1. Introduction
The Cost to Close concept provides a structured method for estimating how much an organization must invest to eliminate unexplained gender pay gaps. It builds on key elements of the company’s pay philosophy, incorporates selected pay factors, and uses multiple regression analysis to determine each employee’s mathematically predicted salary. By comparing predicted pay with actual pay, the model identifies individuals whose salaries fall below the level justified by objective factors — and calculates the cost required to close these gaps.
This article summarizes the full methodology, including the role of pay philosophy, pay factors, regression models, interpretation of predicted pay visualizations, and how the Cost to Close model highlights necessary adjustments.
2. Pay Philosophy and Pay Factors
A clearly defined pay philosophy guides how compensation decisions are made and ensures fairness, consistency, and alignment across the organization. In the Cost to Close model, pay philosophy shapes which pay factors are considered legitimate explanations for salary differences.
Pay Factors (as outlined in the material):
Level – objective job complexity based on job evaluation
Performance – quality and consistency of the individual’s contribution
Age – used as a proxy for relevant experience
Tenure – time in the company or role, which can result in incremental increases
These factors should be applied sparingly and thoughtfully. They are only valid explanations when they align with the company’s documented pay philosophy. If a pay factor does not reflect the real driver behind a salary difference, it should not be used as justification in a pay equity investigation.
3. Adjusted vs. Unadjusted Pay Gap
The unadjusted pay gap compares average pay between genders without considering any contextual factors.
The adjusted pay gap requires deeper analysis:
Multiple regression is used to determine how much of the unadjusted gap can be explained by chosen pay factors.
Whatever remains unexplained is considered the adjusted pay gap, which may indicate potential inequities.
This analytical approach ensures the organization is not misled by raw averages and instead examines gender differences through a structured, mathematically controlled lens.
4. Predicted Pay – How It Works
The platform calculates each employee’s predicted salary by applying a regression model using the selected pay factors. The output is visualized on a scatter plot:
How to interpret the graph
Y-axis: The employee’s actual current salary
X-axis: The mathematically predicted salary
Solid central line: Perfect alignment — actual pay equals predicted pay
Broken lines above and below: Accepted standard deviation boundaries
Employee Placement
On the solid line: Salary is exactly as predicted.
Between the broken lines: Salary is within the expected mathematical range.
Above the upper boundary: Salary is higher than predicted — may be explainable by additional factors (e.g., retention risk, market scarcity).
Below the lower boundary: Salary is lower than predicted — requires explanation.
If no objective justification exists, a salary adjustment may be needed.
Example from the material
When Age (as experience) and Grade Level are used as pay factors, the model answers the question:
If these factors fully determined salary, what should each employee’s pay be?
This forms the basis for identifying potential inequities.
5. Cost to Close – Purpose and Function
The Cost to Close model calculates the overall financial impact of adjusting salaries that fall below their predicted levels.
What Cost to Close does:
Uses the same regression model and pay factors as predicted pay
Identifies employees whose current salary is below the tolerated adjusted gap threshold
Calculates:
The amount needed to bring each individual to their justified salary
The total cost required for the organization to close the identified gaps
Current model limitations (as noted in the file):
The model currently only captures women whose salaries need adjustment to achieve the allowed adjusted pay gap.
What organizations should do:
Download the list of suggested salary increases
Review each case thoroughly
Investigate context with managers
Confirm or refine adjustments based on legitimate pay-setting principles
The Cost to Close model is an overview tool — it does not replace investigation but highlights where attention is needed.
6. Using Cost to Close in Pay Equity Strategy
Cost to Close allows organizations to:
Estimate the financial impact of achieving full pay equity
Prioritize which cases need immediate adjustments
Integrate findings into annual salary reviews
Support budget planning for long-term fairness initiatives
Provide evidence for management decisions and compliance reporting
By moving from identifying inequities to calculating economic implications, the tool bridges the gap between diagnostics and action.
7. Summary
The Cost to Close model combines pay philosophy, defined pay factors, and regression-driven predicted pay to reveal where salary adjustments are required to address unexplained gender pay gaps. Through a clear visual model and downloadable case list, it enables organizations to quantify and plan the financial steps needed to close inequities. As part of a broader pay equity strategy, Cost to Close empowers HR and leadership to make fair, transparent, and data-informed compensation decisions.