Compensation Cafe

3 Years After Ledbetter: Still Talking About the Wrong Metric

It's been just over three years since President Obama signed the Ledbetter Fair Pay Act into law, and my RSS feed reader has been overflowing this past week with posts about the anniversary of this piece of legislation. 

One of the headlines that caught my attention was as follows:

"Three Years After Ledbetter Fair Pay Act Passed, Women Still Earn Far Less Than Men"

This article, along with most others on the issue, is still citing to the "77 Cents Statistic", which is an inappropriate comparison of male-to-female earnings. It expresses the raw difference between average male and female earnings, and doesn't account for differences in occupation, industry, union status, hours worked, compensation expectations and willingness to engage in negotiations, the cash-benefits tradeoff, the role of personal choices, etc. We know from empirical studies that these factors all play a role in determining compensation levels, irrespective of gender (or any other protected characteristic).

Aside from being an inappropriate earnings comparison, the "77 Cents Statistic" - and much of the discussion surrounding it - is used to advance the idea that the gender pay gap is attributable to gender discrimination.

Let's think about this. Consider the image above. You may think it's sexist and downplays the role of women's contributions in the workforce. But it sheds light on one of the most fundamental market truths there is: businesses exist to make money. We've all heard stories about outsourcing - shifting manufacturing and production to China, shifting customer service departments and call centers to India and the Philippines. Why do businesses do this? Because the cost of labor in China, India and the Philippines is cheaper than in the US. Cheaper labor costs mean higher profit margins, and higher profit margins are good for businesses.

We can apply this same idea of outsourcing to the gender pay gap / gender discrimination discussion. If women truly were "just like men, only cheaper", why would businesses hire men at all? Seeking to maximize profits, they would always express a preference for cheaper labor by employing women. Businesses would only hire men - and pay higher wages - when the supply of feminine labor had been totally exhausted. If women truly were like men, only cheaper, we would expect to see full employment for women in all industries and occupations, coupled with higher rates of unemployment and underemployment for men. 

This isn't what we see when we look at (un)employment rates by gender, or what we see when we walk onto a shop floor, conference room, or employee gathering. Why? Because women are not just like men.

Men aren't even just like men. We don't bat an eye at the idea that a man working as a surgeon or a nuclear engineer earns more than a man working at a McJob. It's what we expect - surgeons and nuclear engineers have years of education that prepare them for their high-stress work environments dealing with life-and-death decisions every day. A wrong decision could be fatal - either for an individual or for an entire community. While getting a hamburger when you ordered a cheeseburger may dampen your afternoon, it's not going to kill you.

Why should we be surprised, then, that a man working as a surgeon or nuclear engineer earns more than a woman working as a sales manager or a software programmer? 

Nearly 50 years after the Equal Pay Act and 3 years after Ledbetter, we're still talking about the overall pay gap - which is the wrong metric - because we fail to recognize that women aren't just like men. And based on my own personal observations, most women don't want to be "just like men."

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 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 and is the host of The Proactive Employer Podcast. Follow her on Twitter at ProactiveStats. 

 

2012 and the Great (Compensation) Upheaval

The start of another new year is only a few days away and most of us are thinking about what 2012 has in store. Some among us are contemplating the end of the world on December 21st. Even though NASA assures us "nothing bad will happen to the Earth in 2012", some are convinced that the end is indeed coming in the form of a polar shift or a terrible solar storm. After all, the Mesoamerican Long Count Calendar ends on December 21, 2012 and who are we to question the Maya? 

From a compensation perspective, 2012 is also likely to bring "great change". There are parallels between the prophecies about the way the world will end and what's likely to happen to compensation regulation during 2012:

End of Mayan Calendar and OFCCP's Rescission of Compensation Standards

December 21, 2012 marks the conclusion of the 13th baktun, the end of a Mayan Long Count period. We know this to be true. We also know that OFCCP has proposed the rescission of the Compensation Standards and Guidelines. It's highly likely that 2012 will mark the end of the Agency's use of a standardized methodology in investigating claims of compensation discrimination.

Both events could be interpreted as the end of the world as we know it. OFCCP contends the Standards have limited its ability to effectively investigate, analyze and identify compensation discrimination. OFCCP believes that the current methodology - multiple regression  analysis based on similarly situated employee groupings is too "rigid", overly narrow and is not required under Title VII principles.

The "new world" of OFCCP enforcement will bring the use of "broad Title VII principles" rather than a defined methodology. The Agency could rely on any investigative approach or tool (both statistical and non-statistical) it deems appropriate on a case-by-case basis.

We don't know what will happen at the end of the Mayan calendar. It could be the end of the world, or another new calendar beginning on December 22nd could start and continue for another 4,000 years. We have a little more insight into what the end of the Compensation Standards will bring. Employers will be left with little, if any, formal guidance on the examination of internal pay equity under the best-case scenario. Under the worst-case scenario, we could be returning to an analysis method that doesn't account for legitimate nondiscriminatory factors influencing compensation, doesn't test the statistical significance of any difference found, and makes inferences of systemic pay discrimination based on a non-statistical and barely scientific method.

Polar Shift and EEOC's Focus on Systemic Claims of Discrimination

Some are hypothesizing that the end of the world will come in the form of floods, earthquakes and tsunamis as a result of polar shift. Under this theory, the north and south poles will change places in a matter of days, leading to planetary disaster.

A similar polar shift is taking place at the EEOC. Historically, the EEOC has focused on cases of individual discrimination. But that focus shifted with the launch of the Systemic Initiative, a program that prioritizes identification, investigation and litigation of 'pattern or practice' cases with a broad impact on an industry, profession, company or geographic location.

The EEOC's Fiscal Year 2012 budget proposal confirms its commitment to that initiative. According to EEOC Chair Jacqueline Berrien, a “strong, nationwide systemic initiative not only ensures that agency resources are directed towards addressing issues that will have broad impact in the workplace, but because systemic cases generate substantial media and other public notice, they help to deter other employers from engaging in similar prohibited conduct.”  

This polar shift is likely to mean increased scrutiny from the EEOC, and it's possible that claims of individual discrimination initially filed with the agency could rapidly evolve into a class-wide investigation. Like the reversal of the Earth's magnetic poles, the shift of priorities at the EEOC could turn employers' worlds upside down.

Solar Storms and Wage & Hour Issues

Unlike the Earth, whose poles shift slowly over time, areas of the Sun's magnetic sphere can shift within minutes. Rapid changes in the magnetic sphere can lead to solar flares and coronal mass ejections. Scientists have discovered a pattern in these solar flares and coronal mass ejections - the Solar Cycle. According to the Space Weather Prediction Center at NOAA, we're approaching a solar maximum that could unleash static discharges and geomagnetic storms disrupting or disabling the electronic equipment we're so dependent on in every area of our lives.

On the wage and hour front, we may be in a similar Solar Maximum Season. The Department of Labor is focusing intently on misclassification, and is actively recruiting partners for its Misclassification Initiative. Recently, the DOL has has signed a Memorandum of Understanding with the IRS. Under this agreement, the DOL and the IRS will work together and share information to reduce the incidence of employee misclassification, to help reduce the tax gap, and to improve compliance with federal labor laws. Additionally, 11 states have signed similar memoranda with the DOL's Wage and Hour Division, and in some cases EBSA, OSHA, OFCCP and the Office of the Solicitor.

Nobody knows for sure how the storms during the Solar Maximum Season will directly affect us. We don't know exactly how the increased cooperation between the DOL and other federal and state agencies will affect employers. But in both cases, we do know there will be some effect. Like the Sun, the increased focus on misclassification - and wage and hour issues in general - is not likely to burn out any time soon. Employers can expect anything from minor disruptions (e.g., increased paperwork to be filed with the DOL) to upheavals of epic proportions (e.g., agency investigators on-site performing time and motion studies of all employees).

Final Prediction for 2012

My final prediction for 2012 is that it will be a year of upheaval, if for no other reason than people expect it to be a year of upheaval. In terms of compensation, regulation is likely to be the watchword. The Department of Labor and the EEOC will be paying closer attention to employers' compensation policies and practices. There are some changes on the horizon that could have a big impact.

My suggestion is to follow the advice of the "2012 survivalists" - stockpile some potable water and canned food, have some first aid supplies on hand, and plan some evacuation routes. Start looking at your compensation policies and practices now and get prepared. Or, you could just do nothing and wait for everything to be destroyed on December 21st - your call.

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 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 and is the host of The Proactive Employer Podcast. Follow her on Twitter at ProactiveStats.

Prepare for Compensation Meetings Like an NFL Broadcaster

Like many of you, I have football games playing on my TV during most autumn Sunday afternoons. Also, like most of you, I  pay a lot attention to the big plays, but little attention to the broadcast itself. This past Sunday, for perhaps the first time ever, I focused on the incredible preparedness of the professionals producing the television events. It got me to thinking. What if compensation professionals prepared themselves in the same way? Our meetings with Executive Management and Compensation Committees would be short, enjoyable and incredibly effective.  More importantly, our programs would evolve more quickly and represent our companies more completely.

Consider any NFL broadcast. The announcers have spent all week studying the players and game plans of each team. Research assistants have put together statistics with such specificity that they make my wife laugh almost every weekend. “That pass sets the record for most passes to a running back, under 5’7” during the third quarter of a game in the twelfth week of an NFL season.” Cameras are set-up to cover the play from nearly every angle. They know where family members are sitting and where they’re from.

A great example of this attention to detail was a recent game in which Carson Palmer, quarterback for the Oakland Raiders, threw an interception that was run back for a touchdown. Almost immediately, there were replays from three or four different angles. There was nothing surprising here, just expected levels of great work.  Then came the doozey. Within 30-45 seconds of the play the announcers started talking about Mr. Palmer’s tendency to throw interceptions that were returned for TDs. While they spoke, a series of at least eight prior interceptions from the full length of his 8 -year career, played on the screen.

This meant that someone had just prepared for this unique opportunity. Carson Palmer has played more than 128 games in the NFL.  He has thrown 2,560 passes. Of these, eight or nine were intercepted and returned by the other team. Someone on the broadcast team gathered these into a package that was immediately accessible. The director knew the package was there. The researchers knew how to call it up on demand. The announcers were fed some statistical information to support their innate knowledge. And, in less than a minute, everything came together on screen in compelling support of this specific tendency.

Imagine if you were this prepared every time someone asked you about your compensation plans. “Hey, what’s the rule on Change-In-Control for the 2007 Stock Option Plan and does that conflict with the COO’s employment agreement that he received when we was hired at that company we acquired in 2009?” What if you had an immediate (correct) answer every time someone asked, “Why do we have that feature?” or “How much cash and equity should we offer a Senior Software Programmer, in Chicago, IL?”

If we all prepared and stayed organized like NFL broadcast teams, much of the stress of our jobs would be gone. The stress of leaving a meeting with more things to do than when you walked in.  The stress of providing the wrong, or no, answer in an executive meeting. The stress of correcting administrative errors due to assuming we knew a rule, rather then knowing the rule exactly.

Of course, we’ll never get to a point where we simply have a team of specialists to help us get prepared. We do not work in an industry where there is always accurate statistical data, or in a world where our rules are applied exactly the same way every time.  But, we can, and should, consider making this our goal and begin working toward achieving it.  You never know when that one thing that has only happened a couple of times in the past will happen again, but you would likely be compensated and respected more if you had a ready solution when it came up again.

Dan Walter is the President and CEO of Performensation an independent compensation consultant focused on the needs of small and mid-sized public and private companies. Dan’s unique perspective and expertise includes equity compensation, executive compensation, performance-based pay and talent management issues. Dan is a co-author of “The Decision Makers Guide to Equity Compensation” , “If I’d Only Known That” and  “Beyond Stock Options.” Dan is on the board of the National Center for Employee Ownership, a partner in the ShareComp virtual conferences and the founder of Equity Compensation Experts a free networking group. Dan is frequently requested as a dynamic and humorous speaker covering compensation and motivation topics. Connect with him on LinkedIn or follow him on Twitter @Performensation and @SayOnPay

Don't Be Fair - Be Consistent!

Discrimination and fairness... They're really just different sides of the same coin, right? Or are they?

You could argue, as my fellow Café contributor Jim Brennan did, that they're the same side of the same coin. In his last post, More Discrimination Is Needed, Jim made an excellent point:

The very act of discrimination can be either bad or good, because some differences must be ignored while other distinctions should be noted.

I couldn't agree more. The meaning of the word discrimination has gone through a transformation. People automatically think of "the unjust or prejudicial treatment of different categories of people or things, especially on the grounds of race, age or sex" rather than "recognition and understanding of the difference between one thing and another". Semantics often gets in the way when the word "discrimination" comes up.

Jim goes on to say that:

Discrimination is needed to create pay equity. It not only involves comparable worth but also includes perceptions of fair treatment by all employees. 

Here's where things get complicated. "Discrimination" is objective; to use Jim's example, it's important to differentiate between "positive contributors and feckless shirkers". Presumably there's some objective measurable thing that allows us to make this differentiation (e.g., sales volume, average serving time per customer, number of calls fielded per hour, etc.). If the compensation strategy is tied to this objective measurable thing, then the strategy automatically differentiates between the "good performers" and the "bad performers". 

"Fairness" is subjective. What seems unfair to me may seem fair to you. If I'm a bad performer and you're a good performer, I may view a compensation strategy tied to sales volume, for example, as unfair. I put in the same amount of hours as you do, and I'm working hard and doing my best - just like you are. But I sell less than you do because I get all of the crappy sales leads and you get all of the good ones. It's not fair that I get stuck with the crappy leads, and it's not fair that I get paid less than you do even though I'm working just as hard as you.

Fairness depends on our perceptions, and perceptions of the same situation can vary wildly from person to person. So, rather than aiming for fairness in your compensation strategy, deciding which family member takes the dog out for her morning walk, or in anything you do, aim for consistency. Consistency is the key.

My friend Steve Browne made a great point on my podcast about fairness and consistency:

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So don't be fair - be consistent! Set your policies and procedures based on legitimate factors that don't discriminate on the basis of age, gender, race, ethnicity or other protected characteristic, and apply those policies and procedures in a consistent manner. As Steve said, if you're consistent, you end up being more fair than you ever were. 

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 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 and is the host of The Proactive Employer Podcast. Follow her on Twitter at ProactiveStats.

More Discrimination is Needed

Not all discrimination is bad.  Being discriminating, having the ability to discern, is essential in life. If  you can’t tell the difference between day and night, you will have issues.  If you can’t distinguish between hot and cold, you can get burned or frozen.   If up and down are all the same to you, don’t go scuba diving or mountain climbing and avoid acrobatics at all costs.

Discriminating means being able to differentiate.  Negative connotations due to events in American history have shifted that original definition of “discriminate” from "to make or see a distinction" to the widely accepted meaning of “to treat unfavorably with prejudice.” 

Some discrimination is prohibited.  The United States has declared certain classes to be protected against discrimination and harassment based on:

• race
• color
• religion
• national origin
• age (40 and over)
• sex
• family status (re housing)
• disability
• veteran status
• genetic information
• sexual orientation (in some jurisdictions)
• gender identity (in some jurisdictions)

That is only a partial list, not even comprehensive for the U.S.; and other nations will have their own rules as well.

Every place prohibits certain forms of discrimination even as they encourage other forms of discrimination.  The very act of discrimination can be either bad or good, because some differences must be ignored while other distinctions should be noted.

Discrimination is needed to create pay equity.  Yes, pay equity is a semantically loaded term.  It not only involves comparable worth but also includes perceptions of fair treatment by all employees.

If you don’t distinguish between good performance and bad performance (i.e., “discriminate”), you will outrage your workers and upset your customers.  As fellow Café contributor Derek Irvine posted last month, employee perceptions about reward fairness are critical.  In effect, you must discriminate in order to be fair and to run an effective business.

Failure to differentiate between positive contributors and feckless shirkers will demotivate productive people who will conclude that management just doesn’t care about work output.  Regardless of what you SAY, human beings respond to what you DO.  When the company recognizes differences (“discriminates” in a proper manner) and offers appropriate consequences (both rewards and punishments) according to variable actual job results, desired behaviors are reinforced and undesirable behaviors are extinguished… at least, that’s the psychological theory which has proven valid in real life for ages.

That topic of internal equity in pay (only one of the remuneration elements relevant to “fairness”) was covered in detail by a panel whose forty-five minute discussion is available online in this embedded link. 

As we share thoughts on all these topics, remember not to jump to conclusions, because context is everything.

How does the elephant appear in your discriminating view?

E. James (Jim) Brennan  is Senior Associate of ERI Economic Research Institute, the premier publisher of interactive pay and living-cost surveys. Semi-retired after over 40 years in HR corporate and consulting roles throughout the U.S. and Canada, he’s pretty much been there done that (articles, books, speeches, seminars, radio/TV, advisory posts, in-trial expert witness stuff, etc.) and will express his opinion on almost anything. 

Is Your Pay Structure On The Level?

Internal pay equity - and gender pay equity in particular - is a really hot issue right now. I'm sure you know that within a particular job title or job group, pay rates should be equitable and consistent. You may already be examining your pay data to make sure that it is equitable and consistent.

But have you looked at whether your pay structures are equitable and consistent across job titles and job groups?

Do you know if the difference in hourly rates between your production workers and production supervisors is equitable? What's a reasonable difference? $0.50 per hour? $2.50 per hour?

What about the difference between the annual compensation of your Chief Information Officer and your Chief Financial Officer - is it reasonable? Is it equitable?

We're somewhat used to looking for internal pay equity within a job title or job group, but rarely do we look at it across job title or job group. Making comparisons across job titles or job groups is not easy - there are a variety of factors that come into play. Things like job complexity, required skills and abilities, and even (perceived) value to the organization have to be considered.

It can seem like an overwhelming - if not impossible - task. But the Bureau of Labor Statistics does it every day. They compare wage data across occupations all the time. How do they do it? Leveling.

BLS uses the leveling process in their estimates of pay published in the National Compensation Survey. Even though you won't be publishing your own version of the National Compensation Survey, the techniques used by BLS can help you look at whether your pay structure is equitable and consistent across job titles or job groups.

The first step in the leveling process is to assign each job to a job level. Assignments are based on the duties and responsibilities of the position at the full performance level of the job, not the qualifications of the person who currently holds the job. 

The jobs are leveled using four factors: (1) knowledge, (2) job controls and complexity, (3) contacts, and (4) physical environment. Each of these four factors are subdivided into components. For example, job controls and complexity is broken down into (a) the amount and type of work directions received, (b) variations in and difficulty of the work performed, and (c) the nature of the work within the organization. Each of these sub-components are assigned point values; the higher the level of responsibility or difficulty, the higher the number of points assigned.

Figuring out how to assign point values is the tricky part. Typically, job descriptions are reviewed; discussions with supervisors and the individuals performing those jobs may also take place.

BLS uses the same set of criteria (and points) for evaluating job controls and complexity, contacts, and physical environment for every job. Knowledge is a little bit different - each group of occupations has a specialized set of criteria. You can find a listing of the occupational groups and the criteria used here.

If it seems like it's a complicated process to assess your pay structure for equity and consistency across job titles or job groups, it is. Is it worth it? It could be a very valuable exercise that will give you even deeper insights into your pay structure. Is it something you should run right out and do? Not before you have a handle on equity and consistency within your job titles or job groups... 

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 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 and is the host of The Proactive Employer Podcast. Follow her on Twitter at ProactiveStats.

Either Put Me in Charge or Let Me Be a Lackey. I'm Fine with Either, But I Can't Do Both.

A friend recently updated their status with the title to this article. Ironically, I saw it just as I got off a call with a client who  was explaining that somehow she was expected to serve as both the strategic visionary and tactical processor for her company’s multi-national LTIP programs. The simple request in my friends status update seemed reasonable, well thought-out and familiar. As we traverse the crags of an uneven recovery, companies have found it difficult to create compensation plans that perform as expected. As budgets continue to be bound by uncertainty, companies have been unwilling, or unable, to hire tactical help. This leaves compensation departments in a quandary. When should we strategize and when should we make things happen?

For those of you who are feeling like your personality and activities are being split down the middle, I'd like to suggest a small exercise. Take 4 hours and block it off your calendar. (I know you don’t have 4 free hours, but trust me this may really help.) Let’s just pretend you blocked off 10:00am-2:00pm tomorrow.

• 10:00-10:30: Spend the first 30 minutes making a list of every strategic idea you would address if you were in charge of everything, but not responsible for doing any of the tasks. Rank based on compliance, urgency, cost and benefit.  Call this your “Strategy List”.
• 10:30-11:00: Focus the next 30 minutes making a list of every process you would improve if you didn’t have to worry about planning, administration or reporting tasks. Rank based on compliance, urgency, cost and benefit. Call this your “Tactics List”.
• 11:00-11:30: The next 30 minutes make list of all the tasks you would do if you were never interrupted by other things. Think about the minutiae and get granular. Rank based on compliance, urgency, cost and benefit. Call this your “Tasks List”.
• 11:30-12:00: Go through the Strategy, Tactics and Tasks lists and mark each item that ONLY someone with your skill set or better (not you) can get done. Then mark those that can be done by someone with a lesser skill set.
• 12:00-12:30:  Look at the remaining items. These are the things that you believe ONLY YOU can accomplish. Is this list realistic? Can anything be moved to one of the other lists? When this list is down to two or three items, you are set for a promotion.
• 12:30-2:00: Go have a nice lunch with a friend.  Celebrate that you just figured out how to put yourself in charge or be a lackey.

A very smart manager once told me “irreplaceable is unpromotable.” She made it clear that as long as I was the only one who could do certain things, I would remain the only one doing those things. Turns out, it’s basic logic. If you want to stop doing things on your list, you must first figure out a way for others to do them (or to make the items go away altogether.)

Look at your lists again. Which things do you really want to be doing? Of everything that’s left, can you train, hire, outsource, bring in consulting or temporary staff to get them done? If yes, put together a business case for exactly that. If no, keep working on your lists until the answer is yes. I have seen people change things in a week or two and I have seen cases where the changes were so large or numerous that it would take 6-12 months to get them done. I have never seen company where the changes were impossible.

The key is this: If you want to be in charge, the first step is figuring out how to be in charge. Regardless of whether you want to be a lackey or in charge, the first step is to define what those terms mean. The next step is to clearly communicate to those who can help make the change. This may be your boss, colleagues, or the staff working for you. The key is to show what’s in it for them (WIIFM). If they see the personal benefit, they may be inclined to help.  If you communicate things as a plea for help, you may get short-term traction, but nothing will really change.

So, put yourself in charge or make yourself the lackey, but only you can ensure that you’re not both.

Dan Walter is the President and CEO of Performensation an independent compensation consultant focused on the needs of small and mid-sized public and private companies. Dan’s unique perspective and expertise includes equity compensation, executive compensation, performance-based pay and talent management issues, Dan is on the board of the National Center for Employee Ownership, a partner in the ShareComp virtual conferences and the founder of Equity Compensation Experts a free networking group. Dan is frequently requested as a dynamic and humorous speaker covering compensation and motivation topics. Connect with him on LinkedIn or follow him on Twitter @Performensation and @SayOnPay

Lunch at the Compensation Cafe: Pay Equity - Not Just for Women!

Ever wondered - or been challenged to prove - whether your compensation system is truly consistent and equitable?  Well, help and good advice is on its way, via Episode 3 of our new Cafe podcast series!

On Tuesday, September 27, 11:00 to 11:45 Pacific Time, my Compensation Cafe colleagues and I -- along with a special guest Jon Hyman, author of the Ohio Employers Law Blog -- will be tackling the challenging and controversial topic of pay equity.

Although the gender pay gap is getting most of the press and attention these days, it's important that employers look at pay equity for ALL employees.  The only way you can know, for sure, that your compensation system is internally consistent and equitable is to conduct an audit of your data. With proper planning and design, a compensation self-audit can be a valuable tool for assessing your exposure to a discrimination claim and developing a world-class compensation system.

Questions we'll be covering in our conversation include:

• What's the point? Why should you bother with an internal pay equity audit?
• What does a compensation self-audit look like?
• Common red flags to look for and the dangers of "tinkering". 
• How you can keep your pay self-audits protected, privileged and confidential.

For more information and to register, please go to the event page, hosted by Focus.com.

As part of the event, you can follow the Twitter stream at #CompCafe, ask questions and chat - so that the conversation can go on beyond the 45 minute live discussion.  If you are unable to join the live event, a recording of the session in .MP3 format will be posted to the event page within 24 hours - and a written transcript will be available within the following week.

We're looking forward to an insightful conversation - and hope you'll join us!

Cognitive Dissonance Man and the Compensation Data Collection Tool

I'm sure you've heard by now that OFCCP published the Advanced Notice of Proposed Rulemaking on the compensation data collection tool (If you haven’t seen the ANPRM, you can read it here, or head over to Carla Irwin’s blog, AA Insights - she’s got a great summary of the questions on which the OFCCP is seeking comment).

According to the ANPRM, the purpose of the new tool is "to provide insight into potential problems of pay discrimination by contractors that warrant further review or evaluation by OFCCP or contractor self-audit."

OFCCP should be commended for its efforts at creating equal opportunity workplaces. Undoubtedly, there are real cases of compensation discrimination and OFCCP can - and should - play a role in ending discrimination. On its face, the compensation data collection tool appears to be one way to do this. But a closer reading of the Advanced Notice leads me to believe OFCCP has been visited by Cognitive Dissonance Man - they're trying to do the right thing, but for the wrong reasons:

Women still earn only 77 cents for each dollar earned by a man... Potentially non-discriminatory factors can explain some of these differences. Even so, after controlling for differences in skills and job characteristics, women still earn less than men. Some scholars find that these differences can be explained, to some extent, by differences in education and prior labor market experience. Others identify job segregation as an important cause of the pay gap. Ultimately, the research literature still finds that an unexplained gap exists even after accounting for potential explanations. Moreover, research literature finds that the narrowing of the pay gap has slowed since the 1980s. To the extent that these factors, such as type of job or amount of continuous labor market experience, are also influenced by discrimination, the "unexplained" difference may understate the true effect of discrimination.

Even though OFCCP acknowledges the vast body of research that indicates occupation, industry, labor market experience, and other factors that explain a large portion of the gender pay gap, the Advanced Notice seems to dismiss the research. The Advanced Notice also suggests that some of these explanatory factors themselves, such as continuous labor market experience and occupational choice, are influenced by discrimination. 

Let's think about continuous labor market experience. Research shows that compared to men, women tend to experience greater periods of absence from the labor market. Part of this is due to physiology. Right now, women are the only ones who can become pregnant and give birth (advances in medical technology may change that in the future, but let's concentrate on what we know to be true today). Most women prefer not to give birth underneath their desks at the office, so they take time off from work to have their babies in more appropriate surroundings.

Physiology - not discrimination - explains why women have greater career interruptions for childbirth, barring discriminatory intent on the part of God, evolution, the aliens who engineered us, or however else you think we ended up here in our current Human form. More data, increased regulation and stiffer penalties won't change this, nor will it change the fact that compensation and labor market experience are positively correlated. 

Women also have greater periods of absence from the labor market because of care-giving responsibilities. Whether right or wrong, women in American society spend more time caring for children, ill or disabled family members, elderly parents, etc. This might be because of discrimination at the societal level and our cultural norms about the roles women should play. Should employers be held liable for discrimination in cultural norms?

A similar argument can be made for differences in occupational or industry choices. While it's true that "back in the day" women's choices were limited - women could be nurses but not doctors, teachers but not administrators, and secretaries not CEOs. Occupational segregation does still exist, but not to the extent that we once saw. Women have come a long way, baby.

Arguing that women's occupational choices are pre-determined because of discrimination fails to recognize the achievements of hundreds of women who are not only working but succeeding in historically male-dominated occupations. It also undermines the validity of the choices of those women who want to work in historically "female" occupations.

Compensation discrimination is a real problem that needs a real solution.  The compensation data collection tool would provide OFCCP with an enormous volume of data which could be used to detect patterns of discrimination. But I think we're looking in the wrong places. We've been studying compensation data for years now, and still have not been able to successfully predict or prevent pay discrimination.

We need to take a new approach and start looking at the "non-metrics" side of things- things like compensation expectations, willingness to engage in compensation negotiations, the cash/benefits trade-off, and the reasons why people make the career choices they do. This avenue is a lot more difficult to study, but I think it's an avenue that will pay off in terms of really understanding differences in compensation by gender and race. Doing the right thing for the wrong reasons won't give us new insights into an old problem.

Image courtesy of Forest For the Trees Blog

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 like the DOJ and FBI, providing expert 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 and is the host of The Proactive Employer Podcast. Follow her on Twitter at ProactiveStats.

Puttin' On Your Seatbelt - More Lessons from AstraZeneca

In my last post, we talked about Gettin' on the Bus and being proactive in light of the OFCCP's recent settlement with AstraZeneca. While the settlement amount isn't astronomical ($250K), the key takeaway here is that AstraZeneca will be required to perform a statistical analysis of internal pay equity as part of the settlement decree.

There were a couple of really interesting responses to my suggestion that we get on the proactive bus and look at our data for internal equity before we end up in litigation or regulatory investigation. Paul Weatherhead - a friend of and occasional guest blogger for the Cafe- asked an interesting question:

So lets say hypothetically I'm an employer and have read your article and think that perhaps a proactive statistical review would be justified. But won't my company (that is well-intentioned in developing non-discriminatory personnel practices) be at risk to having such internal studies become discoverable?

We've seen how certain governmental entities who should know better misuse statistics to promote a political agenda. So the last thing my company wants is to have these internal statistics become misused in the media. What strategy would you recommend to keep that internal study from becoming publicly disclosable?

The risk of having your internal studies becoming discoverable or disclosed to the public is very real, but it can be managed.

How do you manage this risk? Put on your seatbelt! I'm not talking about the regular lap belt commonly found on school buses - I'm talking about a 5-Point Racing Harness!  

(1) ALWAYS involve legal counsel from the very beginning. Any proactive or potentially self-critical study should be done under the auspices of legal counsel. Having legal counsel involved - in most cases - will allow you to take advantage of attorney-client privilege, which can keep your analyses confidential and non-discoverable. Privilege is a VERY complicated issue, and I'm not qualified to give advice about what is or isn't privileged. Talk to your attorney - they'll be able to advise you on this.

(2) Limit involvement of internal personnel. Only involve those people who absolutely have to be involved. Fewer employees working on the project means fewer potential leaks. If someone isn't directly involved in the project, they don't need to know that the project exists. This may sound a little clandestine, but it's the same kind of thing that happens with a lot of important projects and decisions. If the internal equity project above an employee's pay grade, they don't need to know about it. Also, it's often advisable to limit internal involvement to data collection. Have the actual analyses done by an outside consultant. In some cases, this can add an additional layer of privilege / protection.

(3) Communicate why you are conducting the analyses. The mindset with which you approach the analysis matters. If you're doing the studies to further your efforts at implementing a non-discriminatory workplace, then you should communicate this to those involved. Being open about your intentions behind the proactive analyses will help the key personnel involved understand why you're doing the analyses - to identify any problems that exist, and take corrective action where appropriate. If the positive intention behind the analysis is communicated to those individuals involved, I think the risk of a "Wikileaks" situation developing can be minimized.

(4) Focus on equity in general, not just women, racial minorities, age-protected, etc. I had a conversation with someone about this very issue yesterday in the context of Ricci v. DeStefano (in a nutshell, the City of Hartford took action out of fear of a discrimination lawsuit from African Americans, and ended up being sued for discrimination by a group of whites and Hispanics as a result of that action). When we think about internal pay equity, the first thing that comes to mind is gender pay equity and whether women are paid fairly. Some people are leery of doing any kind of proactive analysis because they may find that women are underpaid relative to their comparators, and if they're underpaid, then adjustments should be made. But if adjustments are made to women's compensation (and only women's compensation), some fear a discrimination claim from men, since technically gender did factor into this pay decision (only women received equity adjustments). That's the Ricci argument within the context of compensation. In my opinion, the way to avoid this is to focus on equity in general. The goal of your analysis shouldn't be to identify women who are underpaid relative to their comparators. The goal should be to identify all employees - regardless of gender, race, etc. - who are underpaid relative to their comparators. Your main concern should be equity for all employees, not just those who happen to be female.

(5) Follow up on what you find. Following up on what you find is probably the most important element. Even if you do everything right (involve legal counsel, limit internal personnel, communicate why you are conducting the analysis, and look for equity in general), if you don't follow up on what you find the whole project can blow up. I think that in the court of public opinion, it's worse to know you have a problem but do nothing about it than to not know you have a problem. There won't be much sympathy if you find pay disparities and then choose to ignore them. Ignoring any disparities can anger those key personnel involved in the project ("we spent all this time and money and effort, and now we're not even going to DO ANYTHING about what we found?!?!?!"). Angry people are more likely to forward an email or two to their Facebook account, the local newspaper, the Department of Labor... Follow up on what you find. Not only can it help you keep your analyses privileged and confidential, it's the right thing to do. After all, if you're not going to do anything about what you learn from the analysis, it really is just wasted time, effort and money.

Stephanie R. Thomas is an economic and statistical consultant specializing in EEO issues and employment litigation risk management. For more than a decade, she's been working with businesses and government agencies providing expert analysis. Stephanie has published several articles on examining compensation systems with respect to internal equity, and has appeared on NPR to discuss the gender wage gap. She is the host of The Proactive Employer Podcast, and is the founder of Thomas Econometrics. Follow her on Twitter at ProactiveStats.