How the DEI backlash could impact pay equity efforts, according to experts

[ResidentialBusiness]

Despite the decades-long precedent set by the Equal Pay Act—which prohibits sex-based wage discrimination—and similar laws at the state level, true pay equity has remained elusive. The gender pay gap actually increased in 2023 for the first time in 20 years, with women earning 83 cents on the dollar compared to men. 

Even amid vocal pushback from the business community, pay transparency has emerged as a tool to help promote equal pay, by empowering workers who have historically been undercompensated or at a disadvantage during hiring negotiations. Across 14 states, employers are now required to provide clear pay ranges in job listings or directly share that information with candidates during the hiring process.

As private sector companies have been forced to comply with these new laws—and have sought to demonstrate their commitment to diversity, equity, and inclusion—many of them have invested in pay equity audits to ensure their workers are being paid fairly (and to protect against potential legal claims). According to the Society for Human Resource Management, three in four employers now conduct regular pay equity audits.

“Numbers don’t lie,” says Melanie Naranjo, the chief people officer at HR compliance platform Ethena. “If you think you’ve got fair and equitable processes in place that make decisions based solely on merit, but your numbers show that women make less money than their male counterparts for the same role, the fact of the matter is: You’ve got an equity issue, and your company isn’t as merit-based as you thought.”

Given the current political climate, however, it’s possible the anti-DEI measures that have been championed by conservative activists—and now the federal government—could set back pay equity efforts in the workplace. Trump’s executive orders have ushered in some consequential changes to the level of oversight that the government has historically exercised over federal contractors, which required that those companies do an annual pay analysis to ensure compliance with antidiscrimination laws.

By revoking a 1965-era executive order, which was originally intended to prevent discrimination in federal contracting, Trump has effectively undone those reporting requirements for a broad swath of companies that do business with the government. According to the Center for American Progress, that means 36 million workers could lose out on protections against employment discrimination. 

The impact on pay equity efforts

For large employers who operate across many states and must comply with a range of pay-related laws, these changes may not carry as much weight. But experts caution that they could give cover to employers that were only conducting audits to comply with the law—or those looking for an excuse to stop investing in pay equity efforts. “What we are worried about is people pausing on pay equity work—because pay equity work is something you should do anyway,” says Rob Porcarelli, the chief legal officer at pay transparency solutions company Syndio. “It’s quintessentially anti-discriminatory.” 

Beyond the impact on federal contractors, some fear that the growing DEI backlash—and the emphasis on merit being the sole consideration in hiring decisions and career progression—could discourage companies from taking a deeper look at how and why they might be perpetuating pay discrepancies. “Companies may very well stop auditing for problematic trends across their employee demographics,” Naranjo says. “When problematic trends inadvertently get surfaced to them, instead of trying to root out the underlying issues, there’s a very real risk that companies will dismiss them under the guise of building a ‘meritocracy.’”

Porcarelli adds that pay equity can be perceived as something that largely benefits women—and while it’s true that women are more likely to be underpaid relative to their male peers, these programs are intended to address disparities that can impact all kinds of employees, particularly those who are underrepresented. “Some frame pay equity as a women’s issue, and so it gets swept under the umbrella of DEI,” he says.

What employers should do

While the Trump administration does not necessarily have the legal authority to curb DEI efforts in the private sector, federal contractors are in a more vulnerable position, especially given the vague language of the executive orders. “What is illegal DEI activity?” Porcarelli says. “It’s not defined.”

As Fast Company has reported, some companies have responded by pausing or reevaluating DEI programs that might be considered a violation of the executive orders—but according to Porcarelli, employers are largely finding that there’s little legal risk in pursuing pay equity initiatives. “Most are concluding [that] conducting pay equity analysis is not problematic because you’re not analyzing pay only in favor of one group,” he says. “You’re ensuring that pay is not affected with gender or race.”

Some employers, on the other hand, might arrive at a different conclusion—that they’re less likely to be targeted right now for falling short of equal pay laws. But as DEI experts have pointed out, that approach can open companies up to plenty of other legal challenges and discrimination claims—some of which have been kept at bay through diversity initiatives. 

“Aside from the expensive disruptions to productivity when employees realize they’re being paid less than their counterparts for the same exact work, [there are] the costs of having to replace high performers who quit, delayed projects as the leadership team and HR lose time running damage control, and losing actual business deals as company optics take a turn for the worse,” Naranjo says. “There’s also the incredible cost of managing lawsuits and internal allegations when employees inevitably file discrimination claims.” 

Kara Govro, principal legal analyst at compliance platform Mitratech, argues that given the long-standing precedent set by both federal law and legislation at the state level, pay equity should not really be considered “part of the DEI concept that is experiencing backlash.” There are, of course, stronger protections in place to prevent gender-based pay disparities, between the Equal Pay Act and state laws that have explicitly secured those protections; for workers, that also means it is easier to bring a pay discrimination claim on the basis of gender. 

Still, Govro believes the trend of pay transparency is a crucial tool to hold companies accountable for pay discrepancies in their workforce, given the states with laws on the books are also home to some of the largest employers in the country. At a minimum, companies have to do some pay analysis in order to share accurate compensation details in their job listings. “It almost serves as a mini audit, just to be forced to make that pay range [public],” she says. 

“We’ve just got these layers of laws that aren’t going anywhere,” she adds. “Trump’s opinion on DEI does not impact the ability to bring a claim under Title VII or the Equal Pay Act for pay disparities. If anything, I would say that employers should be leaning into pay equity audits right now. If you’re concerned that lawsuits are going to start coming from new directions, then now is the time to do that pay equity audit and make sure you’ve got it right.” 

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