HUMAN RESOURCES Nicole Schmidt

Fair compensation

Ensuring pay equity in your organization

BEFORE WE PROCEED, let’s address these two questions: » Are you prepared to answer difficult questions from employees on your team related to their pay? » Do you honestly feel all employees who work at your organization are being paid competitively?

If your answer is “no” to either of these questions, proactive steps need to be taken to ensure that you are not caught off guard in a legal challenge or discrimination claim. Employees want to feel they are being paid fairly for their work compared to market rates. Also, your organization needs to audit internal pay equity so there is no suspicion of preferential treatment. We may think that employees don’t talk about their pay with co-workers; however, it happens.

When one of your employees comes to you and asks: “Why is John paid a higher salary than me?” you need to be prepared with a response. A human resources compensation professional can provide the information needed to answer those difficult questions. There could be a variety of reasons why John is being paid higher. Possibly, he has worked in the industry for many, many years. This can explain some differential in pay. However, this reason may not be sufficient to justify a huge disparity if the work being performed is the same and the person bringing up the disparity is a stellar performer.

Each situation of discrepancy in pay needs to be assessed individually. Without conducting a formal audit using the services of an experienced professional you may not get the answers and responses you need to be conclusive in your response to your team. If there are areas where disparate pay exists, a plan of action needs to be prepared in order to document you are making a good faith resolution to existing problems. If no disparity is present in your organization, you then have the audit documentation to support that finding.

The method to determine differentials in pay can be determined in a variety of ways. Most organizations look at specific jobs where the employees are doing exactly the same thing in order to compare base pay to external market and internal rates. Definitely, a review of pay for male versus female and people of color versus white employees who are doing the exact same job needs to be conducted. This should be a consistent process across your organization.

Identification of outliers to the median rate of pay is necessary. Unless you can identify specific reasons for disparate pay, recommendation for adjustments are necessary. An objective analysis will review the employees and pay without consideration for personality or company legacy factors.

Communication to employees of an equity audit can add a significant engagement. Most employees want to know that they are being paid fairly. Also, most employees may feel that their manager has not gone through the exercise to compare their salary to market rates of pay, nor to the other members on the team. The more your employees know about how their own pay is determined, the more they are engaged and motivated to perform at a higher level. It’s a fact.

WHY IS IT IMPORTANT TO PROACTIVELY DO AN AUDIT?

Any of your employees have the ability to file a discrimination claim if they feel they are being paid unfairly compared to their peers within your company. You, as the manager or senior leader in the organization, are responsible to be prepared and address improper situations before they become an issue. If a discrimination claim is filed with the EEOC (U.S. Equal Employment Opportunity Commission), all employer information related to employees in this particular job or group of jobs becomes part of governmental review. Typical documents requested will include job descriptions, performance reviews, history of merit increases for the named employee and related peers, for starters. Additional documentation will be requested as the investigation continues. Damages that an employer may incur as part of this process are: 1. Retro back-pay to the impacted individual for up to 3 years. 2. Fines and interest related to the back-pay amount. 3. Distrust from other employees on how they are being paid, the risk of additional discrimination claims to follow. 4. Public embarrassment if the information is exposed to the media.

Bottom line, it is imperative for you and your company to be proactive in the salary review process. n

NICOLE SCHMIDT

Nicole Schmidt is a human resources consultant and the owner of Reward Strategies LLC (hrrewardstrategies.net). Previously, she was a global compensation manager for A.O. Smith. She can be reached at rewardstrategies@yahoo.net.