Will the DEI Backlash Bury Pay Equity, Too? That'd Be a Costly Mistake | Opinion

The past few months have seen upheaval in the employment law compliance landscape. The headlines mostly reflect the eradication of all federal diversity, equity and inclusion (DEI) programs.

But one of the greatest impacts to the private sector was eliminating the requirement to prepare most Affirmative Action Plans (AAPs) by federal contractors and subcontractors—which among other things required companies to conduct pay analyses. So what happens when companies stop analyzing pay for unlawful disparities?

Anyone who has done this work understands the significance of abolishing a regulatory framework that's been in place for more than half a century. Many of us feel that rather than addressing areas that could stand improvement in these programs, the White House has thrown out the proverbial baby with the bathwater.

There are businesses whose sole focus is the preparation and defense of AAPs; people employed at large companies whose role is to implement a compliance program; and consultants and law firms with advisory practices. Much of that work disappeared with the stroke of the president's pen.

The underlying assertion is that DEI and AAPs are discriminatory. Done correctly though, they are not. Still, many of us who have practiced as employment lawyers know that, on occasion, well-intentioned programs have pushed the boundaries of Title VII of the Civil Rights Act of 1964, which prohibits employment discrimination. Programs designed to expand opportunity for some have not ensured it for all.

Good Intentions Are Sometimes Misconstrued

One of the most difficult challenges of rolling out bold DEI programs is not how they are designed, but how they are received and implemented. A lawfully designed program, during the information cascade down to a frontline manager, can be received and interpreted differently than as intended. "We're ensuring we remove barriers for [fill in the blank group]," can morph in people's minds to be, "you need to hire more [fill in the blank group]." Practitioners needed to be reminded that the protected category is gender, not one gender; that the protected category is race, and that everyone has a race.

A former Office of Federal Contract Compliance Programs director recently said during a Society for Human Resource Management webinar that while preferences, set-asides, and quotas have always been forbidden under Title VII, the concern has nonetheless been that companies were engaged in "preferences" under the guise of DEI. Whether unlawful preferences were mainstream, or extreme outliers, the recent White House executive order didn't draw distinction, taking aim at the entire DEI industry and a deeply entrenched regulatory framework.

What should companies do now? We're seeing many businesses establish internal groups charged with reviewing all DEI (or DEI-adjacent) practices and programs to ensure that they do not unintentionally create unlawful preferences or discrimination. We should expect that the majority of such programs will continue, though some may reappear with new branding or positioning. A diversity mentorship program may be relabeled a mentorship program.

Non-harassment and anti-discrimination training should of course continue. Employee resource groups should continue as well, provided they are open to all. For most companies, those practices may likely continue because they are at their core designed to ensure employees have equal access to opportunities. Conducting routine pay equity analyses to ensure the absence of any discrimination will continue to be a mainstay of any responsible company.

Key Question: What Happens to Pay Equity Analyses?

These are not a "diversity" practice. Nor are they "affirmative action." Pay equity analyses are conducted to ensure the absence of bias. Ideally, when making a pay decision, no one intentionally discriminates against an employee because of gender or race. But disparities can creep in when a high volume of pay decisions are happening every day, year-round.

Right now, the political red flag seems to be their label—"pay equity analyses." While the term "equity" has become as politically charged as "diversity," that should not distract companies from their underlying purpose.

In pay equity analyses, you compare employees in groupings with similar roles and responsibilities, while considering legitimate factors such as experience, skills, performance, and tenure, to determine to what extent pay differences might be occurring because of gender or race. And here is what our company has learned looking across 400,000 employees in organizations analyzed in the last year that agreed to share their anonymized data.

Most of the time—about 85 percent—pay differences are not material (or statistically significant, to use industry parlance). While men tend to earn more than women—even after controlling for things such as experience, level, and other relevant factors to ensure a "like for like" comparison—those differences do not rise to a level that labor economists, statisticians, or lawyers would say is a problem or unlawful.

In the remaining 15 percent where the differences are significant, sometimes men do earn less than women. And yet, it is most often (about 80 percent of the time) women who earn less. Or put differently, where there are disparities that need to be fixed, four out of five times they disfavor women.

When analyzing race, we find the pattern of meaningful differences to be less imbalanced. The vast majority of employees we analyzed (84 percent) are in groups with no meaningful race-based difference. Where there are meaningful differences, white employees earn more than their peers in 7.5 percent of groups. But notably, in 9 percent they earn less. This might surprise some, who assume pay inequity always favors white employees.

Pay equity has often been positioned as an issue solely affecting women. And there are mountains of research that shows it often is. But not always. What is clear is that pay equity is unquestionably a gender issue—one that deserves continual monitoring.

And companies that choose to react to the current DEI backlash by pausing further pay analyses risk eliminating a valuable trove of data insights. It is key information that can bolster a company's cultural values—regardless of whether it's called DEI or something else. Just as crucially, it is essential for creating consistent pay policies that ensure you're paying as intended, without regard to race or gender, and reflective of your desired business outcomes.

Rob Porcarelli is chief legal officer at Syndio, where he leads the company's legal strategy and shapes the development of its compensation and HR technology solutions. Previously, he spent over a decade at Starbucks, mostly recently as vice president and assistant general counsel, overseeing employment, labor, and regulatory matters.

The views expressed in this article are the writer's own.