It’s awesome that you’re making in-house pay equity a priority. You’re on-trend, plus it’s the right thing to do. But how does your company size up when it comes to what other firms are paying? Here’s what you need to know about ensuring internal and external pay equity, and which approach merits more attention.

The Issue

When crafting a pay structure, companies must think about both internal and external equity. The former means making sure that employees who perform similar jobs are paid similarly. External equity means comparisons to what the industry is paying.

Creates a “Fair” Culture

It’s no secret that if you want a motivated, all-in workforce, you’ve got to create a culture in which people feel like they’re paid equitably. If an employee sees that Matt four cubicles down appropriately makes no more than she, that cultivates a milieu of fairness that will not only help productivity but will boost the company’s reputation, positioning it to lure top talent. Whether you pay fairly or not, word will get out, particularly in this age of online compensation forums and the like. The old days of telling employees to keep their pay to themselves, and expecting that to work, are over.

Results in Fewer Lawsuits

It’s a fact: while basing what your company pays on what the market is paying might get you top-shelf talent, making internal pay equity more of a priority lessens the risk of litigation. If Michael and Cassandra earn different wages in basically the same job, you’re opening yourself up to lawsuits. What’s more, thanks to the Lilly Ledbetter Fair Pay Act of 2009, employees can take you to court for past salary discrepancies. And things won’t get better. As states continue to pass pay-equity legislation, the number of lawsuits against companies has increased markedly.

So, sure, it’s great that your company is competitive in terms of what Company X pays, but that doesn’t necessarily shield you from getting sued.

The Importance of a Pay Equity Audit

While we’re at it, if you haven’t conducted a pay equity audit, it’s high time. Business leaders are increasingly focused on narrowing the gender and race pay gap, and states have been putting in place legislation that covers equitable pay for more people.

So, what is this audit? Essentially, it compares the pay of workers performing “like for like” work and looking into reasons behind any pay gaps or disparities that can’t be justified by factors such as experience, job performance, tenure, or some other legit business reason.

Why should you care about pay equity? Well, do you care about better efficiency, productivity, and innovation? Because that’s a taste of what you’re likely to get if you do.

Establishes Standards

You’re setting forth what responsibilities and duties are required for a job that pays X amount when you create a job description. This sets consistent standards. If a worker’s output falls short of a co-worker’s, you can point to that if a demotion or termination is in order. If you paid that work equitably, he or she won’t truly be able to blame inequitable treatment or lack of drive for their subpar performance.

Creates Team Players

Internal pay equity helps to develop team players. You don’t want to hear, “Thomas makes more than I do so if we collaborate, he’ll have to do most of the work.” If you’re fair with your pay, your employees will better “play well with others.”

So, you can see that ensuring internal and external pay equity is beneficial to you and your employees. However, putting more of a premium on in-house fairness can result in fewer lawsuits and a happier, more productive workplace.

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