HR's Role in Pay Analyses

Analyses on compensation equity can’t go forward without HR but shouldn’t be handled by HR alone.

By Allen Smith, J.D. Jul 1, 2016
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Illustration by Dale Glasgow for HR Magazine​​

Pay equity has become a top-of-mind concern for employers nationally as a result of California’s new gender pay equity law and similar legislation in New York and elsewhere. In addition, some publicly traded companies are facing pressure to report on salary equity at shareholder meetings and in public filings. 

“This combination of two new pay laws and shareholder initiatives [is] raising the stakes for companies that have not looked at the issue at all,” says Alissa Horvitz, an attorney with Roffman Horvitz in McLean, Va.

At the federal level, the U.S. Equal Employment Opportunity Commission proposed in July that employers with 100 or more workers should submit salary data along with their EEO-1 reports in 2018.

In light of these developments, there are huge incentives for employers to be proactive about conducting pay analyses, says Mickey Silberman, an attorney with Jackson Lewis in Denver. Calling the California law a “game changer,” he predicts that “bringing and winning lawsuits [claiming pay discrimination] will be much easier for plaintiffs.”

Most HR professionals already know it’s not a good idea for them to conduct pay analyses on their own. Allowing the company’s counsel to conduct pay analyses keeps the analyses protected under attorney-client privilege. HR professionals also realize it’s not their place to provide legal advice about whether compensation decisions are fair and nondiscriminatory.

So what, exactly, is HR’s role in ensuring fair compensation? 

Make the Right Offer

“The role of human resources in ensuring pay fairness begins with the salary offer,” Horvitz says. The new hire should be “placed accurately within the existing employee population to maintain internal equity.”

It’s also critical to document initial salary decisions. “If an employee negotiates, that information needs to be preserved,” Horvitz says. “If there are unique issues involved in the recruitment effort, those need to be memorialized.”

Monitor Merit Increases

It is up to HR to see that managers know which behaviors and accomplishments will earn which ratings at the end of the performance evaluation cycle, Horvitz notes. During merit increase time, HR must:

• Make certain that managers understand how to rate employees objectively and fairly.
• Evaluate the overall distribution of performance ratings.
• Challenge decisions that do not appear to be borne out by facts.
• Clamp down on managers who exercise “unfettered discretion in setting initial pay and/or recommending merit increases without regard to existing pay structures,” Horvitz says.

Consider a Pay Audit

When conducting pay analyses, HR professionals should follow counsel’s legal advice and keep information confidential. That said, they can take the lead by pointing out that a pay audit is needed in the first place, notes Elizabeth Washko, an attorney with Ogletree Deakins in Nashville, Tenn.

And before that investigation is underway, they should make sure top leadership is fully prepared to take corrective action as needed, Horvitz observes. Otherwise, the analysis could wind up being more harmful than helpful. If differences in pay brought to light during the audit are not addressed and are later revealed to be unlawful, an employer may be forced to pay liquidated damages in addition to the amount owed in wages, notes Michael Reiss, an attorney with Davis Wright Tremaine in Seattle.

Thus, one of the key objectives of conducting a pay analysis is to ensure that differences in pay among employees in similar jobs can be explained based on job-related criteria. The analysis might start by identifying all employees who fall below the minimum pay range or above the maximum and then delve into the reasons that compensation for those workers falls outside the norm.

Group Jobs with Care

One mistake HR often makes before conducting pay analyses is neglecting to present all equivalent job titles in the exact same way. “Many employers have allowed titles to remain very free-form and have not cleaned them up,” Horvitz says. For example, if one employee is described as “manager, human resources” while another is referred to as “mgr hum resources,” software programs such as Excel will not recognize the titles as the same. 

The new gender pay equity standard in California is “substantially similar work” as opposed to “equal work” under the federal Equal Pay Act, so it is possible that employees with varying job titles, duties and even professions will get lumped together in one category for the analysis. Consequently, “employers should not rely on job titles or descriptions alone when conducting pay analyses,” says Rebecca Bernhard, an attorney with Dorsey & Whitney in Minneapolis. 

 “HR actually knows the jobs and who to group together” for comparisons of pay, Silberman says. Grouping together too broadly yields false positives for pay discrimination—that is, apparent discrepancies that can be explained by legitimately different positions—while classifying too narrowly leads to “divide and hide,” which occurs when unfair differences in pay are obscured because there are too many subcategories being analyzed separately. 

“It is also necessary to examine general ability, experience and education requirements, licensure requirements, key job responsibilities, and contextual factors such as working conditions and physical demands.”

​—​John Scott, APTMetrics​

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Relevant factors to consider when determining whether jobs are “substantially similar” include knowledge and skills required to do a particular job. “It is also necessary to examine general ability, experience and education requirements, licensure requirements, key job responsibilities, and contextual factors such as working conditions and physical demands,” says John Scott, chief operating officer of APTMetrics, consultants on the design of HR processes in Darien, Conn.

He says other factors used to differentiate pay between similar roles include:

• Safety risks in performing the job.
• Job stress.
• Autonomy and level of supervision.
• Cost and availability of training.
• Work schedule, including shift length and time of day.

“The most effective and comprehensive method for identifying the key job requirements is through a formal job analysis,” Scott says. That “starts with an observation of the jobs, followed by structured interviews with incumbents, managers and trainers.” That information, along with any other relevant materials (for example, job descriptions and training manuals), enables employers and their counsel to assemble a job analysis report that contains all of the job responsibilities, demands, knowledge, skills, abilities and other contextual factors that make up the target jobs.

However, “relying on job descriptions that are out-of-date or that are out of step with the duties employees actually perform will be problematic when trying to assess ‘substantial similarity’ under the law,” cautions Naveen Kabir, an attorney with Constangy, Brooks, Smith & Prophete in New York City. 

Phasing In Change

HR is also a trusted advisor when describing relevant cultural factors that affect compensation. “Although statisticians, labor economists, outside vendors and attorneys may have special overall expertise in analyzing compensation, HR provides valuable information on the specific compensation components, compensation philosophy and unique factors in their workplace,” notes Leigh Nason, an attorney with Ogletree Deakins in Columbia, S.C.

According to Tracy Thompson, an attorney with Davis Wright Tremaine in San Francisco, HR would be expected, under the direction of the legal team, to:

• Review results of any analyses and make recommendations to senior management about an action plan.
• Draft a plan for implementing any adjustments approved by senior management, including a communications strategy.
• Monitor compliance with any approved changes.

• Handle any employee relations issues that may arise in connection with salary modifications.

For example, when an employee’s compensation is adjusted upward as a result of a pay analysis, that individual may feel resentful that he or she hasn’t been receiving a higher salary all along. That’s why it’s important to take a thoughtful approach to phasing in changes, says David Goldstein, an attorney with Littler in Minneapolis. Depending on the circumstances, it may even make sense to provide some back pay. 

“I’ve seen lawsuits out of voluntary changes in pay,” Goldstein says. “The road to hell is paved with good intentions.”  

Allen Smith, J.D., is the manager of workplace law content for SHRM. Follow him @SHRMlegaleditor.

 
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