Pay Equity Metrics You Need to Track and Understand
Compa.as Blog
By Jen Dewar
Compa.as, a Merian Ventures portfolio company, recently published this blog on pay equity. The blog is a continuation of the January blog, 10 Gender Wage Gap Statistics for 2021.
Women in the United States earn 98 cents for every dollar men earn, when controlled for factors like job title, years of experience, and location. Black men also earn 98 cents for every dollar earned by White men, while Latinos and Native American men earn 99 cents.
The pay gap is wider for some positions and job levels. For example, women in anesthesiology earn 17 percent less than men. Black executives earn 3 percent less than their White counterparts, while women at the executive level earn 5 percent less than men. The uncontrolled pay gap is even wider, as people from marginalized groups often face an opportunity gap that keeps them in lower-paying roles.
Pay inequity is bad for team morale and employee retention–and it’s illegal. Keep an eye on these pay equity metrics as you guide company leaders toward fair compensation decisions.
1. Compa ratio
Compa ratios show an employee’s salary relative to the midpoint of the salary range for their position. This can help you better compare team members’ compensation when they live in different geographic areas, or hold different types of roles.
Let’s say, for example, you have two Accounting Managers. One lives in San Francisco and earns $95,000, within a $90,000-110,000 salary range. The other lives in Tampa and earns $57,000, within a $50,000-70,000 salary range. While your California employee commands higher local market rates, both employees have a compa ratio of 0.95. So long as both employees have similar experience, skill level, and impact, this would be considered equitable compensation.
Compa ratios become even more useful at scale. Calculating median and average compa ratios by gender and ethnicity can help you examine your organization’s state of pay equity at a high level. For example, a median compa of 1.0 for men and 0.96 for women tells us that women are falling lower in their salary bands than men. This is worth investigating further to determine if it’s warranted, or if the gap may be due to biases.
Drill down deeper to see what compa ratio looks like by zone, function, and department. For example, does your executive team have a larger compa ratio gap than your company average? Can the discrepancy among men and women on your sales team be linked to a specific zone? Use this data to hold informed conversations with your leadership team and line managers, so you can all stay on top of pay equity.
2. Compa(eq)
Women own just 47 cents in equity for every dollar men own. Black and Latinx employees make up a very small proportion of employee stakeholders, and hold a disproportionately low percentage of total equity wealth. This can make a significant impact on total compensation.
If your company offers stock options as part of your compensation package, consider using an equity-adjusted compa ratio for every employee. At Compaas, we call this Compa(eq), and it’s calculated from:
An employee's salary
An employee's stock option and/or RSU grants that they are vesting this year
The company's estimated or actual stock price
The salary band target salary for that employee
How much equity other employees in the same salary band have this year
This analysis will help you see how stock options contribute to pay equity. For example, early employees are often granted more stock options and lower salaries than employees hired much later. If you were to look at the unadjusted compa ratio, there could appear to be large pay disparities between tenured and new employees, when an adjusted compa ratio would show otherwise. Conversely, an unadjusted compa ratio could indicate pay parity, which may not be the case if there has been an inequitable distribution of stock options.
3. Average salary by ethnicity and gender
One shortcoming of compa ratios is that they can only tell you whether specific employee groups are paid equitably for their job level. But what if employees from certain demographic groups are stalled in lower-paying job levels? Compa ratios could be consistent from group to group, while average salary is not. This could be indicative of an opportunity gap.
For example, 66 percent of c-suite executives are White men, 19 percent are White women, 12 percent are men of color, and 3 percent are women of color. Representation of White men increases at every level of management, while representation of women and people of color decreases. As a result, the uncontrolled pay gap widens over time. If this is happening in your organization, you’d likely see it in your average salary data for each demographic group.
Where this becomes especially problematic is when employees are doing substantially equal work to other employees in higher job levels and salary ranges. For example, the marketing assistant who shares a workload with the marketing manager, or the top-performing junior software engineer who is more impactful than most of your senior software engineers. If situations like these are happening in your organization, you have a pay equity problem.
Track average salary alongside compa ratios so you’re able to spot any discrepancies and dig in to learn where they might be coming from, and whether they need to be addressed.
Final thoughts on pay equity metrics
These metrics can help you assess pay equity at a high level, but assessments and adjustments will need to be done at the individual level. Use your data to understand where to focus, and to have informed conversations with company leaders and line managers who are involved in compensation decisions. This will help them understand their role in pay equity, and what they can do to reach parity.
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Merian Ventures portfolio company Compa.as is associated with the above feature. Merian Ventures is a venture firm founded by Alexsis de Raadt St. James that invests in women-founded and co-founded tech innovation in the US and UK.