Establishing and Maintaining Pay Equity
In a previous article written by NFPCC in 2018, the growing concern of gender pay gaps and how they impact attraction and retention issues in corporate America was addressed. Through this process, it was discovered that the issue of the pay equity gap really was not as serious as previously thought – at least to the extent as portrayed in political circles and media outlets. The incorrect messaging generates doubt and forces the questioning of historical practice and future application of compensation programs. As compensation professionals, should we not concern ourselves with ensuring equitable pay programs across our organizations? Is there a need to continually monitor pay programs to ensure a gap is not unknowingly created? The answer is yes, but how do we ensure pay equity is properly established?
While studies have shown that most companies have done a good job of properly aligning pay, independent of race, age or gender, there remains a need to establish and maintain equitable programs based on these factors. Of course, organizations must also be careful not to take this approach too far, disallowing adjustments for more “justifiable discrepancies”, such as tenure, experience, education level, and performance. These are the true drivers of competitive programs, and if improperly managed just to ensure personal bias is excluded from the process, the effectiveness of compensation programs is compromised.
Strict adherence to pay equity without considering distinctions across employees with similar duties can be detrimental to the morale and commitment of your employees, and the integrity of compensation-setting best practice. Compensation programs should take into consideration pay equity of similar positions, but should not dictate how those plans reward the employees who distinguish themselves. Knowing when pay discrimination is actually justifiable and how to mitigate potential litigation in the future is critical to the success of your organization. Below are some methods to consider for establishing the foundation for justification:
- Developing comprehensive job descriptions that clearly define the differences in responsibility between jobs and the levels within each job.
- Establishing guidelines for flexible compensation offers, such as starting salary, raises, and promotions when planning the recruitment of incoming prospective employees. This also includes pay negotiations that either an incoming prospective employee, current employee or even the organization may initiate.
- Keeping detailed records of the reasons for each compensation decision made for each employee.
Consistency in applying these methods for all employees and not deviating without good reason is an absolute necessity. If not, these methods can no longer be considered defensible or justifiable.
The goal then should be to conduct regular pay audits to mitigate the risks. Planning for this endeavor is critical. The initial action of a successful pay audit is to identify the goals and objectives of the audit. It could be that your company is attempting to mitigate legal risk and take advantage of regulatory safe harbors. In other instances, the purpose of an audit is in response to shareholder demands for proof that a pay gap does not exist. It might be that your company simply desires assurances that employees are equitably compensated. The audit’s purpose ultimately dictates process and the methodology.
The process and methodology approach should be robust and all-inclusive, following these general steps:
- Establish the team. This should typically include HR, internal legal, outside counsel and compensation consultants.
- Conclude which employees are performing similar or comparable work. This should not be confused with equal work, as comparable is a more broad definition. This stage is where the importance of proper job titling and job descriptions is realized.
- Analyzing data based on the job groups identified in step 2. The focus of most companies over the past few years has been on gender inequality. While this is certain an area of focus, ensuring all protected employee classes are similarly assessed is important. This is a simplified analysis, reviewing the salaries of one person versus the next based on gender, race and age alone.
- The next step is the application of unique individual factors which impact compensation levels, e.g.: experience, tenure, education and performance. This process is more complicated and requires the application of specialized scoring methodologies which aid in ranking employees within each job group.
- Identifying and assessing pay discrepancies relative to federal and state laws to ensure they are justifiable. Although other reasons exist, the majority of cases justify pay differential if it can be demonstrated that the variance is attributed to i) a seniority-based system, ii) a merit-based system, or iii) a method which quantifies earnings or quantity or quality of production.
- The last step is documentation and taking corrective action where necessary. It is highly probable that discrepancies will be identified. These will likely be minimal and the impact marginal, but adjustments will likely need to occur.
Although not the systemic problem portrayed by radical media and politicians looking to sway the vote, pay equity is nonetheless an issue which needs constant monitoring. Given the regulatory and business ethics issues surrounding pay equity, compensation professionals would be remiss to simply ignore the issue and hope for the best.
NFP Compensation Consulting is ready to assist by conducting an audit to help you identify pay inequities and develop a plan to establish equitable pay practices in your organization. Contact us to get started. »