How to run pay and performance equity audits

Companies know treating employees fairly and respectfully is critical, but what does that look like in action? Many companies also ask: How can we uphold our commitment to equity for all, including in talent processes?

At Culture Amp, we address this challenge head-on by incorporating equitable design into all our people processes and programs. As our measure of objectivity, we conduct equity audits, which examine performance, promotion, and compensation processes for evidence of structural bias.

Our equity audit transcends the conventional focus on race and gender, considering five additional dimensions of identity:

1. Caregiver status
2. Disability status
3. Ethnicity
4. LGBTQIA* status
5. Native English speaker status.

We believe organizations can and should move beyond simply using the audit to identify and address existing biases by adopting a more holistic approach to equity audits. An expanded approach allows for proactive identification of issues through continuous monitoring and evaluation. This enables organizations to create a feedback loop that includes taking action to address any identified disparities through calibrations and adjustments. This ultimately ensures compliance while building a culture of accountability and transparency where all employees feel valued and respected and talent processes remain equitable and fair.

What is an equity audit?

An equity audit is a structured analysis that reviews pay structure, pay and promotion decisions, and performance review systems to find and address any potential disparities or inequities that may exist based on demographic factors. These audits provide data and insights to help leaders understand where to take action to create an equitable experience for all employees.

Why conduct an equity audit?

Organizations leverage equity audits for many reasons, including risk mitigation and to ensure compliance with local, federal, and global regulations. Beyond compliance and risk, we see several ways employees and organizations benefit from conducting equity audits: above-average profits and increased trust, performance, engagement, and commitment to stay.

Conducting equity audits for performance processes can lead to more equitable assessments and ensure that biased performance ratings don't result in pay inequity. Despite these benefits, Culture Amp’s 2022 Workplace DEI report found that most organizations only conduct pay audits, if they conduct equity audits at all.

Specifically, we asked 288 organizations about pay and performance equity analyses. We found that only 43% of organizations conducted performance audits, and only 29% of those conducted the audits during every performance cycle, making it nearly impossible for them to have confidence in the fairness of their performance, promotion, and pay decisions.

How have pay and promotion equity audits impacted Culture Amp?

Since Culture Amp began conducting equity audits, we have seen year-over-year reductions in the number of concerns raised, highlighting that our continued work is having a meaningful impact. We are enhancing decision-making rather than making adjustments retrospectively, ensuring employee pay is based on skills, impact, performance, and experience. Insights from these audits inform our work to continue building fair, transparent people processes and strategies.

Recent data from the Workplace Gender Equality Agency in Australia shows that Culture Amp's 4.7% gender pay gap is the smallest of our peer tech companies. This is the second year we have achieved this result. This 4.7% gap is statistically considered no gap, and is a reduction from our reported gap last year.

How can you conduct an equity audit?

There are 4 main steps we recommend:

1. First, establish a performance philosophy that transcends the conventional fixation on an employee's technical contributions. Create a balanced, multifaceted assessment of impact, behaviors, and growth. This holistic approach ensures that your organization evaluates how employees contribute to the organization.
2. Second, conduct a statistical analysis to identify any discrepancies or unexplained incongruities in employee outcomes across demographic groups. Perform these audits both before and after calibrations to detect and rectify potential inequities.
   
   Encourage teams to examine the origin of any disparities, assess policies or practices that may be contributing to inequities, and make intentional decisions about whether to correct areas of potential inequity. Additionally, consider auditing all aspects of compensation, including stock, outside of the talent cycle for a continuous flow of data that can help you make proactive decisions.
3. Third, we recommend that organizations implement a just-in-time education model to equip calibration groups with the tools to mitigate bias in their assessments. This can include providing guidance on the nature of bias, its impact on decision-making, and strategies to counteract its influence. Additionally, incorporating live coaching during calibration sessions can foster objective decisions.
4. Finally, prioritize transparency throughout the audit process. Share details openly and educate employees about audit procedures and any bias-mitigation approaches. By fostering a culture of openness and accountability, organizations can build trust with their employees, reinforcing their dedication to fairness.

Pay and performance equity audit process recommendations

Who to involve

For performance audits, it’s best practice to include all stakeholders who play a role in talent processes, including People Business Partners and the People Analytics and Organizational Development teams. For pay and promotion audits, include the Total Rewards team as well.

If the audit is conducted internally, consider recruiting an external observer from a related field or a different part of the organization to provide an unbiased review of the audit process itself. This adds an extra layer of accountability and ensures the audit's integrity. At Culture Amp, our People Scientists provide this external lens.

Methodologies to consider

Cohen's H statistical measure can be used to assess the magnitude of differences in performance and promotion rates between different groups. It helps identify potential disparities that may warrant further investigation.

Threshold for Investigations: Establish a predetermined threshold for when to investigate further so potential issues are not overlooked. This threshold could be based on statistical significance, the magnitude of the difference, or a combination of factors.

Alignment to current organizational philosophy: Consider whether outcomes are expected when viewed in the context of your company’s pay or performance philosophies.

Building equity audits into existing processes

Instead of creating a separate process for the equity audit, integrate it into existing performance and pay cycles. This approach will be more efficient and help you connect relevant audit findings directly to key decision points.

Carefully consider where in the performance and pay cycles the audit would significantly impact outcomes. This may involve auditing data before key decisions are made or conducting audits regularly throughout the year.

Addressing outcomes and results

By embedding the equity audit within existing processes, such as calibration meetings, you’ll be ready to address the results promptly and effectively. This allows for immediate adjustments and follow-up audits to ensure equity is maintained.

Be transparent. Share the audit results with employees. This can be done through a written report that outlines the methodologies used, the results obtained, and the actions taken in response to the findings.

To identify and address systemic biases promptly, regular audits and adjustments should be an ongoing process. The goal is to create a workplace where all employees are confident that the processes are fair and unbiased.

Build a better, more equitable world of work

By embracing a holistic approach to equity audits, you can create a more equitable, fair, and transparent performance process that motivates and engages employees. You'll be able to mitigate biases across your talent processes and reduce disparities in your employee experience.

Create a fairer and more equitable performance process

Learn how Culture Amp can help