USING COMPENSATION TECHNOLOGY TO IMPROVE COMPARABLE WORTH AND EQUAL PAY

USING COMPENSATION TECHNOLOGY TO IMPROVE COMPARABLE WORTH AND EQUAL PAY

Compensation can be challenging in any organization. From staying within budget to paying competitively, acing compensation is no easy feat. Yet, there s one looming concern that demands perhaps the greatest level of employers attention: pay equity. While pursuing equitable pay practices certainly isn t a new concept, it s increasingly gained attention within recent years as employers work to eliminate pay disparities. With changing regulations and varying definitions of what equal pay truly means, paying people right is now more complicated than ever before. Throughout this guide, we ll explain how you can improve comparable worth and pay equity in your organization, especially with the help of compensation technology. In the coming pages, we ll go over: The history of labor laws and how past events have shaped today s approach to pay equity How to develop a step-by-step compensation compliance process in your organization Best practices for developing a defensible and equitable compensation plan structure How compensation technology can help you effectively navigate pay equity If you re ready to learn how you can optimize your pay equity practices, let s begin! We ll start by taking a brief look at the history of pay equity in the U.S. Page 2

From Pay Equity to Comparable Worth: A Brief History The modern labor laws we re familiar with now are a culmination of changes which have taken shape throughout the last century. Certain federal and state legislative activities stand out in U.S. history, and are in large part responsible for the way we approach compensation today. Let s take a moment to break down a few noteworthy moments in the history of pay equity. Fair Labor Standards Act of 1938 The first official labor act in U.S. history, The Fair Labor Standards Act was introduced eight decades ago. Commonly referred to as FLSA, this act introduced the 40-hour work week in the U.S. It s also known as the Wages and Hours Bill, and is a federal statute which established a national minimum wage and time-and-a-half overtime pay for specific jobs. It also prohibited most forms of employment for minors. Equal Pay Act of 1963 This act prevents against employer s discrimination of employees based on sex. It prohibits employees from being paid less than the rate of employees of the opposite sex for equal work requiring the same level of skill, effort, and responsibility, performed under similar working conditions. Title VII of the Civil Rights Act of 1964 Just a year later, Title VII was introduced to prevent employment discrimination on the bases of race and color, as well as national origin, sex, and religion. It applies to employers with 15 or more employees, as well as state, local, and federal governments. Comparable Worth: 1980s During the 1980s, a new theory took hold, which suggested that some jobs and occupations were being systematically devalued, or discriminated against, based on their gender makeup. The theory further postulated that the true value of the jobs was being depressed by an intrinsic gender bias within the marketplace. Page 3

However, Comparable Worth was struck down by a Federal Appeals Court in the mid 1980s when the court ruled that it was not a Title VII theory. The court ruled that job similarity not just comparable worth was necessary for making a potentially valid claim of gender-based pay discrimination. National Equal Pay Day: 2000 In 2000, President Clinton proclaimed May 11 th National Equal Pay Day. With this proclamation, President Clinton urged employers to review their wage practices to ensure pay equity, and encouraged business leaders and the U.S. population in general to recognize the value of women s skills and contributions in the workforce. The Lilly Ledbetter Fair Pay Act: 2009 Under the Lilly Ledbetter Fair Pay Act passed by Congress in 2009, each discriminatory paycheck resets the 180-day limit for the employee to file a claim. This was an update to the original pay laws, which pertained only to the original decision to discriminate. The Act thus helped to ensure that any individual subjected to unlawful pay discrimination would be able to assert their rights under federal anti-discrimination laws. Pay Equity: 2014 In April of 2014, President Obama signed a memorandum and executive order to address race and gender-based pay disparities. It directed the Department of Labor (DOL) to propose a rule within 120 days requiring federal contractors and subcontractors to submit summary data on employee compensation by race and sex to the DOL using a tool developed by the agency. Since this most recent change to pay equity laws, more than 15 states have approved or tried to introduce legislation to further define equal pay. Their aim has been to clarify equal pay as more than simply equal dollars between genders and protected groups. For example, in Maryland, Equal Pay for Equal Work was introduced in May of 2016, which allows employees to request wage information without fear of retaliation from their employers. Additionally, Massachusetts introduced Leading the Way on Equal Pay in August of 2016, thus passing the strongest equal pay law in the country. It gave employers a concrete definition of comparable work entitled to equal pay, and prevents the firing of any employee for discussing pay with coworkers. It also banned employers in the state from discussing salary history in interviews. Page 4

California is also among the states which have taken equal pay into their own hands. In October 2015, Governor Brown signed the California Fair Pay Act, which requires employers to extend comparable pay for jobs that are substantially similar. This act supports the legal expectation that men and women should receive comparable pay for work performed of the same value to the organization. With this understanding of how today s labor laws were formed, let s move forward by finding out how to develop a step-by-step compensation process that will help organizations safeguard pay equity compliance. Page 5

The Step-By-Step Compensation Compliance Process Successfully handling comparable worth and equal pay practices proves to be a challenge for organizations. In an HRsoft poll, 50% of survey respondents rated their organizations comparable worth and equal pay practices as average, or three on a scale of one to five. Only 34% gave their company s practices a four or above, while 16% ranked them as low or very low (two or below). Navigating complex labor laws isn t easy, but following a routine process allows organizations to identify and address any pay disparities. By adopting a step-by-step process, your organization can also maintain compliance to avoid any risks of litigation. Below is list of steps which can be followed to create an effective compensation compliance process. 1. Create comprehensive and ADA-compliant job descriptions. Nowadays, there are many tools available to assist organizations in writing ADA-compliant job descriptions. These solutions can also help users evaluate jobs on a case-by-case basis. 2. Use an objective job valuing system that places an internal point value on each job. It s important to perform an internal evaluation of each job to understand how its value compares to others within the organization. Page 6

3. With points and current employee pay, create a regression line to assess internal pay equity. This step can help you determine whether you re paying employees fairly and equally. Using the data derived from this step, you can search for pay inequities and address any as needed. 4. Obtain outside market data from six to eight sources to determine how the organization compares to the market. You ll use both your internal compensation data and external market data for the next step. 5. Establish salary ranges or grades by integrating current employee pay and outside market pay. Once you have a culmination of internal and external data, you can then integrate it to develop salary ranges. 6. Develop a plan of action to address any pay inequities. Come up with a targeted strategy to promptly handle any pay disparities you ve discovered. We ll discuss these steps in greater detail throughout the upcoming section. Page 7

Tips for Developing a Defensible & Equitable Compensation Plan Structure Now that we ve reviewed a general framework for creating a compensation compliance process, let s explore some of the steps in greater detail. Job Descriptions Creating a defensible and equitable approach to compensation starts with your organization s job descriptions. Clearly identifying a general overview of the position, as well as specific duties, required education and experience, and necessary skills, provides an important foundation on which you can build a solid compensation plan. Don t forget to include factors such as licenses, certificates, accountabilities, physical demands, contact with the public and other employees, work environment, and any additional relevant information. Job Valuing Once you have detailed job descriptions in place, you can then perform job valuing, or your internal value proposition. In an HRsoft survey, only 59% of respondents confirmed that their organization uses a job classification or rating program to value their jobs. Yet, having a specific program in place is important to maintaining compliance, especially in light of recent changes to labor laws. As we approach a new era in equal pay, the interpretation of comparable pay will require employers to reevaluate their jobs based on different criteria. Thus, it s important to complete job valuing using a consistent set of factors. Provide a non-biased, compensable factors process to determine which jobs are substantially similar based on proven factors and weighted points. Keep in mind that with recent laws and executive orders, the wage gap between women s and men s earnings will continue to close as companies become increasingly serious about comparable worth policies. These policies include the evaluation of each position against a common set of objective and defensible job valuing factors. Performing this kind of review effectively eliminates gender and other forms of potential biases to arrive at an overall point total score for the positions not the individual in the position. Page 8

Additionally, it s important to note that employers should achieve a healthy balance between external and internal factors when aiming to create a defensible, equitable compensation plan. Relying exclusively on one or the other can create its own biases, so there s no guarantee that using market data alone will hold up to the scrutiny of equal pay regulatory auditors and investigators. Thus, it s important to both keep an eye on the external market and perform internal audits. Job Evaluation When performing job evaluations, consider the following factors: Knowledge and Skill Requirements General experience Management experience Education Initiative and ingenuity Mental demand Analytical ability/problem solving External Value Proposition When analyzing external sources, perform job matches to make sure the positions you re looking at are similar. Match the data points in order to perform an effective comparison, and then see how you re paying compared to market prices. Assess for pay competiveness, bearing in mind that you should look at compensation from both an internal and external standpoint. Responsibilities & Accountability For work of others (supervision) For funds, equipment, and property For accuracy For end results Communications & Efforts Internal & external communications Machine & computer operations Working conditions Physical demands Page 9

How Compensation Technology Can Help Clearly, there s a significant amount of data employers must consider in order to ensure each individual is being paid fairly. With so many pieces of information to weigh for every pay decision, it can be difficult to ensure every relevant data point is being considered. Plus, the more employees an organization has, the more this complexity is compounded. Trying to collect, track, and interpret data for an entire company using methods like spreadsheets is not only time-consuming and stress-inducing, but it also leaves too much room for human error. Nowadays, compensation technology has the ability to integrate both internal data and external data into comprehensive reports, which can help you identify potential outliers and areas of concern. Today s tools can deliver invaluable insights for employers through powerful reporting. For instance, by compiling a synergistic value of both your actual pay and your pay policy data, compensation technology can indicate any oversights in your pay practices, giving you the opportunity to proactively address issues. Through this data-driven approach to compensation compliance, you can rest assured you re paying people not only what they re worth, but also what they re lawfully entitled to. Page 10

Conclusion Now more than ever before, it s critical for organizations to take a defensible and equitable approach to compensation. Not only does this help you eliminate risks of potentially serious consequences, such as fines and litigation, but it also solidifies your reputation as an employer that s committed to paying people what they deserve. While achieving pay equity can be a complex process, it s certainly one worth pursuing. To recap some of the key concepts discussed at this guide, take a look at the following points: Modern-day pay equity is a result of decades of evolving labor laws. Employers still have a long way to go to close the pay gap completely, but today s laws are a result of many years of changes to equal pay processes. For nearly a century, U.S. legislation has been moving in the right direction to improve equitable pay practices throughout our organizations. Following a step-by-step process is the best way to achieve compliant compensation processes. Start by creating comprehensive and ADA-compliant job descriptions. Then, use an objective job valuing system. Next, create a regression line to assess internal pay equity. Obtain market data from six to eight sources to perform a comparison. Establish salary ranges by integrating current employee pay and outside data. Finally, come up with a plan of action to address any pay inequities. There are a few best practices to keep in mind for developing a defensible and equitable compensation plan structure. Write clear, detailed job descriptions, use a consistent set of factors when performing job valuing, and balance internal and external data to avoid biases. Compensation technology can help you achieve pay equity on an ongoing basis. Paying an entire workforce fairly poses unique challenges for employers, but with the right solutions, you can easily identify any areas of concern to ensure you re consistently paying people fairly. As we move forward into a new era of pay equity, improving comparable worth and equal pay will continue to be a top priority for organizations of all sizes and in any industry. By reviewing your pay practices now and making adjustments as needed, you can set your organization up for long-term success and put the proper strategies in place for lasting compensation compliance. Page 11

Resources HRsoft is the industry leader for compensation planning and total rewards software. Our cloud based SaaS solutions combine best of breed features with an intuitive, easy-to-use interface that simplifies and automates the entire compensation process helping companies save time and their best employees. Phone: 866.953.8800 Email: info@hrsoft.com Web: hrsoft.com About the Contributors Bruce Johanson Principal Partner & Co-Owner, DB Squared Bruce Johanson is a Principal Partner and Co-Owner of two Fayetteville, ARbased companies: Johanson Group, an HR/Management consulting firm, and DB Squared, LLC, an HR/Compensation software company. He has been with the Johanson Group since 1986 and DB Squared, LLC since its inception in 2005. Both companies are endorsed by the Arkansas Bankers Association and the Arkansas Municipal League. Bruce has worked with client organizations in more than 35 states. He is a regular presenter at state and regional HR conferences. Page 12