Fishing for Facts about Pay Inequity

Friday brought another bombshell about pay to gladden the hearts of compensation people looking for more work. President Obama announced a widened executive action initiative to gather facts about pay discrimination based on gender, race and ethnicity.

It expands the prior two August 2014 executive orders for pay equity inspections at federal contractors. New added reporting rules will be extended to cover the approximately 41% of U.S. workers at firms employing over 100 people.

Some complain this is unnecessary, branding wage gap claims as bogus. Those who have objected due to a lack of factual proof about actual rather than anecdotal illegal pay disparities should be pleased. The President's initiative would collect facts rather than act upon empty assertions. Data will be analyzed for disparate protected class treatment in similar jobs, as summarized in each EEO-1 occupational class. 

Statistical tests will be used as an initial check of the W-2 data to be collected on the EEO-1, specifically, statistical significance tests that do not rely on an assumption of a normal distribution.

That ought to settle the matter one way or another, once and for all.

There is plenty of time to comment and prepare.  Under the proposal, employers would first submit pay data as of the September 30, 2017 EEO-1 filing deadline.

The details about the changes appeared in the Federal Register today.

Headcounts and hours worked must be recorded within twelve income bands for each of ten broad occupational classifications. Wide income bands make it unnecessary to detail the precise amounts paid to each employee, greatly simplifying the confidential reports.  If you had eight workers in one of the ten EEO-1 work classifications with W-2 earnings between $39,000 and $49,919 ... then you would simply enter a count of 8 in the Band 5 income category. The Bands specify min-max levels with intervals of about $5K around the $20,000 total income level, increasing to $15K at the $60,000 point and ending at $30K near the top category of $208,000 a year. Everyone making over the bottom of the highest pay Band 12 will be lumped into that category; i.e., both $300,000 and $8 million incomes would be reported in Band 12. This is exactly how the BLS OES survey operates, using the same wage span categories, although they use a more restrictive definition of pay that ignores increasingly important elements of employee income used by most companies.

Tackling income inequality before elections are held is a safe and politically attractive action. Women comprise half the population and they vote.  Although the devil is always in the details, it is a smart move to collect income data that might prove advantageous to protected classes. Remember, once you include age, sex, race, ethnicity, religion, etc., most Americans fall into at least one protected class. Yes, this is a fishing expedition, but it is one with no down-side risk to the government.

Arguments that the new reporting requirement is too burdensome may not fly.  Only two elements have been added to the EEO-1 list. The U.S. Chamber of Commerce's claim that collecting such facts by EEO-1 category would provide "no meaningful insight as to whether employee pay practices are discriminatory," remains unproven; but, after October 2017, proof may appear.

It is quite likely that the extremely general nature of the new data will only alert the EEOC to obvious problem cases requiring different closer examination. Since unique job titles such as Senior Cost Accounting Expert must be grouped into 840 general occupations (like Accountants and Auditors) and then distilled into 10 broader classifications (like Professionals), not much detail will survive.  An equity anomaly in an EEO-1 classification might not involve identical jobs.

Until future experience shows results, no clear answer can be given about the value of the new reporting step ... beyond being an additional task for compensation people.  The best employers can expect is that no smoking gun is found that attracts more pressure, justifies further investigations, brings fines or inspires litigation. Just the process of preparing this new report should quickly show any egregious issues for swift correction ... we hope.

What do you think?

E. James (Jim) Brennan is an independent compensation advisor with extensive total rewards experience, specializing in job evaluation, market pricing and pay budget distribution. After corporate HR jobs in chemical and pharmaceutical manufacturing, he consulted at retail, government, energy, IT, tax-exempt and other industries throughout North America before becoming Senior Associate of pay survey software publisher ERI until returning to consulting in 2015. A prolific writer (author of the Performance Management Workbook) and speaker, Jim gave expert witness testimony in many reasonable executive compensation cases both for and against the Internal Revenue Service and also serves on the Advisory Board of the Compensation and Benefits Review.

Image of Net Fishing at Sunset courtesy of FreeDigitalPhotos.net

Comments

[Tony Bergmann-Porter]

As the Elvis Costello song goes: "I used to be disgusted, now I try to be amused".

I completely agree with you, both here and in your post on this topic earlier this year, that the data to be collected will be so general as to be meaningless.

In fact, at the lower wage bands I doubt you can get even one standard deviation of difference if you pay all unprotected class members at the very top of the band and all protected class members at the very bottom.

This is simply posturing and pandering around a non-issue. When sufficiently controlled for hours worked, occupation, and human capital variables, the wage gap becomes so small that what's left is likely the result of other unobserved (and possibly unobservable) variables.

To be sure, there is an earnings gap. But that gap results from the intersection of culture (at a societal level) and individual choice.

[E. James (Jim) Brennan]

Thanks, Tony. Boring facts have never dissuaded politicians from flinging provocative sound bites to agitate the public and activate voters. The media propagandists thrive on exciting demagoguery and ignore quiet explanations that require comprehension beyond the 4th grade level. Dumbed-down catchphrases won't clarify complex issues.

Searching "77 cents" will yield Stephanie Thomas's excellent 7/27/2010 article about gender discrimination. The comments under it gave more details, too.