Identifying and understanding potential pay disparities in your organization is paramount with ever-increasing federal and state regulation, as well as demand from all corners for greater transparency and fairness in compensation. With all these different demands, organizations must investigate, correct, and prevent potential disparities to reduce their legal exposure and increase fairness for their employees.
But what is actually required under the laws/regulations? What is best practice for maintaining pay equity? A number of employers we speak with feel lost in this evolving and turbulent landscape of compensation analysis. By crafting a pay equity strategy using the three questions below, we’ve found that our clients are able to effectively maintain fairness in their compensation systems and stay out of legal/compliance trouble.
There are countless factors to consider in how you approach your pay equity analysis. We’ve been able to simplify our clients’ needs by answering these three questions, which can also help you chart the course in your pay equity journey:
- Are you a federal contractor and subject to E.O. 11246?
The regulations for federal contractors merely require that you “evaluate” your compensation system for potential discrimination, but they do not detail for contractors how this must be done. Is doing basic descriptive analyses to identify average group differences in pay compliant? In general, yes! Are those analyses going to hold up in an audit when the OFCCP and their statisticians are using more advanced methods to detect significant differences? Probably not! The current state of pay equity in Title VII/EEOC/OFCCP compliance does not require you to test for the significance of any differences in pay based on protected group status, but should you find yourself in an audit or litigation that is what you will be up against. Beyond audit and litigation, using multiple linear regression and other advanced techniques are the standard for analyzing differences in pay because they allow you to know whether the differences you are finding could be due to random chance, or something else.
- Do you operate in a state with equal pay laws or pay data reporting?
States like California and Illinois (and recently Massachusetts) have enacted equal pay laws that
require employers to defend pay practices on an individual employee-level. What does that mean? In addition to group-level differences (e.g., male v. female) that are typically the focus of federal claims, state-level fair pay regulations open the door for any individual employee to raise a claim that, as an individual, they have been singled out and are the subject of pay discrimination – i.e., other employees doing substantially similar work are paid more. How does an employer defend themselves against a claim like this? A thorough proactive pay equity analysis can identify employees that might be considered statistically significant outliers and allow them to proactively bring them closer to the rest of their peers.
- Do you have to disclose information about your pay equity position to the public? (e.g., diversity reports, ESG reporting, board inquiries)
Employers often attempt to ‘multi-purpose’ their pay equity analyses to meet the various legal and societal demands, which is generally not advisable. There are myriad types of compensation analyses, each answering different questions. There are also issues around the highly sensitive information that a thorough pay equity analysis yields and the need to protect that information, often the reason for doing the analysis with counsel to ensure attorney-client privilege of the results. So, the question might come down to – which type of pay equity analysis do you need? Very careful consideration should be given to the needs of your organization and the potential audience who will receive the information. A well planned and executed pay equity strategy will allow you to be more transparent and confident in the information you are sharing publicly.
How do you address all these demands in your compensation analysis? Here’s how Biddle attacks this ever evolving and seemingly complicated topic our proactive pay equity strategy:
- Similarly Situated Employee Group (SSEG) Analyses: We start every analysis by ensuring employees are properly aggregated into meaningful and defensible analysis groups. Enforcement agencies expect that most employees will be included in robust statistical analyses; are your groupings sufficient? We partner with clients to evaluate and configure appropriate SSEGs.
- Title VII Group Analyses: We use multiple linear regression (MLR) to identify hot spots (i.e., male/female group disparities, individual race group disparities) and amounts needed to make whole affected individuals.
- Outlier Analyses: Often times, hot spots can be driven by employees who are misclassified or have unusually high compensation. We help clients determine which specific employees are driving overall disparities. Additionally, to answer to state-level equal pay laws, we identify if there are any substantially similar employees who are significantly below their peers.
- Cohort Analyses: Once problem areas are identified, we partner with client compensation/HR teams to conduct drilldown investigations into the hot spots. In many cases, a legitimate explanation exists for pay disparities and it is simply a matter of identifying and correcting the issue. Biddle assists client teams with getting to the bottom of the problem areas.
- Patterns of Differences: Are the majority of significant differences negatively impacting women or minorities? Many pay equity analysts overlook non-statistically significant disparities because they do not post legal risks. However, patterns of non-significant differences can shed light on problematic pay practices and prevent pay disparity.
- Trend Analyses: Is your organization making progress over time (or not)? Our year-over-year analysis not only helps track improvement, but reveals legal risks from agencies like the OFCCP who are now asking for multiple years of data in audits.
- Pay Gap Analyses: If your organization is required to disclose information about equality in compensation by gender or race, you need descriptive analyses that communicate meaningful information but do not pose threats to the confidentiality of your complex, statistical analyses. Often, employers are asked about their unadjusted and adjusted pay gap. Our comprehensive pay gap analysis directly answers these questions.
Biddle is often engaged by law firms on behalf of their clients, and we are used to working with counsel to maintain confidentiality and minimize discoverability. We can also recommend several trusted law firm partners that specialize in OFCCP compliance matters.
For more information on our step-by-step process for analyzing your compensation system, head to our pay equity page.