Pay equity: what it is, how to run a pay equity analysis, and how to close the gaps

Pay equity has gone from a background concern to something HR and Reward leaders are being pushed on from every direction at once.

Legislation is coming whether you're ready or not, with the EU Pay Transparency Directive introducing mandatory gender pay gap reporting and a 5% threshold that most European tech companies will need to interrogate closely.

Employees are asking questions – and that same legislation will give them the right to demand answers – and leadership wants to know where the company stands before reporting obligations arrive. 

It’s also one of the toughest areas of Rewards to work on. 

One-off fixes don’t solve it. It takes deep analysis to find the gaps, understanding of where they come from, and building the processes that stop them increasing over time.

This guide covers everything People and Reward Leaders need to know: what pay equity actually means, why it matters for the business, how to run a rigorous pay equity analysis, how to close the gaps you find, and what tools can help.

What is pay equity?

Pay equity is the principle that employees should be compensated fairly for their work, regardless of gender, ethnicity, age, disability, or any other protected characteristic. 

It guarantees equal pay for equal work or work of equal value.

This is important because, in practice, that principle is widely unmet. Compensation decisions are shaped by bias – in hiring, in performance ratings, in how different roles are valued and who they’re accessible to – which means we’re left with pay gaps based on inequity.

Pay equity, pay equality, and pay parity: what's the difference?

These three terms are often used interchangeably, but they're not quite the same thing – so let’s be clear on how they’ll be used in the rest of this article.

Pay parity means paying employees the same amount for the same job. It's the most literal interpretation of equal pay – two people in the same role, at the same level, receiving the same salary, regardless of any differences in gender, race, or other protected characteristics

Pay equality is the same as pay parity – two employees who perform the same role should be paid equally, allowing for no discrimination based on gender, race, or other protected characteristics.

Pay equity takes it a step further, meaning equal pay for equal work or work of equal value – not just employees performing the same role, but evaluating the relative value of all job positions and ensuring that different roles of equivalent value are compensated fairly relative to one another. This is a more demanding standard, and it's the concept at the heart of much pay equity legislation – like the EU Pay Transparency Directive for European companies.

Why pay equity matters for a business

Pay equity has always been the right thing to do. But today there are also a breadth of business consequences when it's not managed well – across retention, performance, talent attraction, and legal compliance:

• Legal compliance. Pay equity legislation is accelerating across Europe and beyond. The EU Pay Transparency Directive introduces mandatory gender pay gap reporting, employees' right to pay information, and the requirement to conduct a joint pay assessment for any unexplained gap above 5% within a category of workers doing equal work or work of equal value. Companies that fail to comply will see fines and penalties.
• Business performance. Diverse organisations perform better, and pay equity is foundational to building and retaining that diversity. Research by McKinsey shows that diverse companies are now more likely than ever to outperform less diverse peers on profitability. In fact, gender-diverse teams on the executive level are 25% more likely to have above-average profitability. Companies in the top quartile with ethnic- and culturally-diverse teams also outperform those in the fourth quartile by 36%. 
• Talent attraction. An Edelman study found that 60% of job candidates choose employers based on alignment with their personal values – and an organisation's approach to pay equity is one of the most visible signals of those values.
• Retention and engagement. Perceived pay fairness has a direct effect on whether employees stay too. Research by Gartner found that employees who perceive their pay as inequitable have a 15% lower intent to stay than those who don't – and for those who do stay, engagement is down by 13%. Pay equity isn't just an ethical question, it's a retention lever.

How to run a pay equity analysis

A pay equity analysis is a systematic review of your employee compensation data to determine whether employees are being paid fairly across protected groups. 

Running one rigorously means following a clear process and being honest about what you find.

As Isha Smith, Global Head of Rewards at Soundcloud, puts it: "Introspection is crucial when it comes to pay equity. If you aren't able to look inwards and really dig into why pay discrepancies exist within your company's structure, systemic biases and pay equity issues may never come to light."

Here’s the 7 key steps involved in conducting a pay equity analysis:

Step 1: Define the scope of the analysis

Before pulling any data, decide what the analysis is going to cover.

• Which protected characteristics? Gender is the most common starting point, and the focus of most legislative requirements. But, a best practice analysis examines all relevant protected characteristics: ethnicity, age, disability status, etc. Pay disparities can exist across any of these dimensions, and looking at gender alone can miss significant issues.
• Which pay components? Base salary is the minimum, a complete analysis also covers bonus (actual paid, not target), equity, and any benefits with a monetary value – and this total rewards analysis is what’s required for reporting under EUPTD. 
• Which employee population? Typically all employees, but you may choose to prioritise a particular region or function first, especially if you have reason to believe issues are concentrated there.

Step 2: Gather and clean your data

A pay equity analysis is only as good as the data underpinning it. 

You'll need employee compensation data (base salary, actual bonus paid, equity grant value, total compensation) alongside their job level, job function, location, tenure, performance rating (if applicable), employment type, and protected characteristic identifiers.

Most of this can be extracted from your HRIS and payroll systems – or your compensation system if you use a tool like Ravio.

Clean and validate the dataset before you start analysing – check for missing values, inconsistent job titles, and level mismatches between systems. Missing or bad data can distort the entire analysis, so this preparation step is often where the most time goes.

Step 3: Determine the relative value of each role

Before you can compare pay fairly, you need a consistent view of the relative value of every role in the business.

This is where job evaluation comes into play – a structured methodology (like the point factor method or job ranking) that assesses each role against objective criteria such as skills, effort, responsibility, and working conditions, producing a comparable score or ranking across the entire organisation.

The output of that process is your comparable groups: sets of roles that score equivalently and therefore represent work of equal value. 

These groups are what make the pay gap calculation in the next step meaningful – rather than comparing pay across the whole organisation or within arbitrary function boundaries, you're able to compare pay between employees whose work has been assessed as equivalent. 

Any gap that exists within those groups can't be explained away by differences in role or seniority, which means it needs a legitimate justification or it needs to be fixed

For EUPTD compliance specifically, job evaluation is the mechanism for defining your "categories of workers performing equal work or work of equal value" – the groups within which the Directive requires you to report your gender pay gap. 

Step 4: Calculate the pay gap

With your comparable groups defined, you can now calculate the pay gap in a meaningful way. Most organisations look at this at multiple levels – starting broad and working towards the more granular analysis that actually tells you whether pay discrimination exists.

What to include in your calculations:

• The overall company pay gap is the natural starting point, calculating the mean or median gender pay gap between men and women across the entire organisation. This is your headline number, telling you the scale of the overall earnings gap – but you need to interrogate further to truly understand your internal pay equity and address it. 
• Cuts by function, level, or location apply the same comparison within a defined subset – the pay gap within Engineering, the pay gap at management levels, the pay gap in a specific location. This surfaces where disparities are concentrated within your organisation, helping you to get to the root cause and prioritise where to make changes.
• Comparable cohort analysis means calculating the pay gap within the comparable groups you defined in step 3 – employees doing work of equal value – which gives you the most robust understanding of pay discrimination, the unexplained earnings difference between groups doing equivalent work.
• Regression analysis goes one step further, controlling simultaneously for all legitimate factors that might explain pay differences within a cohort – tenure, performance rating, time in role – to isolate whether a protected characteristic remains a predictor of pay once everything else is accounted for. This is the most statistically rigorous approach to pay equity analysis. 

For most People and Reward teams, the comparable cohort approach is the right level of rigour for a routine analysis – it enables you to understand which factors are impacting pay equity in your organisation, and it prepares you for legislative requirements. 

Start with the overall company gap as your baseline, cut by function and level to find concentrations, then calculate the gap within your comparable groups to identify where genuinely equivalent employees are being paid differently.

Step 5: Analyse band position by protected characteristic

Alongside the gap calculation, it’s worth examining where employees sit within their salary bands, broken down by protected group – using compa ratio or salary range penetration as the measure.

If women and men in the same cohort have the same median salary, but women cluster consistently in the lower half of the band while men cluster in the upper half, there's a systematic pattern in how pay decisions are being made that will compound over time as those employees receive percentage-based increases.

For Isha Smith, salary band position analysis should be a standard part of every pay equity audit, and can tell you where to start with making improvements. "If you identify that salary band outliers tend to be women – or that female employees are generally in the lower part of the band whilst men are in the upper – it's well worth interrogating your hiring process," says Isha. "Those discrepancies don't appear by accident."

Step 6: Examine where in the lifecycle gaps arise

Don't just analyse the current state of pay – examine where gaps are introduced and how they develop over time. 

Compare starting salaries for new hires broken down by protected group, promotion rates and promotion pay increases by group, and merit increase percentages by group.

As Matt McFarlane, Director at FNDN, observes: "Companies publishing their data and checking the compliance box are not addressing root causes.”

“Transparency alone doesn't fix systematic pay equity issues – it's the promotion patterns, role levelling inconsistencies, negotiation biases that need to be looked at deeper."

Ravio’s data, for instance, finds that the gender pay gap in tech is largely introduced at the point of hire, not through internal progression. Men and women in European tech have similar promotion rates of around 7-8% – which means that the gap that exists in current salaries was most likely there from day one. If that’s true in your organisation, hiring is the place to focus in terms of action.

Step 7: Develop an action plan (and communicate it)

Document the analysis and use it to build a remediation plan.

That plan should include immediate fixes: adjusting pay where disparities are unjustified, prioritising the most significant gaps first. 

And it should also include interrogating the root causes: if gaps are entering at hire, the hiring process needs to change. If they're concentrated in a particular function or management level, the compensation decisions being made in those areas need scrutiny. 

Fixing current outliers without addressing what created them means the same gaps will reopen in the next review cycle.

Present the plan to leadership with clear ownership, timelines, and budget implications. Pay equity fixes won't happen without executive buy-in, and the data from the analysis is what makes that conversation concrete.

Once the plan is in motion, communicate it. 

Being transparent with employees about findings and next steps – even when the results are uncomfortable – builds significantly more trust than treating pay equity as an internal compliance exercise. 

Employees don't need to see every number, but they do need to understand that the organisation takes this seriously, what it found, and what it's doing about it.

Step 8: Monitor, and review

Pay equity isn't a one-time project.

Markets shift, organisations restructure, new people are hired –gaps can reopen quickly if they're not actively monitored. 

Build pay equity analysis into your regular compensation review cycle so it's reviewed at least annually, disparities are caught early, and the fixes you've made don't quietly unravel over time.

How to close pay gaps

Understanding where pay gaps come from is the first step to closing them. The actions you take will depend entirely on what the root causes look like in your specific organisation – which is why the audit comes first.

1. Audit your data and identify root causes

A pay equity analysis tells you where gaps exist. The harder work is understanding why. 

For each gap identified, interrogate the mechanism: is it in starting salaries, in merit increases, in promotion rates, in bonus eligibility? Is it concentrated in a particular function, manager, or hiring cohort?

The findings determine the fix. The most common root causes in European tech are: 

• Underrepresentation at senior levels. The biggest driver of the unadjusted gender pay gap is representation. Women make up 40% of the European tech workforce but hold just 21% of executive roles. Because senior positions command significantly higher salaries, a workforce where men disproportionately hold senior roles will show a large overall earnings gap – even if every individual is paid fairly for their role. 
• Gaps introduced at the point of hire. Ravio's data shows that the gender pay gap in tech is primarily created at the moment of hiring, not through internal progression. Starting salary offers for women are systematically lower than for men doing equivalent work – a finding that points directly at bias in the hiring process, whether through unconscious bias in offer decisions, negotiation dynamics that disadvantage women, or the compounding effect of salary history being used to anchor new offers.
• Bias in male-dominated functions. Certain areas of the organisation consistently show elevated adjusted pay gaps. In European tech, Engineering (7.4% adjusted gap) and Data (5.5%) are the highest-risk functions – both traditionally male-dominated functions.
• Caregiving responsibilities disproportionately affect women's careers. Women are significantly more likely than men to reduce hours or withdraw from full-time employment after having children. Career interruptions and the ongoing management of caregiving responsibilities limit progression into senior roles over time, compounding the representation gap at the top.

2. Fix existing outliers immediately

Once you've identified employees paid below where they should be – whether below their salary band or below their cohort peers after controlling for legitimate factors – address those gaps and outliers directly through pay adjustments.

For underpaid employees, the aim is to bring salary into equity with peers as quickly as budget allows – ideally immediately, or through incremental increases within the normal review cycle if not.

3. Check your compensation foundations

Without the right underlying structures, compensation decisions default to individual judgement – and individual judgement is where bias enters.

Monica Öberg, Fractional HR Leader and Pay Equity Consultant, puts it simply: "Job levelling is the most natural place to start. Well-defined levels give you an anchor for salary offers and promotions, which removes a lot of bias and back-room negotiating that leads to inequity."

The foundational elements are:

• Job architecture: a consistent framework of job levels, titles, descriptions, and career tracks that applies the same logic across every function in the organisation – using a job evaluation methodology to compare each role too. Without it, two people doing work of equivalent scope and impact can end up at different levels simply because they sit in different teams, creating pay disparities that are structural rather than discriminatory but equally hard to justify. 
• Salary bands: defined pay ranges for every role and level, built on reliable benchmarking data. Bands give hiring managers and Reward teams a structured framework for pay decisions rather than a blank sheet. When every offer and every increase is made within a defined range for that role and level, the scope for individual bias is significantly reduced.

Together, these structures shift compensation from a series of individual decisions to a consistent, documented process – which is both the practical foundation for pay equity and, increasingly, a compliance requirement.

4. Fix the processes where gaps are entering

If the audit points to hiring or compensation review processes as the source of gaps, those processes need to change – not just the outcomes they're producing.

On hiring:

• Remove salary history from the process – basing new offers on a candidate's previous salary only perpetuates whatever gaps existed in their previous employer's compensation.
• Use your salary bands, informed by reliable benchmarking data, to anchor offers. Some companies go further and make offers non-negotiable entirely, presenting the band position based on the candidate's experience and leaving nothing to negotiate – removing the variable that systematically disadvantages women.
• Review job description language. Gendered language in job ads affects who applies – male-coded words like "competitive" or "aggressive" demonstrably discourage female applicants. More neutral language broadens the pool before the process even begins.
• Require diverse candidate pools for all roles, particularly senior ones. As Elena Pantazi, Partner at Northzone, notes: "Founders are tempted to go with the funnel they have, often through their network, which can be very male-dominated. Where we've seen companies be really thoughtful about this is by proactively planning to hire for a certain percentage of diversity and taking the time to broaden the funnel."
• Standardise the interview process and ensure diverse panels. Unstructured interviews are a significant source of unconscious bias. Standardising questions across all candidates for a role, and ensuring panels aren't all-male, reduces the scope for subjective judgement to influence both hiring decisions and offer levels.

On compensation reviews:

• Analyse pay equity before other adjustments are made. Vicky Peakman, Director at Fair Pay Partners, is clear on this: "Pay equity fixes should go in first, so that any performance or market increases are on top of those." Applying a market or performance increase to a salary that already reflects a pay equity issue compounds the disparity rather than resolving it.
• Use a merit matrix that factors in band position alongside performance – ensuring merit decisions don’t compound existing disparities.
• Ensure manager discretion has clear guardrails and documented rationale. Without structure, discretion becomes a vector for bias rather than a source of useful context.
• Train managers on bias and equip them to make and explain compensation decisions consistently. As Monica Öberg notes: "Don't make them improvise – give them the frameworks, the data, and the example scripts they need."
• Design calibration sessions that specifically review for patterns across protected groups – not just whether individual decisions are defensible, but whether the picture across the whole team reveals any systematic skew.
• Run a final pay equity check before adjustments are communicated. Once all decisions are finalised, review the full picture for patterns before anything goes out to employees – it's the last opportunity to catch anything that's slipped through.
• Track outcomes over time to assess whether the review cycle is improving the overall picture, not just whether individual gaps were fixed in this cycle.

Pay equity analysis tools and software

Running a pay equity analysis in a spreadsheet is possible, but it's slow, error-prone, and increasingly impractical as the analysis needs to become a regular part of the compensation cycle rather than an annual project. 

Dedicated pay equity software automates the data collection, statistical analysis, and reporting – making it significantly easier to identify where gaps exist, understand why, and track whether remediation efforts are working over time.

Most platforms integrate directly with your HRIS and payroll systems to keep data current, offer dashboards that let you cut the analysis by function, level, location, and protected characteristic, and produce reports that can be shared with leadership or used for regulatory reporting.

The main options in the market serve different needs and organisation sizes.

1. Ravio 

Ravio’s pay equity analysis tool sits within a broader compensation management platform – combining pay equity analysis with salary benchmarking and salary band management in a single tool. 

Pay equity analysis is broken down by job function, level, and location, and sits alongside real-time market benchmarking data, making it straightforward to identify where gaps exist and whether they reflect market positioning issues or internal equity issues. 

Ravio’s pay equity module is well-suited to European tech companies that want pay equity analysis connected to their day-to-day compensation decisions rather than treated as a separate compliance workstream.

2. Syndio

Syndio is the largest specialist pay equity platform globally, used primarily by large enterprises. It uses regression analysis to identify and explain pay gaps across gender, race, ethnicity, and other demographics, and includes tools for modelling remediation costs and ongoing monitoring. 

Syndio is strong on analytics depth and compliance reporting; but enterprise pricing may make it less accessible for smaller organisations.

3. PayAnalytics (by Beqom)

PayAnalytics (by beqom) is a specialist pay equity platform with strong global compliance coverage, including EUPTD reporting.It includes job evaluation tools for defining comparable groups, regression-based gap analysis, and budget-optimised remediation recommendations. 

It’s well-suited to organisations with complex global workforces and significant compliance requirements.

4. PayParity (by Trusaic)

PayParity is a purpose-built pay equity platform focused on rigorous statistical analysis across multiple protected characteristics simultaneously – gender, race, age, disability, and their intersections.

It includes AI-powered remediation tools that identify the most cost-effective adjustments to close gaps, and covers compliance reporting across global jurisdictions including the EUPTD. It’s primarily suited to larger enterprises with mature pay equity programmes.

5. Gradar

Gradar is a job evaluation and compensation platform that uses a point-factor methodology to grade every role in the business against objective criteria, then layers pay equity analysis and gender pay gap reporting on top of that foundation. 

It combines job architecture, salary band management, market benchmarking, and equal pay analysis in a single platform. 

Gradar is well-suited to organisations that need to build or formalise their job evaluation framework as part of their pay equity work, rather than organisations that already have a mature job architecture in place and need deeper statistical analysis of gaps.

6. Brightmine (formerly XpertHR)

Brightmine combines pay equity analytics with HR compliance resources and UK salary benchmarking data. Its pay equity module provides continuous monitoring of pay gaps across demographics, forecasting and predictive modelling, and reporting tools. 

Brightmine is best suited to UK-based organisations that want pay equity analysis integrated with employment law guidance and UK-specific benchmarking.