Pay equity: Why it still matters

Federal oversight of fair and equitable compensation practices continues to be supported through the federal Equal Pay Act. At the same time, increasingly, state and local jurisdictions are advancing pay equity through various forms of updates to existing pay equity legislation.

Currently,

• All 50 states in the U.S. and the District of Columbia (D.C.) have pay equity laws prohibiting pay differences by gender, race and/or ethnicity.
• Twenty-nine states and D.C. have state-wide and/or local jurisdiction bans either directly prohibiting employers from asking job applicants about their salary history or precluding prospective employers from applying adverse actions if an applicant refuses to divulge their salary history.
• Fifteen of those 29 states and D.C. also have state or local transparency laws requiring employers to either post the pay range of their jobs or provide it upon request to job applicants. The most recent transparency laws — passed in Illinois, Massachusetts, Minnesota, New Jersey and Vermont ꟷ are effective at some point in 2025.

The map below illustrates the distribution of bans and transparency laws across the U.S.

With state activity expanding, it is no time to relax pay transparency and pay equity considerations. 

Business benefits

Fair pay practices foster employee satisfaction, engagement and productivity by making individuals feel valued and appreciated — ultimately reducing turnover and strengthening institutional success. Pay equity not only enhances an organization’s reputation, brand loyalty and public trust, but also helps attract and retain a diverse pool of top talent. For these reasons and more, pay equity should always remain on human resources departments’ radar.

Yet, maintaining pay equity is a persistent challenge. While many organizations strive for fair and transparent compensation, they can find longstanding pay structures, market forces and unconscious biases contributing to disparities that endure over time.

Evaluating your pay structure gives insights into potential disparities within your organization. However, determining simplistic averages or medians by job categories alone will not help much because many factors that impact pay. 

A data-driven approach

Statistical modeling and data analytics can identify patterns by assessing the impact of factors such as rank, discipline, job performance and years of experience to make informed decisions about compensation adjustments.

Data-driven approaches follow these key steps:

1. Identify key drivers
   Gain a clear understanding of compensation structures, policies and potential drivers of pay disparities in your organization. Identify relevant factors such as job roles, tenure and performance to ensure a thorough and meaningful analysis.
2. Collect quality data
   Collect and evaluate internal compensation data, including salaries, bonuses and demographic information. Ensuring data integrity and resolving inconsistencies is crucial, as reliable data forms the foundation for uncovering meaningful insights.
3. Analyze statistically
   Use statistical techniques — such as regression analysis, machine learning, and predictive modeling — to analyze pay patterns, identify disparities and control for legitimate pay factors.
4. Take action
   Translate findings into clear, actionable recommendations to close any pay gaps uncovered, refine compensation policies and establish long-term pay equity strategies.

A data-driven approach to pay equity allows organizations to lead with integrity, fostering a workplace where compensation reflects both contribution and commitment. Ensuring equitable pay strengthens an institution’s ability to attract and retain top talent in a competitive hiring landscape.

Gaining support to fund pay equity initiatives

It may be important for the sponsor of internal pay equity initiatives to conduct a baseline review as an initial step to help build a business case for the study. This initial research can critically examine the various opportunities, alternatives, project stages and financial impacts of alternative remediation actions that are identified by a more formal pay equity review. It may also help gain stakeholder support for the best course of action that will create enterprise value and manage risk.

It is important to identify the purpose of the pay equity study in advance. This enables clear communications with involved stakeholders, manages their expectations, and dictates the process and the methodology. For example, if the goal of the study is to limit legal risk and take advantage of any existing safe harbors under state law, it may be advisable to protect any work as a privileged attorney work product. When an organization simply wants to ensure that it is paying employees equitably, the review process and methodology can be more flexible.

Our broad-based compensation design services regularly include an initial phase to review internal pay equity and the maturity of business processes that may contribute to differences in employee compensation. This initial high-level review serves to identify key business processes, systems, data sources, data suppliers and other information that may influence the pay equity review, as well as identify the integrity of data and processes that support legitimate business factors used to differentiate employee pay.

By creating this initial stage-gate, sponsors of pay equity initiatives can create a business case that can be approved by those that manage the financial resources needed to proceed with subsequent pay equity review activities.