A new study by scholars at the University of Florida, the University of Maryland, and Villanova University in Pennsylvania, found that businesses can close gender pay gaps, reward high performance and improve their compensation strategy by identifying the true source of pay inequity and fairly allocating raises to the most underpaid women.
This new approach developed by the authors analyzes how much men are rewarded for a given factor – say, their education level – and compares it to how much women are rewarded for that same factor. The system then repeats this process for each element that should be driving pay at the firm. If there is an inequality, the analysis can then rank employees by how much they are underpaid regarding these factors.
“Then, taking into consideration a firm’s budget for raise allocations, the method developed by our team allocates raises starting with the people who are most disadvantaged and stops when one of two things happen: You close the pay gap or you run out of money,” said David Gaddis Ross, a professor in the University of Florida’s Warrington College of Business and coa-author of the study.
If a business can’t afford to close the gender pay gap immediately, the researchers found that applying the analysis over several years can close the disparity over time and can also help companies that have closed their pay gaps keep them closed. The same method can address disparities in pay along the lines of race, religion, and other demographic factors.
“Irrespective of the gender pay gap, many of the firms we’ve worked with have found they weren’t achieving the goals they set out to achieve with their stated compensation policies. By applying this system, they’re able to enact a compensation plan that does what they always wanted it to do,” Professor Ross said.