Ensuring Non-Discrimination In Compensation: Dos And Don’ts

Exclusive interview with Kevin D. Johnson, Chair, Standing Committee on Technology, The Florida Bar

 

 

“Smart decisions about transparency usually involve well-designed communication to employees that sets out the goals of the employer’s compensation philosophy and is then followed by the sharing of enough information to help the employees gain confidence that the employer’s decisions match its stated philosophy, remain internally consistent, and make sense in light of external marketplace factors,” said Kevin D. Johnson, Chair, Standing Committee on Technology, The Florida Bar. Kevin is a founding shareholder of Johnson Jackson PLLC. and is board certified in Labor and Employment Law by The Florida Bar.

In an exclusive interview with HR.com, Kevin shares his insights on how employers can ensure their compensation practices are fair and equitable, the common misconceptions that employers have about pay equity, and how can they be addressed, among others.

Excerpts from the interview:

Q: What steps can employers take to ensure that their compensation practices are fair and equitable, and what are some common pitfalls to avoid?

Kevin: Employers need to adopt and follow policies designed to ensure compliance with the non-discrimination requirements of Title VII and the Equal Pay Act. Best practices for ensuring non-discrimination in compensation usually include the following:

• Establishing a band that compensation for a given position should generally fall within.
• Deciding what factors matter in setting compensation within that band (education, experience, special training, additional responsibilities, etc).
• Requiring justifications for any compensation decisions that fall outside the band.
• When a compensation decision is being made, review how the proposed compensation level compares to that of similarly-situated comparators
• Conducting pay equity analyses from time to time.

Common pitfalls include:

• Paying a male employee more than a female employee because the male employee is a “head of household.”
• Failing to account for the effect of salary compression, especially when paying “market rates” for new hires results in an employee with less experience making more money than an experienced incumbent employee of the opposite gender.
• Not being able to identify the business justification for a given compensation decision, especially when the manager who made the compensation decision is no longer around to explain it.

Q: How can an organization conduct a pay equity analysis, and what are some best practices for doing so?

Kevin: A true pay equity analysis usually involves tabulating data about the compensation paid to various employees, cross-referencing that data with information about the demographics, duties, and performance of the employees, and then consulting with an expert who can review the data and make statistical conclusions about what that data shows.

The expert can identify which specific positions show statistically significant disparities. The employer can then follow up with supervisors to review whether those disparities are justified or should be eliminated.  

An employer should typically consult with counsel before beginning a pay equity analysis, especially if it would like to keep the results confidential and privileged. There are specific ways to design a pay equity analysis that will allow an employer to obtain data that is useful to the employer while minimizing the risk of creating a blueprint for an employee to follow when bringing a compensation lawsuit.

Q: Can you speak to the role of job evaluations and market analysis in ensuring pay equity, and how can employers ensure that these processes are unbiased?

Kevin: The federal Equal Pay Act requires a showing that the employees being compared to each other are performing “equal” work, not just “comparable” work. Thus, federal law generally does not require employers to ensure that jobs with different job functions are paid the same, even if it can be argued that the level of skill or effort needed to perform them is comparable.

Nevertheless, an employer may still find it helpful to evaluate the content of a given job to determine whether the skill, effort, and responsibility needed to perform it are similar to that required to perform another job with a slightly different title or area of responsibility.
 

If the jobs under comparison have a substantial identity of job functions, the EPA will likely apply.  Even if not, the employer may want to ensure that similar compensation bands are used for jobs that are roughly similar. By doing so, the employer builds trust in its compensation philosophy and reduces the chance of perceived inequity leading to a charge of discrimination.

Likewise, conducting a market analysis may be helpful in establishing a benchmark compensation level for a particular job. Not only does the knowledge of the market help an employer compete for talent in the workplace, but it may also help an employer determine whether hiring new employees at competitive salaries will create a risk of causing disparities with existing employees who are being paid at below-market levels.

Q: What should employers do if they identify pay disparities within their organization, and what legal risks could they face if they fail to take action?

Kevin: Generally speaking, if employers find legally significant disparities in pay, they should raise the lower-paid employee’s compensation to a level that is sufficient to eliminate the disparity. Reducing the higher-paid employee’s compensation will not serve as a defense under the Equal Pay Act. It is also likely to create morale problems.

When an employer violates the Equal Pay Act, it becomes liable to the underpaid employee for up to two years of back wages, plus an equal amount as liquidated damages. If the employer is found to have committed a willful violation, the statute of limitations expands to three years.

If a pay disparity is the result of intentional sex discrimination in violation of Title VII, the employer may also be liable for compensatory and punitive damages.

Q: Can you discuss any recent developments or trends in pay equity law, and how might they impact employers in the future?

Kevin: Employers continue to look for ways to eliminate the “pay gap” between male and female employees.  Employers are also trying to find ways to deal with pay compression created by both statutory minimum wage increases and inflationary market conditions.

Q: How can employers ensure that their pay practices are transparent and understandable to employees?

Kevin: Employees want to know that the employer is attempting to make decisions about compensation on what they perceive to be a fair basis. When employers can successfully convey to employees that their compensation decisions are made on a reasonable basis, with proper attention paid to both internal and external factors that are relevant, the employer is likely to improve its employee retention rates.

Employers must find the correct balance between sharing “too much” and “not enough” information. Sharing more information about individual employees’ compensation levels is not always the right choice – the employees must have enough of an understanding of the employer’s business and its philosophy to understand why compensation decisions make sense.

Smart decisions about transparency usually involve well-designed communication to employees that sets out the goals of the employer’s compensation philosophy and is then followed by the sharing of enough information to help the employees gain confidence that the employer’s decisions match its stated philosophy, remain internally consistent, and make sense in light of external marketplace factors.  

Q: What are some common misconceptions that employers have about pay equity, and how can they be addressed?

Kevin: Employers may think that pay-equity analysis is a relatively simple project that they can conduct on their own without consulting experienced advisers. When done improperly, pay equity analysis may provide statistically flawed and unhelpful results, may result in unnecessary compensation changes, and may create litigation risks.

Q: How can unions and collective bargaining agreements impact pay equity, and what should employers be aware of in these situations?

Kevin: An employer’s ability to alter compensation may be restricted by the provisions of a seniority system or other rules about deciding compensation that has been collectively bargained with s union. If so, the employer will likely have to bargain with the union before it makes any changes to the process for determining compensation.  

The collective-bargaining agreement between the parties may also provide for a grievance process that can be used by employees to address concerns about compensation.  An employer that deals with such grievances must be familiar with the grievance process and understand how individual grievances may provide signs of systemic employee concerns about compensation.

Q: Finally, what advice would you give to employers who want to ensure that their compensation practices are fair and equitable, and how can they stay up-to-date on changes in pay equity law?

Kevin:

• Develop a comprehensive compensation philosophy that treats employees fairly and allows you to gain their trust.
• Do not reject requests for raises out of hand – consider them carefully and try to figure out whether they reflect an accurate assessment of the market by the employee. If so, learn from them.
• Make sure to seek out current updates about new laws that may affect employee compensation.
• Retain an experienced employment lawyer whom you can consult whenever potential litigation risks arise.
• Use that lawyer to help you manage a pay-equity analysis at reasonable intervals.