Regression-Based)

1. Define comparable groups: similar level, function, geography, tenure

2. Variables to include:

   • Comp (dependent variable; usually total cash, sometimes broken out)
   • Tenure
   • Level
   • Years of relevant experience (if recorded reliably)
   • Performance rating(s) over recent cycles
   • Geography
   • Demographic indicators (gender, race/ethnicity; legally protected per jurisdiction)

3. Run regression: comp ~ tenure + level + experience + performance + geo + demographic

4. Examine demographic coefficients:

   • Statistical significance
   • Magnitude (a 2% gap matters less than a 12% gap)
   • Direction (which group is paid less)

5. Investigate before assuming: legitimate explanations include role composition, recent hire timing, performance rating differences. But: those explanations may themselves contain bias (rating bias, promotion bias).

Axes to Examine

• Gender (incl. non-binary)
• Race / ethnicity
• Age (especially 40+ for ADEA)
• Disability status
• Parental / caregiver status (where data permits)
• Intersectional cuts (with cell-size minimums)

Cell-Size Minimums

For statistical reliability and confidentiality: n ≥ 5–8 per cell. Intersectional cuts often run into cell-size limits — surface in aggregate or qualitatively when statistics aren't reliable.

Remediation

When unexplained gaps exist:

1. Targeted adjustments: bring under-paid employees up; don't cut over-paid down (illegal in some jurisdictions; demoralizing in all)
2. Quartile-by-quartile: adjust within band positions, not just absolute pay
3. Communicate carefully: don't tell each individual the reason if doing so would expose the analysis methodology; instead, frame as comp adjustment within normal cycle
4. Re-audit: after the next refresh cycle (6–12 months), confirm closure
5. Address root causes: if bias in performance ratings is the driver, fix the rating system

Adjacent Audits

Pay equity is one piece. Also examine:

• Promotion equity: rates by demographic, time-in-level
• Performance rating equity: distribution by manager × demographic
• Hiring equity: offer-to-band ratio at offer
• Equity grant equity: equity allocations by demographic
• Bonus / variable comp equity: where applicable

A pay equity audit that ignores promotion equity catches only half the picture.

Common Failures

• Running analysis without privilege; findings discoverable
• DIY analysis using HRIS data extract without statistical rigor
• Examining only gender, missing race / age / disability
• Adjustment without addressing root causes (gaps return)
• "We have no gap" claim based on a single t-test rather than regression
• Vendor providing the analysis without context interpretation
• Public commitments without privileged remediation plan

What Reasonable Looks Like

After a properly-run analysis:

• Documented methodology
• Documented findings (under privilege)
• Remediation plan with budget
• Implementation
• Re-audit on cadence
• Continuous monitoring at offer time and comp cycle

Vendor vs. In-House

For larger companies (1000+): in-house people analytics + counsel partnership For mid-size (100–1000): vendor (Syndio, Trusaic, similar) + counsel review For small (<100): often too small for statistically meaningful regression; use comparator review with counsel

Cross-References

• compensation-strategist agent
• dei-strategist agent
• legal-and-jurisdictional-boundaries rule
• compensation-philosophy skill

Key References

• Bohnet, I. (2016). What Works: Gender Equality by Design.
• Industry practitioner work from Syndio, Trusaic, etc.
• Federal: Equal Pay Act of 1963; Title VII; Lilly Ledbetter Fair Pay Act 2009
• State patches: California Equal Pay Act, NY, MA, CO, WA, etc. — substantially expanded in past decade