This article examines best practices but can be boiled down to one lesson: All employers can learn from Dragnet; follow one simple rule, "Just the facts, ma'am."
The Lilly Ledbetter Fair Pay Act of 2009 (Ledbetter), retroactive to May 28, 2007, is making many employers uncomfortable with good reason. Prior to Ledbetter, an employee had a narrow period of time (180 or 300 days) within which to bring a lawsuit against the employer for unfair pay or discrimination pay practices. Now, that statute of limitations has virtually disappeared since it essentially restarts each time an employee receives a paycheck. In addition, if one paycheck is based on a discriminatory compensation decision, then most complainants will conduct a historical analysis to see just how many others fall into that same category. Some professionals are going as far as saying a paycheck includes a pension check, since they are based upon a percentage of pay. Others contemplate that Ledbetter may also protect non-employees like spouses of deceased workers, as long as their claims are affected by a discriminatory practice against the deceased.
Employers now have to deal with an added weight to their already heavy basket of "to do's."
* How are employers to protect themselves?
* What can they do to prepare?
* Does everyone have to receive the same pay?
* And, most importantly, how can they pay their employees in a fair manner while still rewarding top performers and go-getters?
Some professionals believe that Ledbetter stands for equal pay; others, equity in pay. As mentioned above, there does not seem to be a bright-line test available--no plug-and-play solution applicable to all. In essence, setting pay practices is like playing darts--aim as best as possible and hope for a bull's eye. That being said, much like in darts, there are best practices and prophylactic measures employers can take to thwart litigation and internal complaints.
A discussion of these practices can be summarized as DARRTS:
* Develop compensation-setting criteria;
* Audit pay decisions and documentation retroactive at least to 5/28/07;
* Review compensation decisions;
* Revise document retention practices, particularly as they relate to pay decisions;
* Train supervisors and employees; and
* Set up statistical analysis on pay to be conducted regularly.
Develop Compensation-Setting Criteria and Document Them
Employers must develop objective and measurable compensation-setting criteria and then do their best to ensure that the principles surrounding pay are applied consistently within job classifications, departments, business units, etc. Employers should specify, in writing, guidance regarding how to set employee salaries at hire, and when to grant promotional and merit increases and the amount or percentage of those increases. Documentation is even more important when a company is considering demoting, terminating, or cutting someone's salary. Employers should ensure that all pay decisions are well-documented and the documents reflect the justification for certain employees receiving higher or lower pay, benefits, and evaluations.
Pay disparities are possible as long as they are properly documented. Proper documentation includes not only what was discussed above but also job classification accuracy and whether certain jobs are primarily held by individuals in a protected class.
Audit Pay Decisions and Documentation Retroactive to May 28, 2007
What kind of documentation an employer retains is vital to its ability to defend pay decisions. Therefore, at a minimum, companies that use performance-based pay must be able to support wage disparities based upon performance rather than other factors. It is essential that employers be proactive in their internal scrutinization of pay so that they may change any discriminatory, or perceived discriminatory, pay practices. This scrutiny is likely the most difficult step to take because unfair or inequitable pay policies may be subtle and inadvertent. Regardless, employers must avoid discriminatory compensation decisions and have unbiased pay practices that are uniformly applied to all employees.
Review Compensation Decisions
Process and consistency is the key to successfully reviewing compensation decisions. Oftentimes, compensation decisions are based on core principles but give too wide a latitude to individual managers and supervisors. Some discretion must be available because not all qualities are cut and dry; however, policies that provide nearly unfettered discretion will likely fail to pass scrutiny. Human resource (HR) and compensation professionals should regard pay decisions as legally significant as a disciplinary action or termination.
Revise Document Retention Practices, Particularly as They Relate to Pay Decisions
Companies have placed much-needed energy and resources into designing an appropriate documentation retention policy. Now those policies must be revisited in order to ensure that employers have information available for a reasonable amount of time to defend themselves in light of the new Ledbetter statute of limitations. Employers will likely find that they have to retain compensation-related information for a longer period of time, even for a substantial number of years after an employee's termination or death. Since the information will be quite voluminous over the course of an employee's career, companies may want to consider electronic retention methods. Regardless of the method of retaining the information, privacy issues must be considered.
Train Supervisors and Employees
Once a process is in place, employers must train both supervisors and employees on pay decision matrices. For supervisors, objectivity is key. For employees, the training should help managers make compensation decisions by helping employees properly and objectively discuss their worth or value to the organization. Managers and supervisors should get ready for a changed culture. That is, employers should expect to see a movement away from hiding compensation from colleagues and friends to one where this information is more freely shared. If employees are more openly discussing compensation issues, they are more likely to uncover unfair pay practices, whether these practices are inadvertent or intentional. Employers should uncover and eliminate any such practices before employees do.
Set Up Statistical Analyses on Pay to Be Conducted Regularly
Employers should determine whether statistical data reveal disparities across gender, race, and other protected classes. If the disparities cannot be supported, employers will need to change or tweak current compensation practice.
NEW IDEAS ON BEST PRACTICES
Training for Performance Evaluations
Many attorneys, consultants, and other experts advise companies to require that each evaluator provide a narrative explanation of why specific ratings were given. But, how does one provide an appropriate documentation of his or her thoughts? Instead, prepare a template for managers to complete during an evaluation and advise them that only facts should be provided. At a minimum, provide managers with appropriate words or suggested guidelines when expressing themselves. While it may seem pedantic to the managers, employers need to ensure that only facts are used to support decisions. Since oftentimes evaluating employees becomes partly emotional, managers and supervisors will likely find a template or set of pre-canned words helpful. For example, which of the below sentences is based solely on facts?
* Jeffrey is one of the, if not the, worst salesperson this organization has.
* Jeffrey is a difficult person.
While Jeffrey did meet his sales goal of $1 million, many clients have complained to me that, after they sign an engagement letter, Jeffrey is abrupt with them and is generally non-responsive by email.
Just as managers and supervisors need to acquire a vocabulary of facts, so do employees. Many employers often fail to train their employees on how to prepare for their performance appraisals or how to appropriately discuss their achievements. Again, employees should provide facts to support their request for a raise or larger bonus or complaint for not receiving an appropriate salary adjustment or promotion, etc. Remember, a template would be useful for employees or some form of guidance to help them express themselves. Which one of these sentences is based solely on facts?
* I am the best administrative assistant here.
* I feel like I deserve more from you.
* I am always on time, stay late at a moment's notice, and always receive praises from you for my work product.
Training for Compensation Inquiries
As mentioned above, in a world where discussions about pay disparity are in the news, employees will begin discussing their pay with each other in order to determine whether they are receiving a "fair" salary. Since Ledbetter will allow the initiation of a lawsuit even after termination, these inquiries may come at any time, and managers and supervisors will likely need assistance in the proper and timely response to these inquiries. The first step is to determine what information must be provided and what information an employer can refuse to provide. HR professionals must pay special attention to the timing of a request. For example, is this inquiry part of litigation or a complaint or is an employee or former employee simply requesting information attendant with pay? Can the employer provide certain pieces of information to the requestor without invading the privacy rights of others? Again, employers should consider creating a template letter to be used for such inquiries. Such a template letter should, for example, summarize the job function, state the base pay, and then explain that the base pay can increase with seniority, experience, education, and the like. It may also be beneficial, if possible, for employers to attach a dollar value to each extra-identified skill or educational achievement.
Office Manual or Other Policy Audit
Office manual dusty? Now is a great time to review it to ensure that it does not illegally prohibit employees from discussing their compensation, as was the case for Goodyear employees, which was the stated reason that Lilly Ledbetter was unable to bring a lawsuit within the previous180 to 300 day limit. At the same time, review how compensation is treated, if at all, in the office manual or other policy, whether or not disseminated to employees. Consider adding a paragraph or two about compensation--the company's philosophy when it comes to pay, how pay is determined, how an employee can have his or her pay reviewed, etc. Most importantly, encourage employees to discuss pay with HR personnel or department supervisors.
Privacy Rights Considerations
Ledbetter will surely encourage compensation inquiries and employee discussions. It may be beneficial for employers to provide employees with a form where they can elect a privacy setting with respect to their compensation. For example, employees can elect to have all of their compensation information shared, elect that information be shared only in response to a subpoena or litigation, elect to have their information shared anonymously, etc. This may assist HR, compensation, and supervisory personnel in responding to various salary-based inquiries that are sure to arrive on their desks or in their email boxes.
Battle of the Sexes to the Nth Power?
Although Ledbetter had nothing to do with gender bias, many of the pay disparities may revolve around alleged gender pay discrepancy. Moreover, at least one piece of proposed legislation (the Paycheck Fairness Act), if enacted, will seek to remedy what the legislature deems an inherently discriminatory compensation market against women. When auditing pay practices, an employer may notice that most of its pay discrepancies do involve differences in pay between men and women. If employees become aware of these discrepancies, a blatant battle of the sexes in the workplace could ignite. That's all the more reason to adopt the DARRT practices discussed above. It is important to curtail discussion around one protected class versus another versus those in an unprotected class and instead concentrate discussion on what kind of pay will result from an individual's education, experience, efforts, and successes.
Pay has always been a sensitive issue for employees and a significant area of concern for employers. With a salary comes pension benefits, bonuses, and other compensation-related rewards. All attendant salary-based compensation will be open to possible recalculation for successful litigants who are able to evidence a discriminatory pay practice in an organization. Therefore, this is the time for pro-activity, rather than reactivity, on the part of the employers. Audit, train, and in the words of the old TV series Dragnet, when it comes to pay and performance ratings, stick to "Just the facts, ma'am."
Rania V. Sedhom, an attorney, is a principal with Buck Consultants, an ACS Company. The author can be reached in her firm's New York City office at email@example.com.