Fair and square - equal payment for male and female employees

HR Magazine, May, 1999 by Marc Adams

Employers see new reasons to level their pay structures.

When Congress passed the Equal Pay Act (EPA) more than 35 years ago, the goal was to ensure that women would be paid comparable to men for performing similar work. Today, as we approach the end of the century, it's only fair to ask: "Has it worked?"

The reviews are mixed. In the race for equal pay, women are gaining on men, but the gap is still substantial. Since 1960 - three years before the EPA was passed - women's median wages have climbed from 60.7 percent of men's median wages to today's ratio of 76.7 percent, according to government data. That upward trend may be encouraging, but it still leaves a shortfall of more than 23 cents on the dollar for women.

And that's an issue that deserves HR's attention for several reasons.

The Equal Employment Opportunity Commission (EEOC), under newly appointed chairwoman Ida Castro, is expected to focus increased attention on women's pay issues. (See the interview with Castro in the February HR Magazine.)

Further, the federal government has launched a plan to force the nation's 18,000 federal contractors to narrow the pay gap between men and women. Basically, when employees of federal contractors file class action complaints of pay discrimination with the U.S. Department of Labor's Office of Federal Contract Compliance Programs (OFCCP), the office will now have the authority to negotiate for extra damages. Previously, the OFCCP negotiated only back-pay awards; complainants seeking additional damages had to argue their cases all over again at the EEOC, where backlogs often caused delays.

But now that the Labor Department is handling the entire class-action process, the EEOC will have more time to hear complaints filed by individual employees at all types of companies, including those that don't have government contracts.

OFCCP officials predict they'll seldom press for extra damages, relying instead on the new policy's deterrent effect. The government's theory: By speeding up the enforcement process, the policy is liable to shake loose more pay discrimination complaints. That should be enough to prompt more companies to clean up their compensation systems as a hedge against big back pay awards.

Since 1992, the Labor Department has collected an average of $32 million annually from government contractors; the bulk of that amount is back-pay settlements resulting from routine payroll audits. Most often, employers shell out big settlements because they lack the documentation to explain pay discrepancies - some of which may be legitimate.

Class-action complaints - the focus of the new OFCCP policy - usually net similar results.

Critics of the audit process complain that government examiners base their calculations primarily on median salaries, which seldom account for performance, tenure and experience. However, contractors are given "every opportunity to explain" pay discrepancies, OFCCP officials say. "Sometimes, the policies are sound, but they are not applied consistently - to the detriment of women or people of color," say the officials.

To avoid steep fines - and to reinforce HR's credibility with workers - government and private-sector experts are prodding HR departments to perform top-to-bottom compensation reviews.

"There's a real emphasis on pay equity these days," says Jeffrey Norris, president of the Washington, D.C.-based Equal Employment Advisory Council, an organization that serves as a government watchdog for its 200 corporate members. "Companies ought to be taking this issue seriously and doing self-analyses now," Norris says.

If federal auditors examine pay discrepancies and you have a good analysis and can justify your compensation patterns on the basis of legitimate business reasons, "The government isn't likely to go any deeper," Norris points out.

Tips for Balance

What can HR professionals do to make sure their pay systems stack up to competitors - and federal scrutiny?

For a few hints, take a look at employers that have received government and private-sector awards for achieving wage parity and for advancing women through the company ranks. While each employer has different techniques designed to keep salaries on equal footing, overall, equitable compensation systems display some common traits:

* Salaries and merit raises are based primarily on prevailing market pay scales for the industry, not on an employee's arbitrary value to the firm.

* Differences in skills, performance and tenure are boiled down to a system that HR can monitor and control.

* Compensation is reviewed regularly for imbalances caused by cutbacks, transfers, mergers or bulges in recruiting; discrepancies are quickly corrected.

Regardless of the method, the consensus is that a balanced payroll system requires constant tinkering. The goal is a gender-neutral system that can flag any unfair discrepancy - even one between two male employees.

Covering the Bases

The federal government enforces pay equity through a tangle of overlapping laws, so employers are faced with designing - and maintaining - compensation systems that cover all the bases.