Business

View from HR: Employers need to determine employee pay the right way

Do you have the right to discuss your salary with other employees?

The National Labor Relations Board says “yes” because pay information is central to collective action or bargaining on wages under federal law, union or no union.

Government regulators and investigators are focusing on pay rates and salaries for signs of discrimination. For example, in order to receive a federal contract, an employer may undergo review (and second-guessing) of its pay levels. “Why is this Tech II paid more than the other Tech II?”

President Barack Obama recently signed his Fair Pay and Safe Workplaces Order. Among other things, it reviews federal contractors accused of violating a wide range of laws and demands, some involving pay. Contractors can be barred from future work if there are too many claims.

Finally, there is apparently some support among HR professionals for paycheck transparency – proactively sharing salary levels with employees.

Why all this focus on what other people are paid?

Discrimination. Pay discrimination (or favoritism) based on a protected class (such as sex or race) has long been illegal. There are relatively few lawsuits in part because people generally do not know what others are paid. Claims that are made are often murky because the reasons one is paid more than another can include longevity, education, quality, ratings and other business factors.

Recruitment. Sometimes job postings include the offered pay rate or a pay range. Government listings tend to be most specific. Private sector salaried openings are often vague on salary based on what the candidate brings (or demands). Would a private employer benefit by being more specific in recruitment, especially if the pay is above market? Would it help with internal equity issues if everyone knew all salaries?

Culture. A significant percentage of HR managers believe pay or pay range transparency among all employees would be good for company culture. It reduces favoritism, makes the standard for advancement clearer and may help people focus on the right goals. I believe HR is also concerned about vulnerability in a pay audit by government officials because of the loose way some decisions are made. Perhaps there is no illegality, but the process of explaining how these particular people ended up at those specific pay levels could be quite difficult.

Glass House. I am not an advocate of broad-based pay transparency. There is too much evidence that even small distinctions in pay for valid business reasons create discord among and between employees. Few will concede someone else is a better performer or that longevity matters, for example.

I do advocate that employers make pay decisions as if those decisions are public. The rigor required to articulate a public explanation of pay levels will highlight weaknesses. Weaknesses may involve more than legal risk: Think about explaining to an A+ performer that she is receiving B- pay because her peer negotiated better. Not good.

Making conscious pay decisions for the right reasons, and correcting possible inequities over time, is the best plan culturally and legally for most employers.

Bruce Clarke, J.D., is CEO of CAI, helping more than 1,000 North Carolina employers maximize employee engagement and minimize employer liability. For more information, visit www.capital.org.

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