Editor's Note: Today's Cafe Classic was first published on June 11, 2010. There are plenty of management insights that we can draw from an understanding of living organisms - even microscopic ones! The lessons that we can learn from this particular bacterium remain as critical today (if not even more so) as they were when Stephanie Thomas first penned this great piece.
What do proactive employers and E. coli have in common? Sounds like the intro of a bad joke with an even worse punch line, right? Surprisingly, there is a commonality. Both are hard-wired to foresee what comes next, and begin responding to the new situation before its onset. This gives the organism - whether bacteria or corporation - an improved ability to survive.
Employers are finding themselves in a new situation. The Department of Labor has more funding than ever, wage and hour lawsuits are on the rise, and enforcement efforts have become more aggressive. Unfortunately, proactive employers aren't as common as E. coli. What have you done to prepare? Probably not enough.
Some firms simply ignore it, hoping it will go away. Others make half-hearted efforts that don't accomplish anything. But it's not completely their fault. Their employment attorneys are telling them that looking at pay practices is risky because of what might be found. What these firms don't realize is that it's riskier not to know what could be found. If there's an equity problem or a wage and hour violation and you don't find it, someone else will. And then it will be too late.
A full-scale compensation self audit can be scary - it could expose vulnerabilities you would rather not know about. But knowledge is power. Being armed with this information will not only help you avoid employment litigation, it can increase productivity and contribute to a better bottom line. Here are five questions to get you started on the right path.
1. Is the compensation policy based on consistent and measurable factors? Pay decisions should not be arbitrary or completely discretionary - this invites the potential for discrimination (whether intentional or not). Decisions should be based on a set of measurable and objective factors.
2. Do we provide compensation extras fairly? Many employers are providing flexible schedules, telecommuting opportunities, and flex time to help their employees manage the work-life balance. These extras should be offered fairly and equitably to employees.
3. Do we maintain compensation decision documentation? Compensation decision documentation is more than time sheets and pay stubs. Salaries and pay increases are (or should be) based on reasons - industry statistics, salary surveys, performance metrics, signed evaluations, etc. It's important to create and retain a record of how specific pay figures were determined.
4. How should we group employees for pay comparisons? Grouping employees appropriately is the key to the whole process. And there's not a lot of guidance on how to do it. I've found that the best way is to follow the OFCCP's lead - employees with similar job functions that require similar skills and abilities, and who have similar responsibility levels should be grouped together. Employee groupings also memorialize the company's view of which employees are similar to which other employees. Group employees carefully.
5. Are similar employees paid similarly? This is the launch point into the compensation self audit. In most cases, you'll use statistics to answer this question. Without getting too deep into a very complex process, you'll be looking at whether there are legitimate reasons for similar employees being paid differently. Some of those reasons may be company seniority, time in job, certifications and licenses, or relevant prior experience. Pay differences are not a problem if they can be explained by legitimate, non-discriminatory factors.
It's true for both E. coli and employers: there is a cost to preparation, but the benefits outweigh the costs in the right circumstances. The current regulatory and enforcement climate constitute 'the right circumstances'. The choice is yours - plan or perish.
Stephanie Thomas, Ph.D., is a Lecturer in the Department of Economics at Cornell University and the Program Director for the Institute for Compensation Studies (ICS) at Cornell’s School of Industrial and Labor Relations. Throughout her career, Stephanie has completed research on a variety of topics including wage determination, pay gaps and inequality, and performance-based compensation systems. She frequently provides expert commentary in a media outlets such as The New York Times, CBC, and NPR, and has published papers in a variety of journals.
Image: Creative Commons Photo: "A Molecular Model of the Bacterial Cytoplasm" by dullhunk