During 2010, gender pay equity was a hot topic - everyone was talking about it. And just because the Paycheck Fairness Act didn't make it through the Senate doesn't mean the gender pay equity discussion is over. Labor Secretary Hilda Solis said "I am deeply disappointed that the Senate did not pass this important piece of legislation, but the issue of pay equity is far too important to give up." Rest assured that gender pay equity will continue to be at the top of the regulatory agenda during the coming year - the National Equal Pay Enforcement Task Force will make sure it is.
But what should employers be thinking about with respect to gender pay equity? As the old saying goes, The Devil Is In The Details. This couldn't be more true when it comes to compensation. Here are the key details employers should be examining:
Having That One Key Piece Of Paper
Document everything. Everybody says it, but are you really doing it? The Wal-Mart case is a great reminder about the importance of documenting your pay decisions and retaining that documentation.There's no way anyone is going to remember ten years worth of how compensation decisions were made for millions of employees. So document your decisions, keep signed copies of performance reviews, document what criteria were used in evaluating performance, and maintain industry statistics and market survey information you used in setting pay.
Philip Miles, an employment attorney at McQuaide Blasko, suggests you ask yourself the following question before purging documentation - for every document you destroy, ask what decision will go unsupported in a lawsuit. How will that affect your defense? If in doubt, keep it. It just might be the one piece of paper that has the details to save your company from going bankrupt as a result of a pay discrimination claim.
Communicate the Details To Avoid Feelings of "Unfairness"
You could have the perfect “best practice” compensation policy in the world, but if your employees don’t know – or don’t understand – the details of the policy, there's an opportunity for feelings of unfairness. This is particularly true for variable pay. And these feelings of unfairness can lead to a claim of discrimination. Even if your compensation practices aren't discriminatory, if you're faced with a claim of discrimination you're going to have to spend time and money defending yourself.
It's essential that the details of the compensation policy are communicated to your employees, and your workforce needs to understand what's expected of them in order to achieve the next merit increase, bonus payment, etc. If you don't communicate the details, your compensation system might as well be a "black box" system.
How Big is Big Enough?
This is one of the fundamental questions of looking at pay equity. If you find a disparity, is it big enough to matter? In answering this question, you need to consider statistical significance and practical significance. Statistical significance has a precise meaning within both statistics and the law. I'll spare you the painful details - the key takeaway here is that if the disparity is 2 or more units of standard deviation, from a statistical and legal perspective, it's big enough to matter. Your statistical consultant would infer that the disparity is attributable to something other than chance.
But what if you find a statistically significant difference of $0.01 in the annual earnings of men and women? Would you take corrective action for a one-cent per year difference? This is where the idea of practical significance comes in - it asks whether the difference big enough to matter. Unlike statistical significance, there is no firm "rule" for practical significance. It's open for interpretation. A one-cent per year difference is probably not practically significant. But what about 10 cents per year? A dollar per year? 100 dollars per year? You're pretty much on your own when it comes to determining whether a gender difference is big enough to matter from a practical significance perspective. It's one of those devilish details that can bite.
It's About More Than Just Systemic Discrimination
When we think about gender pay equity, we typically think of systemic discrimination - ABC Corp has a pattern and practice of discriminating against women. But not all discrimination claims are on the order of magnitude of Dukes v. Wal-Mart with millions of plaintiffs - individual claims can be brought under the Equal Pay Act and by various regulatory agencies. And these agencies have stated that they are broadening their enforcement efforts to include identifying and resolving individual cases of discrimination.
Statistically looking for possible systemic discrimination is, in some respects, a lot easier than for individual cases of possible discrimination. With systemic discrimination, you essentially have one disparity estimate for a given protected group for each of your groupings (by job function, department, etc.). For individual cases, you need to look at the difference between actual and expected compensation for each individual in each of your groupings. It requires a different statistical technique, and likely will involve a lot more in terms of follow-up efforts. You'll be looking at the details of each one of your employees. But the effort is well worth it - from a litigation avoidance perspective, it's important to be looking at the individual details.
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 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 owner of Thomas Econometrics. Follow her on Twitter at ProactiveStats.
Stephanie, thank you for a great reminder that despite the lack of legislative mandate, the executive branch of government still has a huge influence on social re-engineering.
Posted by: Paul Weatherhead | 12/23/2010 at 07:08 AM