Analytics Are Key to Ending Gender Pay Inequity

Organizations often use the inexpensive and expedient approach of raising the salaries of the most underpaid women to bring about women’s pay parity with men. University of Maryland Robert H. Smith School of Business Associate Professor Margrét Bjarnadóttir says there are two reasons why this doesn’t work, “inequity isn’t usually equally spread throughout the whole organization and typically there’s a lack of well-paid women. So, if you’re always focusing on negative outliers and people who are really underpaid you’re not addressing this bias in your pay structure, which is often the lack of well-paid women.”

What often happens is a company has more men who receive more than their expected salary than women who do so. Women often get stuck at average or just above expected pay.

So how do you properly fix the problem?

The issue is addressed in recently published research Bjarnadóttir co-authored with David Anderson and David Ross, professors at Villanova University’s Villanova School of Business and the University of Florida’s Warrington School of Business Administration, respectively. She and David Anderson are cofounders of PayAnalytics, a company that makes compensation analytics software to help firms monitor and address demographic pay gaps. Ross serves as an advisor to the company.

Through their research, they have designed an algorithm that measures whether an employer has a pay gap and suggests salary adjustments to close it. Bjarnadóttir says “what we do is study how pay is determined,” for instance by, “experience, merit, whether or not you’re a manager, etcetera, and then we study whether these factors that drive pay account differently for men and women or white and black people or any other demographic groups. When you find there’s a difference, that’s what we correct.”

The researchers correct biases in the pay structure to close inequities in pockets of a company where pay is most unequal, so when raises are given to workers, the company targets employees that are indeed facing inequities. It’s done in a way that doesn’t lead to wage compression, which refers to having little difference in pay between employees regardless of differences in knowledge, skills, experience, etcetera. “We don’t focus on whether or not somebody is paid less than what we expect, but on who is facing the most bias and those are the employees that we target for raises.”

Achieving equal pay for equal work can take a while for some firms. Bjarnadóttir says, “often when organizations are studying their pay equity for the first time, they have what I call a legacy gap – they’ve been making these decisions for a long time, and pay inequities have built up. So there needs to be an investment (in correcting it). Typically, there’s a need for an initial investment that is larger than what it will be in the future, but you need to invest in closing these pay inequities.”

Increasingly companies are taking a proactive approach to pay equity, making managing it part of their day-to-day operations, by incorporating pay equity directly into compensation decision processes.

The Research Bridging the Gap: Applying Analytics to Address Gender Pay Inequity has been published in Production and Operations Management.