To manage the risk of pay discrimination, organizations should conduct periodic pay equity analysis. The goal of a pay equity study or analysis is to identify problems and ensure compensation practices are fair and equitable. The study should look for trends that identify the disparate impact on wage rates. Data elements to include in the analysis are hire dates, hire rates, performance rating, merit increases, age, ethnicity, gender, and promotion dates and increases. Group the data in job classifications and departments by the hierarchy as well as grouping comparable jobs across departments. Sort the data by the various data elements to see what emerges. This analysis can identify wage inequities as well as explain some of the differences in pay among comparable employees. A thorough analysis is important for managing the risk associated with pay discrimination claims.
Differences in knowledge, skill, ability, effort or responsibility provide a legitimate basis for differences in pay among employees doing the same work. However, these factors can be difficult to validate or prove, and therefore you will need to rely on the data that is readily available including:
- Job title or grade
- Time in current job or grade
- Job duties including the degree of responsibility
- Job status (Full or part-time, exempt or non-exempt, etc.)
- The location where the employee lives and works
- Company service time
- Prior experience
- The market value of a job
- Performance Review documenting effort in terms of quantity and quality of work
Pay equity issues can occur over time as a result of flaws in a compensation process including:
- Insufficient training of Managers regarding performance, merit and other increases
- Inefficient and inconsistent merit pay processes
- Decisions being made in “silos” and without consistent checks such as HR/Compensation approval
- Making decisions without market or internal data for guidance
- Reactive hiring decisions relative to “hot” jobs
- Poorly maintained salary structures that have not kept step with the market
- Failure to reclassify jobs as changes in responsibility occur
A pay equity study will involve the input an experienced compensation analyst and/or specialist as well as HR information systems and may involve appropriate legal counsel. Once pay inequities are discovered, HR will need to determine a timeline and the funding for the pay equity adjustments.
In 2009, President Obama signed into law, the Lilly Ledbetter Fair Pay Act which increased organizations’ exposure to pay discrimination claims by overturning a rule that workers must sue for pay discrimination within 180 days after the original pay decision was made. As a result of the Act, each paycheck now resets the clock and employees can file lawsuits for perceived discriminatory pay decisions even if the pay decision occurred years earlier. So, it is more important than ever for employers to carefully document all pay decisions and stay on top of pay equity in their organizations.
In 20016, the Obama administration announced executive action which requires companies with 100 employees or more to report to the federal government how much they pay their employees broken down by race, gender, and ethnicity. It is hoped that this transparency will help to root out discrimination and reduce the gender pay gap.
On March 27, 2019, the U.S. House of Representatives voted to pass the Paycheck Act, an act designed to amend and strengthen the existing federal Equal Pay Act. The Act further provides that the “bona fide factor” justifying gender-based pay disparities would only apply where “the employer demonstrates that such factor is: 1) not based upon or derived from a sex-based differential in compensation, 2) is job-related with respect to the position in question, 3) is consistent with business necessity; and 4) accounts for the entire differential in compensation of issue.” The Paycheck Fairness Act has been moved to the Senate for consideration and voting.
At WageWatch our compensation consultants are focused on your organization’s compensation needs and ready to help you ensure that your compensation programs are supporting your company’s business strategy and objectives and that your pay practices are fair, equitable and non-discriminatory. We can provide your business with compensation surveys and salary reports to help you establish a budget for your merit pay program, including bonuses and incentives. Our innovative company is a leader in the collection of data for surveys and salary reports, which allows us to provide services to a wide range of industries in both the private and public sector. To learn more about our compensation surveys, salary reports, and other services. Please call 480-237-6130 or contact us online.