Lessons from E. coli: Plan or Perish

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 R. Thomas is an economic and statistical consultant specializing in EEO issues and employment litigation risk management. For more than a decade, she has been working with businesses and government agencies providing expert EEO analysis. Stephanie has published several articles on examining compensation systems with respect to equity. She is the host of The Proactive Employer, and is the Director of the Equal Employment Advisory and Litigation Support Division of Minimax Consulting.

Image: Creative Commons Photo: "A Molecular Model of the Bacterial Cytoplasm" by dullhunk

Comments

[Laura Schroeder]

Welcome, Stephanie, and great points! Few employees have an incentive to file a lawsuit against an employer who is raising their pay or improving the fairness of pay as part of a company-wide fair pay initiative. . . the reverse is true if they find out on their own, however. It's always better to be prepared, even if the news is uncomfortable. Except now I can't stop thinking about companies and E. coli....

[Sue Corralz]

Great article Stephanie. Your question format could be a great discussion tool for compensation professionals who aim to secure a leadership champion(s) to support a self-audit effort.