Myth: To be fair or equitable, pay needs to be equal.

Truth: While equality and equity sometimes seem like interchangeable terms, there is a significant difference between pay equality and pay equity. Understanding the difference is crucial for creating a workplace that values fairness, diversity, and inclusion.

Follow along as we help you understand the definitions of pay equality and pay equity, examine their significance in the modern workforce, and shed light on why these concepts matter for both individuals and organizations. This will enable you, as a compensation professional, to have the knowledge and tools you need to foster an equitable and fair workplace.

What is pay equality?

Pay equality is the idea that employees should receive equal pay for equal work, regardless of their gender, race, or other characteristics. It seems to make sense that two people doing the same job should be paid the same, especially when you consider historical factors, like the gender pay gap.

The gender pay gap is one of the main discussion points around pay equality. Women are often paid less than their male counterparts for the same work, contributing to a systemic imbalance in compensation. In 2022, women, on average, in the United States still only earned 82 cents for every dollar earned by men.

The gender pay gap is recognized each year on March 12, known as Equal Pay Day. This is how far into the year women need to work to match how much men were paid in the previous year.

The push for pay equality seeks to rectify such disparities and ensure that all employees are treated fairly based on their job responsibilities instead of their gender, race, or other demographic information.

While pay equality is a noble goal, achieving it can be challenging. Factors such as negotiation skills, historical biases, and societal expectations can influence salary negotiations and contribute to disparities even when individuals perform the same job. For example, research suggests that women may be less likely to negotiate for higher salaries compared to men. Factors such as societal expectations, confidence levels, and fear of backlash can impact negotiation outcomes and contribute to the pay gap.

To compensate for these biases, many organizations are turning more toward pay equity.

What is pay equity?

Pay equity takes a more comprehensive approach to compensation. Pay equity focuses on ensuring fairness in compensation for all employees, considering factors beyond the scope of equal pay for equal work. It addresses systemic issues that at times cause certain groups (women, minorities, those in the LGBTQ+ community, etc.) to face barriers to equal compensation.

Pay equity recognizes that individuals may not be performing identical roles but should still receive equitable pay based on the value of their contributions to the organization. For example, the jobs of a male engineer and a female marketing professional are not the same, but their contributions to your organization could be of a similar scale. Do your male engineers receive more substantial raises because their work is perceived to be more valuable?

This concept acknowledges the impact of historical inequities and hopes to diminish any barriers that may have existed because of bias, discrimination, or other systemic issues.

Implementing pay equity involves evaluating the overall compensation structure within an organization and identifying areas where you find imbalance. This may include evaluating the distribution of leadership roles, opportunities for career advancement, and the impact of organizational policies on different demographic groups.

Comparing pay equality and pay equity

Even with their similar goals, some key differences set pay equality and pay equity apart. The onset of pay transparency laws also plays a large role in how your organization chooses to foster a work environment that is fair and unbiased.

Base Pay

Pay equality: All employees in the same job role receive the same base salary, regardless of their individual demographics, qualifications, experience, or performance.

Pay equity: Base salary may differ between an employee with 10 years of experience and an MBA and that of an employee with 5 years of experience and a bachelor’s degree.

Bonuses

Pay Equality: Everyone receives a 2% bonus regardless of performance or position.

Pay Equity: An employee with higher performance will receive a higher bonus than an employee who simply meets expectations.

You may be reading this feeling confused as to whether pay equality or pay equity is better. Take it from us, the experts on pay: it may not be necessary to choose just one or the other. What is necessary, though, is getting pay right.

According to Mercer’s Global Talent Trends survey and Inside Employees’ Minds report, one of the most important factors in employee retention is whether employees perceive that the company uses fair compensation practices. If you feel your organization has room for improvement, we can help!

Before you start making compensation changes, make sure you have the right data to back those changes.

At Mercer, we give businesses access to data-backed salary surveys and other compensation studies, like our Global Talent Trends survey.

With this information, you can feel confident that the pay you offer is not only competitive, but also inclusive and fair.

Contact Mercer today to talk to a knowledgeable compensation consultant about your business needs.