Pay equity analysis guide: Set transparent, fair compensation policies

What does “fair pay” actually mean to employees? Data suggests that many business leaders haven’t got a clue. For instance, one recent Payscale report showed that, even when employees have wages at or above the latest market rates, 68% feel underpaid.*

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The best way to take a different route, one that promotes fairness and transparency, is to run a structured pay equity analysis. But don’t think of this as a simple, once-per-year compliance checkup. To prevent pay issues, you’ll need to integrate ongoing review into your larger HR processes. Let’s talk about how that works.

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* Payscale, 2025

<h2>What’s a pay equity analysis?</h2>

“Pay gaps show the average difference between groups, but that doesn’t tell the full story. Pay equity means comparing like with like: same role, same experience, same performance.”

– Alexandra Edl, Senior HR Consultant at Edl Consulting AG

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Pay equity analysis is a formal review of your company’s compensation data. During this process, you’ll look for disparities between employees who perform equal and comparable work.

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The goal is to find out whether these pay differences are due to legitimate factors (e.g., performance or tenure), rather than protected characteristics like gender, race, age, or disability status. If a compensation equity analysis reveals unjustified pay gaps, remediation plans should be developed with legal counsel, especially where adjustments affect existing contracts or protected groups.

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Conducting an equal pay analysis gives your business greater transparency into its compensation practices. But the benefits go deeper:

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• Reduced legal and compliance risks: Correcting discriminatory pay practices is vital to avoid fines and the reputational damage associated with compliance-related litigation. 

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• Improved employee trust and retention: Employees put heavy emphasis on a company’s pay policies; Payscale’s data reveals that 45% of respondents would search for a new job if they felt they were paid unfairly.

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• Strengthened engagement and performance: According to the Journal of Economic Perspectives, pay transparency has a positive impact on employee motivation and productivity.

<h2>Is your company pay equity-ready?</h2>

Data from SHRM shows that one-third of HR departments don't yet have fleshed-out pay equity plans. Often, this need only registers on a company’s radar after a complaint or external audit request.

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Mature organizations take a more proactive approach, preventing issues by embedding equity analytics into core HR processes. This makes it a lot harder for inequalities to brew unnoticed below the surface, then erupt into big problems down the line. 

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“Pay equity isn’t a one-time initiative. You need to update data, review structures, and keep communication alive. It’s a continuous cycle of improvement.”

– Alexandra Edl, Senior HR Consultant at Edl Consulting AG

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If you’re not sure where your organization stands, here are some warning signs: 

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• Inconsistent compensation practices: Managers and departments make pay decisions based on differing preferences, rather than a shared framework.

• Lack of clear salary bands: You might notice wide pay variations for the same job level, and find yourself unable to fully justify those differences. 

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• Limited visibility into pay data: HR and leadership need easy access to consolidated compensation data to keep payroll practices consistent.

<h2>Key components of a pay equity analysis</h2>

Building an effective pay equity solution starts with gathering the right data and context. Here are the components you’ll need before diving into a proper analysis. 

<h3>Compensation numbers</h3> 

“Equity focuses on adjusted data. It asks: If people are doing comparable work, are they paid comparably? If not, can we explain why or do we need to fix it?”

– Alexandra Edl, Senior HR Consultant at Edl Consulting AG

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First, you need a comprehensive picture of each employee’s annual pay. Beyond base salary, include bonuses, equity, and all other incentives or forms of compensation. While gathering these details, note other relevant factors, such as experience and education, that may influence pay differences.

<h3>Employee demographic data</h3>

Organize employees by gender, race, ethnicity, age, and disability status, and find the recent data on their average compensation. Also, review the latest market benchmarks so you’re prepared to decide if your payroll is on par with industry averages. Leapsome’s Compensation Benchmarks feature helps by directly integrating your HR system with Mercer's analytics.

<h3>Job groupings and comparable work context</h3>

“Once you know the market benchmark, the real challenge is matching it to your internal reality. Who’s above or below that band and why? Can it be objectively explained?”

– Alexandra Edl, Senior HR Consultant at Edl Consulting AG

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Group roles into comparable categories, so you can filter employees based on seniority, scope, and skills. When you launch your analysis, it’ll be easier to see if any pay discrepancies you spot are truly for ‘apples to apples’ work. You can also compare pay equity with job performance by centralizing employee data in Leapsome’s all-in-one HR platform.

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Caption: Connect performance data with pay equity analysis in Leapsome’s AI-powered HR platform. 

Alt text: A feedback message to an employee in Leapsome’s portal, highlighting strengths and areas for improvement.

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⚖️Support pay equity with structured performance reviews 

Leapsome brings performance reviews and employee data together, so you can reduce bias and create consistent compensation policies. 

👉 Explore Performance Reviews 

<h2>How to conduct a pay equity analysis: Five-step guide</h2>

Performing a pay equity analysis takes more than plugging data into a spreadsheet. Here’s how to set your focus carefully, then dig deep for practical insights.

<h3>1. Define your objectives and scope</h3> 

Setting your scope at the beginning prevents wasted time later, by keeping irrelevant information out of the process. Establish what you intend to measure, and which parts of the organization you’ll include. For example, one pay equity analysis may review base salaries across departments, while another might focus on evaluating total compensation within a specific category (like job level). 

<h3>2. Collect and clean data</h3> 

“Free sources like Glassdoor are fine for a first impression, but they’re often incomplete or inconsistent. You need real-time, validated data, especially in fast-changing or high-inflation markets.”

– Alexandra Edl, Senior HR Consultant at Edl Consulting AG

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Next, gather the compensation and demographic data for your analysis. Double-check for potential issues, such as duplicate records or missing fields, that could skew the results. To prevent inaccuracies later, it often helps to create a checklist of accurate employee attributes, consistent job and level info, and complete compensation data. 

<h3>3. Define comparable work groups</h3> 

Job titles aren’t enough to give you reliable insights. Incorporate factors like role responsibilities, seniority, department, and scope, so you know your findings are properly contextualized. At this stage, you might start to see gaps in role structures or salary frameworks that need better standardization. 

<h3>4. Analyze pay gaps</h3> 

Now, compare compensation patterns across the categories you’ve organized. Look for unexplained differences in salaries or benefits for employees performing similar work. You can segment data based on employee attributes or job-related factors to uncover trends that aren’t obvious at first glance. 

<h3>5. Assess whether gaps are justified</h3>

Just because there’s a pay difference doesn’t automatically mean it’s “unequal.” Instead of automatically taking corrective action, find out if there are explainable business factors behind the numbers, such as the employees’ tenure status or performance level. Only when there are no reasonable explanations for pay gaps do leaders need to step in with adjustment plans or new compensation policies. 

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Finally, remember that pay equity analysis is most effective when it’s integrated into your HR processes. Leapsome’s Compensation Management helps you implement continuous pay analysis in your HR dashboard, complete with built-in templates and custom rules.

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Caption: Linking compensation management to your HR system gives you the power to promote fair pay policies year-round.

Alt text: A Leapsome compensation dashboard, showing compensation proposals from different employees and managers.

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📊Turn compensation policies into constant pay equity insights

Leapsome’s Compensation Management dashboard centralizes pay, performance, and employee data, so you never lose track of your equity metrics. 

👉 Try Compensation Management

<h2>Simplify pay equity analysis with Leapsome</h2>

Running a pay equity analysis seems simple enough in theory. But if you have employee data in one place, performance reviews somewhere else, and a bunch of compensation spreadsheets scattered about who knows where, it’s hard to integrate all that information for an accurate review. 

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Leapsome brings your systems into an all-in-one HR platform, so you can quickly organize and analyze pay details. Our platform combines HRIS with people management to let you track trends in real time and proactively promote pay equity policies.

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“Employees can now find everything in one place — their data, absences, goals, and reviews. I don’t have to explain which tool to use for what. It’s all in Leapsome.”

– Merilyn L, Senior People Operations Specialist at Bob W

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💰Make payroll fairer and easier to manage 

Leapsome gets rid of data silos, replacing them with a unified view of employee pay and performance at all times. 

👉 Request a demo

<h2>FAQ</h2>

<h3>What’s the best software to evaluate and address pay gaps?</h3> 

To find and fix gaps, you need insightful data on pay equity throughout the year. Look for software like Leapsome that helps you centralize employee data, payroll, and performance reviews in real time. 

<h3>What’s the Equal Pay Act?</h3>

The Equal Pay Act of 1963 is a U.S. federal law that prohibits wage discrimination based on sex for employees who have comparable roles. Note that equal pay is regulated differently outside the U.S.; the EU and other jurisdictions have their own frameworks. Most notably, the EU Pay Transparency Directive introduces new pay reporting and transparency obligations for employers. Its transposition deadline (June 7, 2026) has now passed, though national implementation varies widely across member states.

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