Pay Equity

Pay equity: a definition

Pay equity (عدالة الأجور) is the condition in which a difference in pay between employees is due to reasons connected with the work, such as the role, the responsibility it carries, experience and performance, and not to reasons that have no connection with the work.

The definition sorts the causes of a pay difference into two kinds. The first kind lies in the work: the role an employee holds, the responsibility that comes with it, the experience the employee brings to it and the performance they deliver in it. The definition names these four as examples of that kind, not as a closed list. The second kind lies outside the work, and a difference that comes from it is the one pay equity rules out.

Pay equity can be examined inside the establishment or against the market, and our glossary defines each separately. Internal pay equity compares the pay of jobs and of employees within one establishment. External pay equity compares what an establishment pays for a job with what is paid for the same job outside it.

The principle behind pay equity

The idea behind pay equity is not that everyone is paid the same. It is that every difference has a reason that can be stated and examined. Two employees can be paid different amounts and the establishment can still meet the principle, provided the difference between them has such a reason. Two employees can also be paid different amounts without any such reason, and then the principle is not met, whatever the size of the gap.

Take two employees in the same role who are paid differently. An establishment that can explain why the pay of the two differs stands on firm ground. The explanation might be the number of years of experience each brings, the scope of responsibility each carries within the role, or the result of a documented appraisal. Each of these is a reason that can be stated, and each can be examined.

An establishment that finds no explanation for the difference other than “that is the salary they were hired on” has a problem, even if nobody has complained. The absence of a complaint does not supply the missing reason. The problem lies in the difference that has no reason behind it, not in whether anyone has raised it.

Where an imbalance in pay equity can seep in

An imbalance in pay equity can enter through decisions that each look ordinary when they are taken. Four routes are set out below.

• Previous pay as the basis of the offer. It ties the offer to what the employee earned in their previous job. Any imbalance in that earlier pay is then carried into the new establishment and fixed there. The reason given for the new wage is then the old wage, not the work in the new establishment.
• Unequal negotiation. The candidate who negotiates hard can come away with more. Skill in negotiating is an ability unconnected with the requirements of the role. Two people who will do the same work can therefore start on different pay because one of them pressed harder for it, and that difference has its source outside the work.
• Percentage increases. A uniform rate applied to an unequal base widens the gap year after year instead of closing it. Each employee receives the same percentage, but the higher wage yields the larger amount in riyals, so the distance between the two wages in riyals grows with every round while the ratio between them stays where it was.
• Exceptional retention offers. They go to an employee who has received an outside offer, with no review of the others at the same level who did not look for one. The employee who brought an outside offer moves up, and colleagues at the same level stay where they were. The difference that results comes from who looked for another job, not from the work.

How pay equity is checked

A check of pay equity begins by grouping roles into levels that can be compared with one another. It does not begin by comparing job titles, because titles can differ for no meaningful reason. Two titles can describe the same work, and one title can cover different work. A comparison built on titles can therefore set unlike work side by side, and keep like work apart.

Once the levels are in place, the check looks within each level at how pay is distributed, and then at the cases at the edges of that distribution, which need explaining. A case at the edge is a wage that sits well above or well below the others at the same level. Each one is asked the question at the centre of pay equity: what reason connected with the work explains it.

The output of the check is not a single figure. It is a list of cases. Each case carries either a documented reason or a correction plan with a set timescale. A documented reason explains the difference and is kept on record. A correction plan states how the difference will be closed and by when.

What keeps pay equity in place

A check carried out once corrects one moment. It does not stop the imbalance from returning, because the routes by which it entered stay open after the check is over. The next offer can again be tied to previous pay, the next negotiation can again reward the harder negotiator, the next round of increases can again widen a gap, and the next retention offer can again be made with no review of the level.

What stops the imbalance from returning is structure, and the structure has three parts:

• Declared pay ranges for each level. Every level has a stated range for its pay.
• A written rule for exceptions, and a named approver. It sets out when a wage may depart from the usual and who approves the departure.
• A periodic review held with the increase cycle, not after it. A salary review is the cycle in which increases are decided. The pay equity review is held during that cycle, while the increases are being decided, not once they have been granted.

Pay equity also connects directly with total rewards, because an imbalance can lie in allowances and benefits, not only in the basic wage. Two employees on the same basic wage can still receive different allowances or benefits, and that difference also needs a reason connected with the work.

This is an explanation of the concept, not legal advice.