Pay Gap Remediation Strategies: A Practical Guide

Introduction

Identifying pay gaps is only the first step. Effective remediation requires strategic planning, adequate budgeting, careful execution, and - critically - fixing the processes that created gaps in the first place. This guide provides practical strategies for remediating pay inequities discovered through audits.

Understanding Remediation Types

Immediate Pay Adjustments

Purpose: Correct identified unfair pay differences Scope: Individual salary increases to bring underpaid employees to fair market rate Timeline: 30-90 days from audit completion (faster is better)

Back Pay

Purpose: Compensate for past discrimination Scope: Retroactive payment for period employee was underpaid Legal Context: Required in some jurisdictions, optional in others Timeline: Calculate and distribute with or shortly after salary adjustments

Process Improvements

Purpose: Prevent future gaps Scope: Systematic changes to hiring, promotion, compensation decisions Timeline: 3-12 months to implement, ongoing to maintain

Planning Your Remediation

Step 1: Quantify the Problem

Individual-Level Analysis

• List of all affected employees
• Current salary for each
• "Should-be" salary based on model
• Gap amount ($) and percentage
• Prioritization (size of gap, years affected)

Aggregate Planning

• Total number affected
• Total remediation cost
• Percent of payroll
• Distribution by department/level
• Back pay calculations if applicable

Example Organization (1,000 employees)

Audit findings:
- 120 employees underpaid (12% of workforce)
- Average gap: $4,500
- Range: $800 - $18,000
- Total immediate remediation: $540,000 (1.8% of payroll)
- Estimated back pay (2 years): $1.08M

Step 2: Develop Budget

Immediate Adjustments

• Salary increases (ongoing annual cost)
• One-time adjustment payments (alternative to base increases)
• Benefits cost increases (if base salary increases)

Back Pay

• Calculation period (1 year? 3 years? Statute of limitations?)
• Legal interest requirements
• Tax gross-up considerations

Process Improvements

• Technology investments
• Training programs
• Consultant/expert fees
• Ongoing monitoring systems

Contingency

• Additional cases discovered
• Legal/settlement costs if litigation pending
• Buffer for calculation adjustments

Typical Costs:

• Immediate remediation: 1-3% of payroll
• Back pay: 2-6% of payroll (if required)
• Process improvements: $100K-$1M depending on size
• Total: Often 3-10% of annual payroll as one-time cost

Step 3: Secure Leadership Approval

Business Case

Risk Mitigation

• Litigation prevention
• Regulatory compliance
• Reputational protection

Employee Impact

• Retention of affected employees
• Trust and engagement
• Recruiting advantage

Cost-Benefit

• Compare to litigation costs (average employment discrimination case: $200K-$500K)
• Turnover costs of affected employees
• Brand damage costs

Phasing Options (if budget constrained)

• Immediate: Most egregious gaps (>10%)
• 6 months: Significant gaps (5-10%)
• 12 months: All identified gaps
• Ongoing: Process improvements

Remediation Strategies

Strategy 1: Immediate Base Salary Adjustments (Recommended)

Approach:

• Increase base salary to fair market rate
• Effective immediately or next pay period
• Permanent increase in compensation

Pros:

• Ongoing benefit to employee
• Clear and straightforward
• Signals commitment to equity
• Affects future raises, bonuses, retirement

Cons:

• Highest ongoing cost
• May trigger questions from others
• Visible in systems

Implementation:

1. Calculate required increase for each employee
2. Process as off-cycle merit increases
3. Code appropriately in HRIS
4. Communicate to affected individuals
5. Update all relevant systems

Communication:

• Individual notification (email or meeting)
• "Following our regular pay equity review, we identified an adjustment needed to ensure your compensation aligns with your role, experience, and performance"
• New salary amount and effective date
• Opportunity for questions

Strategy 2: One-Time Lump Sum Payments

Approach:

• Calculate fair salary
• Provide difference as one-time bonus/payment
• Do not increase base salary

Pros:

• Lower ongoing cost
• Can be done immediately
• Less system complexity

Cons:

• Does not fix ongoing underpayment
• May feel like "hush money"
• Doesn't compound in future raises
• Creates tax event

Use Cases:

• Temporary budget constraints
• Employee leaving organization
• Small gaps (<3%)
• Supplementing base adjustments

Not Recommended as sole solution for significant ongoing gaps.

Strategy 3: Accelerated Merit Increases

Approach:

• Provide larger-than-normal raises over 1-3 cycles
• Bring to equity over time rather than immediately

Pros:

• Spreads cost
• Can tie to performance
• Less noticeable

Cons:

• Slow to achieve equity
• Ongoing harm to employee
• May not reach equity before next issue
• Retention risk

Use Cases:

• Very small gaps (<2%)
• Budget severely constrained
• Combined with other strategies

Generally Not Recommended except in combination with partial immediate adjustment.

Strategy 4: Promotion or Reclassification

Approach:

• Promote employee to correct level
• Reclassify job to appropriate grade
• Adjust salary accordingly

Pros:

• Addresses leveling problems
• Career advancement
• Positive framing

Cons:

• May not be appropriate for all cases
• Creates other equity questions
• Complex if many employees

Use Cases:

• Employee clearly performing at higher level
• Job leveling/titling was root cause
• Legitimate promotion opportunity

Caution: Don't artificially promote to fix pay gaps - address actual pay issue.

Recommended Hybrid Approach

For Most Organizations:

1. Immediate base salary adjustments for all significant gaps (>3%)
2. One-time payment to bridge timing (if delay before salary adjustment effective)
3. Accelerated merit for very small gaps or budget constraints
4. Back pay if legally required or significant historical harm

Handling Special Cases

Employees Near Top of Range

Challenge: Fair market rate exceeds published range maximum

Options:

1. Adjust salary above range with executive approval
2. Revise range to accommodate market reality
3. Create senior-level position
4. Provide market adjustment exception

Recommendation: Fix the salary and the range.

Employees Leaving/Left Recently

Challenge: Discovered gaps for recently terminated employees

Options:

1. Provide settlement payment for period employed
2. Contact proactively with remediation offer
3. Include in any settlement discussions

Legal Considerations:

• Statute of limitations
• Release agreements
• State wage claim deadlines

Recommendation: Remediate retroactively to demonstrate good faith.

Employees on Leave

Challenge: Maternity leave, disability leave, sabbatical

Approach:

• Include in remediation (don't wait for return)
• Effective date same as others
• Communicate appropriately
• Document

High Performers vs. Low Performers

Challenge: Should performance affect remediation?

Answer: No. The audit controlled for performance. If the gap exists after controlling for performance, it should be fixed regardless.

Exception: If performance rating system itself is biased, may need separate remediation there.

Back Pay Calculations

Legal Requirements

When Required:

• Iceland: Mandatory for certification
• Some US state laws
• Litigation settlements
• Collective bargaining agreements

When Optional:

• UK Gender Pay Gap reporting
• Many other jurisdictions
• Proactive audits

Calculation Methods

Simple Method:

Back Pay = (Fair Annual Salary - Actual Annual Salary) × Number of Years

Example:
Should have earned: $80,000
Actually earned: $72,000
Years: 3
Back pay: ($80,000 - $72,000) × 3 = $24,000

Detailed Method (more accurate):

• Calculate monthly or pay-period shortfall
• Account for salary changes over time
• Add interest if required by law
• Include bonus/incentive shortfalls

Tax Considerations:

• Back pay is taxable income
• May push employee into higher tax bracket
• Consider tax gross-up
• Timing of payment affects tax year

Statute of Limitations

Varies by Jurisdiction:

• US Federal: 2-3 years typically
• Some states: Up to 6 years
• UK: No limitation for equal pay claims
• Plan for maximum possible exposure

Process Improvements: Preventing Future Gaps

Root Cause Analysis

Common Root Causes:

Starting Salaries

• Reliance on prior salary
• Biased negotiation
• Manager discretion
• No salary ranges

Raises and Bonuses

• Subjective performance ratings
• Inconsistent application of guidelines
• Manager bias
• Budget allocation differences

Promotions

• Opaque processes
• Sponsorship bias
• Limited opportunities
• Unequal pay increases with promotion

Hiring Process Reforms

Standardize Starting Salaries

• Salary ranges by level
• Formula-based offers
• Limited discretion
• No negotiation or structured negotiation

Remove Salary History

• Don't ask about prior compensation
• Base offers on market data and internal equity
• Focus on expectations, not history

Structured Interviews

• Standard questions
• Scoring rubrics
• Diverse interview panels
• Documented decision criteria

Offer Approval Process

• Compensation team review
• Equity checks before finalizing
• Dashboard with peer comparisons
• Executive approval for exceptions

Performance Management Reforms

Calibration Sessions

• Cross-department calibration
• Demographic analysis of ratings
• Challenge biased distributions
• Documentation requirements

Structured Rating Criteria

• Clear performance levels
• Observable behaviors
• Objective metrics where possible
• Reduce subjectivity

Bias Training

• Unconscious bias awareness
• Rating accuracy
• Evidence-based assessment
• Regular refreshers

Compensation Decision Reforms

Merit Increase Guidelines

• Percentage ranges by rating level
• Budget allocation formulas
• Approval requirements for exceptions
• Equity checks pre-approval

Promotion Process

• Posted opportunities
• Formal application process
• Consistent evaluation
• Salary increase guidelines with promotion

Salary Range Structure

• Regular market updates
• Consistent application
• Clear progression paths
• Exception management

Communication Strategy

Who to Tell

Affected Employees: Must communicate

• Individual notifications
• Salary amount and effective date
• Privacy respected

All Employees: Recommended

• General communication about commitment to equity
• Process improvements
• Not individual amounts

Leadership: Definitely

• Findings and remediation plan
• Costs and timeline
• Ongoing commitments

Board/Investors: Situation dependent

• Material financial impact
• Risk management
• Governance expectations

Public/External: Strategic choice

• Some organizations publicize proactive remediation
• Builds trust and reputation
• Voluntary transparency

What to Say

To Affected Employees:

Option A: Direct "Following our annual pay equity audit, we identified that your compensation was below the market rate for your role and experience. Effective [date], your salary will increase from [old] to [new]. This adjustment ensures fair and equitable compensation across our organization."

Option B: General "As part of our regular compensation review, we're adjusting your salary to [amount] effective [date] to ensure alignment with your role and contributions."

Option C: Confidential

• Simply process adjustment
• Don't explicitly label as "equity adjustment"
• Provide if employee asks

Recommendation: Option A (direct) builds trust and demonstrates commitment. Option C can feel secretive and creates suspicion.

To All Employees: "We are committed to pay equity and regularly audit our compensation practices. This year, we made adjustments for [X]% of employees to ensure fair and competitive pay. We have also implemented process improvements to prevent gaps from emerging in the future."

Monitoring and Accountability

Immediate Post-Remediation

Verification (30 days after):

• Confirm all adjustments processed correctly
• Verify payroll system updated
• Check benefits recalculation
• Employee confirmation

Impact Assessment (90 days after):

• Retention of affected employees
• Engagement survey results
• Employee feedback
• Manager feedback

Ongoing Monitoring

Quarterly:

• New hire analysis by demographics
• Promotion rates and salary increases
• Flagging of concerning decisions
• Exception reporting

Annual:

• Full pay equity audit
• Compare to prior year
• Assess process improvements
• Benchmarking

Real-Time (if technology allows):

• Dashboard alerts for concerning offers
• Pre-approval equity checks
• Manager decision support

Accountability Mechanisms

Manager Scorecards

• Pay equity metrics
• Promotion/raise equity
• Included in performance evaluation

Executive Compensation

• Tie to diversity and equity goals
• Board oversight
• Public disclosure

Compensation Committee

• Regular board review
• Independent oversight
• Expert advisors

Conclusion

Effective remediation requires:

1. Immediate action on identified gaps
2. Adequate budget (typically 1-3% of payroll)
3. Base salary adjustments (not just one-time payments)
4. Back pay where required or appropriate
5. Process improvements to prevent recurrence
6. Transparent communication
7. Ongoing monitoring

Organizations that remediate quickly and thoroughly demonstrate genuine commitment to fairness, reduce legal risk, retain affected employees, and build trust across the organization.

The cost of remediation is always less than the cost of litigation, turnover, and reputational damage from allowing inequities to persist.

This guide provides general information and should not be considered legal advice. Organizations should consult qualified counsel for specific guidance on remediation strategies and legal obligations.