Why Companies’ Attempts to Close the Gender Pay Gap Often Fail  

8 August 2019:

Gender pay equity has become a big point of contention at many companies. Not only have politicians and other public figures spoken out against the gender pay gap, but there has also been a rising tide of high profile lawsuits targeting major employers, most notably in the U.S., with all the bad publicity and financial liability they entail.

In response, many firms have hired external pay consultants and law firms to identify whether they may have a problem with the pay gap from either an HR or legal perspective and to offer possible remedies. But in our view, the most common approaches for identifying a pay gap and resolving it are full of pitfalls for the unwary. That’s because it’s a tall order: you have to calculate the gap the right way and figure out how to fix it without ballooning your wage bill, all while truly helping underpaid women, maintaining your incentive structure, and avoiding the creation of new legal liabilities.

We have extensively researched the most common ways companies try to fix a pay gap – and how these fail or cause other problems – and we’ve worked with several companies in different countries to solve their pay equity issues. We’ve found that closing a gender gap without regard to cost effectiveness can be prohibitively expensive; however, only focusing on cost (as many managers do) creates more problems than it solves.

Our approach focuses on first, identifying which employees are contributing the most to the gender pay gap at your firm, and second, allocating raises as efficiently as possible to close the gap — while working within the framework of your HR strategy and norms of fairness.

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Source: Harvard Business Review

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