How Do You Perform a Pay Equity Analysis? A Practical Guide for Employers

Pay equity has moved from a compliance exercise to a strategic priority for organisations across the UK. With growing regulatory expectations, increased employee awareness and heightened scrutiny from investors and Boards, employers are under pressure to demonstrate that pay decisions are fair, consistent and evidence-based. This article explains how do you perform a pay equity analysis, outlining the key steps, common pitfalls and how organisations can turn insight into meaningful action.

What is a pay equity analysis?

A pay equity analysis is a structured assessment of whether different groups of employees are paid fairly when performing comparable work. It examines pay differences across characteristics such as gender, ethnicity and disability, while accounting for legitimate factors like role, grade, location and experience.

Understanding how do you perform a pay equity analysis is critical because headline pay gaps alone do not explain why disparities exist. A robust analysis goes deeper, identifying root causes and highlighting where action is genuinely needed.

Why pay equity analysis matters

Pay equity is now a key governance and reputational issue. In the UK, gender pay gap reporting is a legal requirement for many organisations, and expectations around ethnicity and disability reporting continue to grow.

A well-executed pay equity analysis helps organisations to:

• Meet and exceed reporting requirements

• Identify structural and systemic drivers of pay gaps

• Build transparent and defensible pay frameworks

• Strengthen employee trust and engagement

• Demonstrate accountability to regulators, investors and Boards

At Indigo Reward, we’ve seen how accurate analysis can shift pay equity from a compliance burden to an opportunity for cultural and organisational improvement.

How do you perform a pay equity analysis? Step by step

1. Define the scope and objectives

The first step in understanding how do you perform a pay equity analysis is being clear on what you are analysing and why. This includes deciding which pay gaps to assess (gender, ethnicity, disability), which employee populations to include, and whether the focus is compliance, diagnosis or action planning.

Clear objectives ensure the analysis delivers insight that decision-makers can act on.

2. Prepare and validate your data

Pay equity analysis relies on accurate, high-quality data. This typically includes:

• Base pay, allowances and variable pay

• Role, grade or job level

• Working patterns and location

• Demographic data (where disclosed)

Data must be consistent, complete and auditable. Poor data quality is one of the most common reasons pay equity analysis fails to deliver meaningful insight.

3. Calculate headline pay gaps

For gender pay gap reporting, this involves calculating mean and median pay gaps in line with UK legislation. Similar methodologies can be applied to ethnicity and disability pay gaps.

While these figures are essential for reporting, they only show the symptoms, not the causes. Knowing how do you perform a pay equity analysis means going beyond these headline numbers.

4. Conduct diagnostic analysis

This is where real insight emerges. Diagnostic analysis explores what is driving observed pay gaps by examining:

• Representation across grades and roles

• Pay differences within comparable roles

• Progression, promotion and hiring patterns

• Part-time and flexible working impacts

By controlling for factors such as job level and function, organisations can identify whether gaps are structural, systemic or isolated.

5. Assess pay equity within roles

A critical part of how do you perform a pay equity analysis is reviewing pay consistency within comparable roles or job families. This helps identify unexplained pay differences that may require adjustment or further investigation.

This analysis supports fair pay practices and reduces the risk of equal pay challenges.

6. Benchmark and contextualise findings

Pay equity does not exist in isolation. Comparing your pay positioning and gap metrics against sector and market data helps contextualise results and inform realistic action plans.

Benchmarking also supports Board-level discussions and strengthens external credibility.

7. Develop an evidence-based action plan

Insight without action erodes trust. Effective pay equity analysis leads to clear, prioritised actions that address root causes rather than symptoms.

Actions may include:

• Reviewing pay structures and job levelling

• Improving recruitment and progression processes

• Targeted pay adjustments

• Enhanced governance and decision-making frameworks

Understanding how do you perform a pay equity analysis means linking data directly to practical, measurable change.

8. Report and communicate transparently

Clear communication is essential. Organisations must be able to explain their findings, actions and progress in a way that is accurate, defensible and accessible.

Indigo Reward supports clients with external disclosures, Board reporting and employee communications—ensuring clarity, consistency and confidence.

Common pitfalls to avoid

Even well-intentioned organisations can undermine their analysis by:

• Relying solely on headline pay gap figures

• Ignoring data quality issues

• Failing to control for role or grade

• Treating pay equity as a one-off exercise

A sustainable approach recognises that pay equity analysis should be repeated regularly and embedded into reward governance.

Why choose Indigo Reward?

Indigo Reward has supported hundreds of UK and global organisations across financial services, technology, energy, engineering and professional services. Our consultants combine technical expertise in reward analytics with a deep understanding of reporting requirements and stakeholder expectations.

We deliver data leaders can stand behind—and strategies that make a measurable difference.

Final thoughts

Pay equity is about more than compliance. It is about fairness, transparency and trust. Understanding how do you perform a pay equity analysis enables organisations to move from reporting numbers to creating meaningful change.

If you need support analysing pay gaps, identifying root causes or demonstrating progress, contact Indigo Reward to discuss how we can help you move from compliance to confidence.