Pay Attention To Pay
By Paul Salvatore/Legal Columnist
Recent presidential action aimed at regulating pay equity, accompanied by a lively nationwide discourse about pay disparity in the workplace, proves it is a crucial time for HR leaders to remain attentive to the pay practices of their organizations.
Despite the apparent failure of Congress to pass pay equity legislation, President Obama issued in April 2014 -- in connection with Equal Pay Day ceremonies -- an executive order and a presidential memorandum aimed at ensuring that employees of federal contractors and subcontractors are not discriminated against with regard to compensation on the basis of race, color, religion, sex or national origin. Considering federal contractors employ nearly one quarter of the U.S. workforce, these actions will impact a wide range of companies and industries.
The order prohibits retaliation against any employee or applicant for inquiring about, disclosing or discussing compensation information. Although it's effective immediately, HR managers should look out for implementing regulations that will be issued by the Secretary of Labor by Sept. 15.
The memorandum mentioned above directs the Labor secretary to propose rules by Aug. 6, requiring federal contractors and subcontractors to submit to the Department of Labor's Office of Federal Contract Compliance Programs summary data on the compensation paid to their employees by sex and race. Employers should expect that these rules will enable the OFCCP to direct enforcement mechanisms to encourage compliance.
In the meantime, employers should carefully re-evaluate their compensation policies and structures. Some suggestions:
* Conduct a preventative pay equity audit. This will help ensure fairness in pay rates among similarly situated employees, and will enable the organization to anticipate potential vulnerabilities and address them. The information learned and any ameliorative steps taken by the employer to fix problems will be of critical assistance in defending and ultimately defeating potential legal challenges. To be effective, the audit results must be statistically sound, legally defensible, and, to the maximum extent possible, shielded from disclosure by the attorney-client privilege.
* Before conducting any audit, managers should evaluate factors that influence employee compensation, including: job title, pay grade/band, function or type of work, level of responsibility, sector or personnel area and geographic location. Managers should also consider "productivity related" characteristics such as time in current job and direct measures of performance.
* Review compensation policies and procedures influencing pay grade/band structure; charts used for setting percentage increases; standards for merit increases, bonuses, commissions and other forms of compensation; and performance evaluations.
* An audit of compensation will often result in HR performing some investigative work to determine the propriety of certain individuals' pay. The company should be prepared to identify the factors that explain any differences (e.g., years of experience, seniority, specialization, education) and/or offer a multiple-regression analysis.
Conducting a pay systems and equity analysis is not an easy task, but a comprehensive approach will enable HR executives to proactively comply with increased governmental enforcement.
Paul Salvatore is a member of Proskauer's executive committee and former co-chair of its global labor and employment law department. He can be emailed at firstname.lastname@example.org.