Guide: comparable worth in small businesses

As your small business grows, you’ll need to factor employee salaries into your budget. There are numerous factors to consider when determining how much to pay your employees. The comparable worth theory is something to keep in mind as you work out fair, equitable pay. Keep reading to learn the comparable worth definition, legal requirements, and how it applies to small businesses.

Comparable worth definition

Commonly referred to as pay equity in economics, comparable worth is the idea that men and women should be equally compensated for comparable work. While it might refer to men and women in the same role, this principle can also apply to different job titles that require comparable effort, responsibilities, or skills.

Using the comparable worth theory, two professionals in very different roles might have the same value to a company. For example, your business might employ a bookkeeper and a graphic designer, both of whom contribute the same value based on KPIs or financial metrics. Despite different job titles, the two individuals hold comparable worth and should therefore receive equal pay.

Pros and cons of comparable worth

Advocates of comparable worth state that it provides a way to level the playing field between women and men. While industries are always changing, there have historically been more men in STEM fields or filling technical roles within businesses. Roles typically held by women include administrative positions, nurses, and teachers, all of which are often underpaid. With comparable worth, jobs predominantly held by men wouldn’t automatically receive higher pay than those predominantly held by women.

There is some criticism of the comparable worth theory in economics as well. Critics state that accuracy is difficult, and that the theory is overly simplistic. By comparing unrelated job roles according to poorly designed value metrics, comparable worth doesn’t always make sense. Furthermore, unlike what advocates of comparable worth believe, this theory isn’t enough to fix the wage gap.

Understanding comparable worth legislation

It’s important to distinguish between comparable worth and the idea of “equal pay for equal work”.  The U.S. government’s Equal Pay Act of 1963 requires that men and women receive the same compensation for the same job, provided the job involves equal levels of skill, effort, and responsibility.

There isn’t comparable worth legislation that’s as clearly set in stone as the Equal Pay Act. While the Equal Pay Act requires small businesses to pay the same wages for the same job title and level of experience, advocates of comparable worth say that this idea should go a step further. It’s more focused on the value that workers provide, rather than the title itself.

Another piece of legislation related to comparable worth is the Civil Rights Act of 1964. Title VII states that workers must not be discriminated against due to:

• Religion

• Race

• Color

• Sex

• National Origin

This legislation hasn’t been enough to close the wage gap yet, which is why comparable worth is an additional tool to consider.

How to apply comparable worth theory

Now that you understand the comparable worth definition and related legislation, how can you apply it to your business? To get started, you’ll need to assign value to each position within your organization. You’ll need to consider salaries, benefits, and other hiring expenses as part of the conversation surrounding equal pay. At the same time, you can apply comparable worth theory by striving to eliminate bias surrounding certain job titles like engineers and accountants.

Comparable worth is an idea gaining traction, but it can also impact your bottom line because companies pursuing this tend to offer higher pay overall. It’s important to weigh all factors carefully when working out employee salaries.

We can help

GoCardless helps you automate payment collection, cutting down on the amount of admin your team needs to deal with when chasing invoices. Find out how GoCardless can help you with ad hoc payments or recurring payments.