Now that the elections are over, the speculation about the next four years has begun. My news reader has been full of stories hinting that the Department of Justice may be gearing up to file disparate impact lawsuits if minorities don't get their "fair share" of jobs, housing, loans, educational opportunities, etc., based on demographics.
As a compensation pro. you may think that your department is home free in terms of avoiding discrimination complaints. After all, your pay decisions are based on a set of clearly defined factors that are applied equally to everyone. Your processes are blind to gender, race, religion, disability status, and every other protected characteristic. You're transparent, and employees understand exactly what is expected of them in order to achieve that bonus payment, merit increase, etc. But are you really home free?
Yes, and no.
Under the theory of disparate impact, if a policy or practice that appears non-discriminatory has a negative impact on one group (and not on the other group), it can be discriminatory. It doesn't matter whether the employer intended to discriminate - in most cases of disparate impact, employers had no idea that they were doing anything wrong, and may have adopted the policy or practice to prevent intentional discrimination.
Let's say that you have a bonus program based on production, and in order to qualify for the bonus, employees must generate a certain amount of production. Seems straightforward, right? The highest-producing employees get the bonuses, and the lowest-producing employees don't.
Here's where disparate impact comes in - what if someone makes a claim that production is infected with discrimination? A group of women could argue that they didn't receive bonuses because their production was lower, and their production was lower because the things that generate production were distributed in favor of men: men received better client leads, men had better networking oportunities, men were provided with training and development programs. Even the quality of assigned support staff favored men. Are you guilty of discrimination under the theory of adverse impact?
A New York DIstrict Court said no. In a case similar to the scenario laid out above, U.S. District Judge Shira A. Scheindlin said a "production-based compensation system is 'bona fide' if it applies equally to all employees in the same way. Even if the compensation system perpetuates the effect of other acts of discrimination, ...as long as the compensation system was adopted without discriminatory intent, it is immunized under Section 703(h)" of Title VII.
In short, compensation based on seniority, merit, or the quantity or quality of production is not discriminatory as long as it is bona fide, meaning (a) it was adopted without discriminatory intent, (b) is an established system based on predetermined criteria for measuring seniority, merit, or productivity, (c) has been communicated to employees, and (d) has been consistently applied to all employees, regardless of gender, race, religion, etc.
The good news is that while claims of disparate impact regarding compensation are in fact possible, I don't think we're going to see the surge predicted by some, and even if we do, compensation is not likely to be the focus. Make sure your program is bona fide - document the business reasons for adopting the program and that the criteria used in the system. Communicate the program to the employees in writing, and make it clear to them exactly how their compensation will be determined. Most importantly, once you have the program in place, apply it consistently, without fail.
Stephanie R. Thomas is an economic and statistical consultant specializing in EEO issues and employment litigation risk management. Since 1999, she's been working with businesses and government agencies providing expert quantitative analysis. Stephanie's articles on examining compensation systems for internal equity have appeared in professional journals and she has appeared on NPR to discuss the gender wage gap. Stephanie is the founder of Thomas Econometrics Inc., the host of The Proactive Employer radio show, and author of the upcoming book Compensating Your Employees Fairly: A Guide to Internal Pay Equity. Follow her on Twitter at @proactivemployr.