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January 29, 2010

HR Fact Friday: Changes Loom for HR Structure, Pay Practices

Compensation laws are changing, and the changes will likely mean you’ll do things differently. The recent Ledbetter decision may have you scrambling to document pay decisions better and keep the records longer (or indefinitely). What you may not know is that these decisions could have an impact on your overall human resources function.

Stephanie Thomas, director of the Equal Employment Advisory and Litigation Support Division for Minimax Consulting LLC (www.minimaxconsulting.com), wants to help you ward off problems you may not have even thought about. She is concerned with two little words in the Lilly Ledbetter Fair Pay Act, the (January 2009) legislation that discusses unlawful employment practices and how they impact compensation. The Act essentially says it is unlawful to make compensation decisions based on discriminatory decisions or other practices. What, exactly, are those other practices?

Obviously, your pay system cannot discriminate based on gender, race, religion, age, sexual orientation, or even genetic information. But while you scrupulously guard against those kinds of discriminatory factors, discrimination may still occur based on other, less obvious, factors. Thomas says it’s easiest to visualize when you think in terms of pay grades.

“For example, let’s say everybody in pay grade 9 is paid between $40,000 and $50,000, regardless of gender, age, race, what have you,” she illustrates. “So if you were to look at people in grade 9 by their different characteristics, you would see that everybody in that grade is paid equitably. There is no evidence of discrimination.

“But what if someone claims they should really be in pay grade 10 or 12? They may claim they were hired into the wrong pay grade, based on a discriminatory factor such as age, gender, or race. Thus, hiring becomes one of these other practices,” says Thomas. “This is a much more difficult situation to examine from an empirical point of view. It spills over into promotion issues and hiring issues, so the other factors take compensation decisions into areas that are outside of what we conventionally think of as compensation.”

Where Will HR Specialist Fit In?

So what does this mean for your company’s HR organization and the way you pay your staff? Peering into the future, Thomas visualizes a very different organization than the one many companies now have. Over the last few decades, HR professionals have become increasingly specialized—into compensation, benefits, and leaves of absence. Thomas suggests that analyzing potentially discriminatory compensation will require HR pros to take a more generalist approach.

“Traditionally, companies would conduct a hiring study to make sure they weren’t discriminating in their hiring practices,” she says. “Once that was done, they would look at promotions. Then they would look at compensation. I think what’s going to happen is that all of these things that we thought of as separate analyses are going to be comingled. It’s really going to require a more comprehensive approach. You will no longer be able to look at compensation in isolation, instead looking at how compensation relates to hiring and promotion. This will make analysis very difficult.”

“This is still a new area, and it’s not clear what kinds of claims people are going to be making, nor is it clear how successful the claims will ultimately be. But it is an easy allegation to make that the company hired you at the wrong pay grade or with the wrong job title, even if it will be difficult to make a case demonstrating that. It comes down to looking at things from a preventive perspective, thoroughly documenting the decisions that are made.”

Thanks to the Ledbetter Act, we all recognize the need to maintain records of compensation decisions for the long term. But when HR looks at the impending integration of the HR functions and how those intertwine, as Thomas suggests, it becomes equally clear that hiring and promotion data should be handled similarly.

“For instance, with hiring, you need to keep copies of résumés and applications. It’s amazing how many companies don’t. And ideally, the records should be in some electronic form, easily accessible,” she says.

“You could then easily compare two people who applied for the same job and understand years later that, because John had 12 years of relevant prior experience and Jane had only 3, there was a justifiable reason for putting John at the upper end of the pay grade and Jane at the lower end, or making a grade difference between the two. It isn’t a question of changing the way businesses are running in terms of making these decisions. It’s making sure the decisions aren’t arbitrary, and that you have something concrete to explain those decisions.”

Thomas stresses this, above all else: “Documentation, documentation, documentation. We’re really stressing the fact that you have a well-trained staff; the people who are making the decisions, who are on the front lines of these decisions, are qualified and they know what they’re doing. The key is to memorialize why those decisions were made. And don’t forget: any kind of decision at all, anywhere in the organization, ultimately is going to have a compensation component. Make sure you take a big picture view. It has to be a more integrated effort across the organization.”

Source: HR.BLR.com, 1/14/2010

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