Equity in the workplace is one of the pillars of human resources. Everyone has an inherent desire for some sort of fairness, and in the workplace that sense is more keen than anywhere – especially as it pertains to internal pay equity.

It’s unrealistic to imagine an environment where everyone is compensated the exact same. Certain roles demand more complexity and a deeper skillset, and are likely to be paid more than simpler roles. But the reasons for these differences need to be scrutinized and made transparent so everyone on your team has insight into why people get paid what they do, and can feel confident there’s no discrepancies due to bias.

In this article, we’ll walk you through what is internal equity, the value of a pay equity analysis, challenges you can expect to face, and how to maintain internal pay equity down the road.

Read next: The Pay Parity Guide for HR

What is internal pay equity?

While there’s all sorts of equity you’re going to need to consider in your workplace, internal pay equity should be at the top of your list. Internal pay equity refers to the principle and practice of ensuring fairness and equality for all compensation within your organization. 

Ensure that all employees are paid fairly for work performed relative to their colleagues who hold similar positions and responsibilities. Internal pay equity can eliminate pay disparity based on gender, race, or factors unrelated to job performance or qualifications. 

Put simply, employees who perform similar roles and contribute equally to the organization should receive comparable compensation. Striving for internal pay equity will help you develop a positive work environment, boosts employee engagement, and reduces attrition rates.

Read next: 8 Steps to Conducting Pay Equity Analysis

What is the difference between internal equity and external equity?

Both internal and external equity are related to compensation management within your organization, but they focus on different aspects. Here’s a breakdown of their respective nuances:

Internal equity: As mentioned above, internal equity refers to the fairness and equality in compensation among employees. It assesses the fairness of pay structures, ensuring employees are compensated fairly compared to their peers.

External equity: External equity is about the fairness of your organization’s pay rates compared to the job market. To ensure external equity, assess pay levels against industry benchmarks, market rates, and the salaries offered by your competitors. Consider conducting salary surveys to better understand current wage rates and roles in your industry and region. Once that’s done, adjust your pay structure accordingly to attract and retain the best talent.

Why is internal pay equity so important?

Achieving internal pay equity may seem like a purely moral pursuit, but there’s more to it: 

For employers

Boost employee morale and satisfaction: Team members feel valued and motivated to perform when they are happy with their pay. This leads to higher employee morale and job satisfaction.

Reduce legal risks of pay disparity: Ensuring internal pay equity helps lower legal risks that come with pay discrimination. With a consistent and proactive pay practice, you can reduce the likelihood of legal inquiries due to pay disparity.

Better talent attraction and retention: Employers prioritizing internal pay equity can attract top talents who share the same value. Fair compensation practices can enhance your brand reputation, making it easier to attract top talent and retain existing employees. Employees are more likely to stay with employers who offer equitable pay and opportunities for growth.

For employees

Increased motivation and engagement: Employees are more motivated and engaged when they feel that their contributions are recognized and rewarded fairly. Internal pay equity ensures that employees are compensated based on their skills, experience, and performance, leading to higher levels of motivation and increase in work efficiency.

Better career growth opportunities: Fair compensation practices create a supportive environment where your employees feel encouraged to develop their skills and pursue career advancement opportunities within your organization. When your team members feel their efforts are valued and rewarded fairly, they’re more likely to invest in their professional growth and take on new challenges.

Reduced stress and improved well-being: Employees who are aware of pay inequities within your organization can experience stress, frustration, and dissatisfaction, which will have a serious negative impact on their overall well-being. By addressing internal pay disparities and promoting fairness, your organization can build a positive work environment where employees feel valued, respected, and supported in their roles.

What are the challenges of achieving internal pay equity?

We’ve established why you want internal pay equity. However, the process may not be straightforward. Here’s a list of challenges you should expect to face:

Lack of transparency

A challenge you can expect when implementing internal pay equity is a lack of transparency in your organization’s pay practices. Keeping employees in the dark about their pay and how it compares to their peers could lead to potential perceptions of unfairness and inequality. Your organization should strive to be transparent about compensation policies and practices to promote trust and fairness among your employees.

Job complexity and role variation

Your organization probably has diverse job roles with varying levels of complexity, responsibilities, and required skills. This makes internal pay equity a challenge when you start comparing roles that differ significantly in scope and requirements. Carefully evaluate job roles and establish clear criteria for compensation levels based on job complexity and contribution to the organization. To do this, consider running a pay equity analysis where you analyze factors that might impact higher or lower compensation, and map that to your workforce.

Poor data collection and analysis

Inaccurate or incomplete data can hurt your efforts to achieve internal pay equity. You might face challenges obtaining reliable data on your employee demographics, job roles, performance metrics, and compensation levels, especially if there’s not a centralized repository for this information. Without robust data collection and analysis processes, it becomes difficult to spot pay disparities and take the appropriate action.

Potential resistance to change

It might be difficult for your organization to appreciate internal pay equity. Expect to face resistance from certain stakeholders, including employees, managers, and organizational leaders. This resistance might be due to concerns about perceived loss of status, increased costs, or simply changing existing practices, which they feel are working well enough. You’ll need to proactively address resistance by communicating the rationale behind pay equity initiatives, gathering feedback from employees, and providing support and training to ease them into the transition.

Ways to Address Internal Equity

While challenges might be inevitable as you pursue pay inequity, here’s 4 strategies that can help you promote fair compensation within your organization.

Foster a culture of transparency and open communication

Building a culture of transparency and open communication is essential for addressing internal pay equity. You and your team should proactively communicate the compensation policies, practices, and decision-making processes to your employees. This includes providing clarity on performance expectations, and offering platforms for team members to voice their concerns on pay-related matters.

Implement standardized job evaluation systems

Standardized job evaluation systems help ensure consistency and fairness when determining the value of different roles within your organization. Start by establishing clear criteria for evaluating job roles based on factors such as skills, responsibilities, and required qualifications. Setting up job evaluation systems can help identify and address any pay disparity, before they become systemic or incur any legal challenges. 

Relevant reading: A Guide to Mastering Performance Management

Regularly collect and analyze employee data

Regular data collection and pay equity analysis are important for identifying and addressing pay disparities within your organization. Your team should gather comprehensive data on employee demographics, job roles, performance metrics, and compensation levels. By analyzing this data regularly, you can identify trends, patterns, and potential areas of concern related to internal pay equity. This helps you keep an eye on internal pay equity, and make any necessary adjustments.

Clear communication and provide necessary training

Clear communication and training ensures that employees understand compensation decisions and how they can advocate for fair treatment. Provide training to managers and HR professionals on topics like unconscious bias, fair compensation practices, and performance evaluation techniques. Also, clear communication channels should be set up to address employee concerns, provide feedback, and facilitate discussions about pay-related matters.

Tips to Maintain Internal Equity

Pay equity isn’t a one-and-done effort—it’s an ongoing practice that needs to be carefully maintained as your organization evolves. Here’s a few considerations you’ll want to review for maintaining pay equity:

Conduct regular pay audits

Regular pay audits are essential for monitoring and maintaining internal equity within your organization. By periodically reviewing compensation data and comparing pay levels across different job roles, departments, and demographic groups, your team can identify any discrepancies or inequities that exist. Pay audits help ensure that compensation practices remain fair, consistent, and compliant with internal policies and external regulations.

Clearly communicate compensation policy

Clear communication of your organization’s compensation policy is a major factor for promoting transparency and trust among your employees. You should share information about salary bands, pay structures, and the factors that influence how you make compensation decisions. This will help your employees understand how their pay is determined, build trust in your organization’s compensation practices, and reduce speculation or misconceptions about pay fairness.

Address inequities promptly

It’s important for you to address any identified inequities or discrepancies in compensation promptly and effectively. This will involve conducting a pay equity analysis to understand the root causes of any disparities, taking corrective action to fix the problem, and effective communication with affected employees. Addressing inequities quickly demonstrates a commitment to fair treatment and helps maintain trust and confidence in your organization.

Invest in training and development

Investing in training and development opportunities for your employees will help promote internal equity by providing your team with the skills, knowledge, and resources they need to advance in their careers and earn fair compensation.

Adopt HR software

Leveraging HR software can streamline compensation management processes, improve data accuracy, and enhance transparency. You’ll want to consider HR software that includes features such as automated data collection, compensation benchmarking, and reporting capabilities, which enable your team to track and analyze compensation data more effectively. With the right HR software, your team will gain insights into pay equity issues, identify areas for improvement, and take proactive steps to address any concerns.

Unlock the Power of HRIS for a More Equitable Workforce

Understanding and addressing internal equity is crucial for fostering a fair and inclusive workplace environment. As mentioned, bridging the gap requires more than just awareness – it demands actionable steps and effective tools.

All-in-one HR software like Omni can play a crucial role in fostering pay equity by providing tools for tracking gender diversity metrics, identifying areas for improvement, and implementing policies that promote work-life balance. 

Our comprehensive payroll solution provides impactful insights to seamlessly review, address, and prevent pay parity issues. Advanced performance management modules provide real-time performance data, helping HR teams swiftly identify and address skill gaps, so you can provide your teams with the training and tools they need to help boost overall performance and nurture talent.

Join the 83% of Omni customers who have unlocked new, actionable insights after using our modern HR solution, book a demo with our team today.