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How is your firm ensuring pay equity?

March 14 is Equal Pay Day, symbolizing how far into the year women must work to earn what men made in the previous year. Or seen a different way, when compared to men’s wages, women virtually work for free between January 1 and March 14 each year. The date is based on the latest U.S. Census figures, which show that the average woman working full time is paid 84% of what a man is paid. 

According to the American Association for University Women, when you dig deeper into these statistics by additional factors, the numbers are even worse:

  • June 15: LGBTQIA+ Equal Pay Day.
  • July 27: Black Women’s Equal Pay Day.
  • August 15: Mom’s Equal Pay Day.
  • October 5: Latina’s Equal Pay Day.
  • November 30: Native Women’s Equal Pay Day.

A multitude of factors drive the gender pay gap, including:

  • Discrimination. While gender-based pay discrimination has been illegal since the Equal Pay Act was passed in 1963, it still happens with shocking frequency. While the days where working women were viewed as “supplementing the family income earned by men” have mostly passed, vestiges of those days remain. More often, employers make salary decisions based on what a woman was paid in her previous position, rather than setting a pay range and sticking to it regardless of who is hired. 
  • Occupational segregation. Jobs performed mostly by women — particularly caregiving roles — are undervalued in our society and tend to pay less based on historical gender expectations. 
  • Hours worked and experience. Because women tend to take on more of the responsibility of child-rearing, they are more likely to work part-time or leave the workforce completely for periods of time. When they do return to full-time employment, hiring managers often offer them lower salaries and positions due to a variety of factors, including concerns about their long-term commitment and their ability to focus on their jobs. 
  • Lower starting salaries and negotiation. While this has improved in the last decades, women still tend to make less than men when entering the workforce. Part of this is due to unconscious bias or outright discrimination, but differences in how men and women negotiate impact pay as well. While this is an obvious generalization, women are encouraged as children to be more collaborative and men to be competitive. Not only does this impact starting salaries, but it also leads to lower raises and fewer benefits over the course of a woman’s career. 

Many states and cities are passing pay equity legislation in an effort to address some of these issues. As of Jan. 1, 2023, roughly 25% of U.S. residents live in places where employers must share pay ranges for open positions, including Washington, Rhode Island, Nevada, Maryland, Connecticut, Colorado and California, as well as quite a few municipalities, including New York City.
Another way pay inequity is being addressed legislatively is through salary history bans. In fact, 29 states and Puerto Rico now have some sort of salary history law on the books, ranging from those that prevent employers from setting compensation based on salary history to forcing hiring managers to treat internal and external applicants equally, to restricting questions about previous pay. 

How to start equalizing pay at your firm

Like any ambitious initiative, the first step is figuring out where you are now, where you want to go, and how you will get there. 

  1. Conduct a pay audit. Accounting firms are uniquely positioned to do this type of analysis, and the same rules that apply to external audits should be used for this purpose. Look at historical data to determine how pay scales were created and how salaries are defined. Then analyze pay across the firm by title, job function, performance, tenure, experience, gender and race. 
  2. Interpret your findings. Identify areas where pay gaps exist and determine their source. Not all discrepancies are unfair since differences in pay based on individual performance, seniority, skill and job responsibilities may be justified. Disparities based on gender, race, salary history and other factors, however, should be corrected. 
  3. Adjust pay where needed. Employees who are paid less unfairly should have their wages adjusted to match other team members making more in a fiscally responsible way.  
  4. Create policies to prevent future pay inequity. This is not a “one-and-done” scenario. Using the information you learned from your audit, create policies that address the issues you uncovered and prevent them from happening in the future. This could include writing detailed job descriptions, salary structures, pay grades and bonus plans built on objective criteria. Once policies are finalized, share them with your employees. Transparency creates a culture of trust and will give those that suspect unfair practices freedom to point them out with less fear of retribution. 

One other policy to consider is requiring human resources to review managers’ pay decisions. The Accounting MOVE Project has been asking participating firms about this for years, and in 2022, 78% of firms — an all-time high — reported that this is part of their hiring and promotion process. 

While no one expects these steps to suddenly remove all pay gaps, they can have a discernible impact on your firm’s culture and employee’s sense of belonging. As more companies address these issues, let’s hope that Pay Equity Day starts moving earlier in future years. 

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