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The Unadjusted Pay Gap vs. the Adjusted Pay Gap

Demographic pay gaps are a growing issue today as organizations and governments seek solutions to guarantee equal pay. Two concepts are regularly called "the pay gap." What is the difference between the adjusted and the unadjusted pay gap?

The Unadjusted Pay Gap

The "unadjusted" pay gap (often referred to as the gender pay gap) measures the average difference in pay between all men and women within a company.

If the average man makes $60,000 and the average woman makes $54,000, the unadjusted pay gap would be 10%. The unadjusted pay gap is driven by different gender representation across the organization and is often reflected by lack of women leaders.

Organizations can reduce their unadjusted pay gap by ensuring that women are promoted at equal rates to men and that the hiring process is free from bias, especially for senior leadership roles and high-wage occupations.

The Adjusted Pay Gap

The "adjusted" or "unexplained" pay gap (often referred to as the equal pay gap) is measured by regression analysis. This analysis calculates the difference in pay between women and men after accounting for the factors that determine pay, like job role, education, and experience.

The adjusted pay gap measures if the organization offers women and men equal pay for equal work/substantially similar work. It is often the target of legislation and is used in pay discrimination lawsuits.

To close the adjusted gap, organizations need to adjust salaries of individual employees from underpaid groups. Companies aiming for gender equity typically give raises to underpaid women and correct groups in the organization where the pay gap is the largest.

The adjusted pay gap is the narrowest measurement of pay equity. It is, for example, possible for an organization to have a small, adjusted pay gap but still have a sizeable unadjusted pay gap. In that instance, women and men are paid equally for similar work, but there is unequal representation across the organizational structure typically in high-paying job roles.

Out of the 10% gender pay gap (unadjusted pay gap), 6% is explained by factors such as job role, education level, work experience and management responsibilities, but we are left with a systematic pay difference where women are being paid 4% less than men for equal work. This is the equal pay gap (adjusted pay gap).

If the average pay of men in an organization is $60,000 and the average pay of women is $54,000 irrespective of job title or any other factors, the gender pay gap (unadjusted pay gap) is 10%. The adjusted pay gap compares the pay of men and women who do similar or equivalent work by taking into account differences in factors such as job role, education level, work experience and management responsibilities. After accounting for these differences, we are left with a systematic pay difference where women are being paid 4% less on average than men for equal work. This is the equal pay gap (adjusted pay gap).

Equal Pay for Work of Equal Value

"Equal pay for work of equal value" is an emerging methodological approach that compares job roles that are different but bring equal value to the organization. The approach seeks to ensure that employees are paid fairly across job roles, according to each job’s required skills and importance to the organization.

"Equal pay for work of equal value" requires an evaluation of each job role on a multidimensional point scale. This translates each job role into a point value by quantifying its requirements, like necessary skills and education, responsibilities, task complexity, and working environment.

A point score for each job role allows for comparing job roles predominantly performed by men with similarly valuable jobs primarily performed by women. For example, ensuring that typically female-dominated job roles, like nurses, are not paid less than comparable male-dominated jobs.

Understanding the differences between the unadjusted pay gap, the adjusted pay gap ("equal pay for equal work"), and the emerging equal pay for work of equal value standard in discussions on pay equity is essential. Each of these concepts and measures of the pay gap has different underlying causes, requires distinct analyses, and has different mitigation strategies.

This article has discussed the gender pay gap between men and women. However, the gender pay gap between other genders follows the same principles outlined here. So do all other pay gaps that originate from other demographics, such as race/ethnicity, age or disabilities.

How PayAnalytics’ Software Solution Can Help

PayAnalytics supports analysis and decision-making for all three measurement approaches:

  • We help organizations track their unadjusted pay gaps over time and visualize the demographic breakdown of their organization with custom reports.
  • The software helps organizations identify the underlying causes of the adjusted pay gap and offers suggestions on who should get a raise and how to close the gap.
  • We also support the hybrid approach helping organizations evaluate their job roles and ensure that compensation is reflective of each job’s value.

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