June 9, 2021

Conducting a Pay Analysis

According to Kenneth Eade, a lawyer and author, “In any negotiation, the one who first gives a number is the loser.” Effective negotiation combines nerves of steel, a willingness to walk away, and a thorough knowledge of the needs of the other party, some of which may be impossible to achieve when one is anxious to secure employment. But regardless of these challenges, most job applicants try to negotiate starting salaries, with only 39% of men and 42% of women accepting their salary offer without negotiation, up from March 2016, when 52% of men and 68% of women accepted their salary without negotiating.

The reasons for salary differences within a job group vary. Whether it is because of the unique difficulties of negotiating salary during a job search or bias by managers in the hiring and promotion processes, the fact is that in most organizations, some pay inequity exists. Although progress has been made since the mid-1960s when civil rights legislation and the Equal Pay Act attempted to level the playing field, average wages for white men are still 46% more than for black men, women earn 79% for every dollar that a man earns, and black women receive 64% of what the average white man earns.  In addition, workers aged 55 to 64 years see an adjusted gender pay gap of 12.3%, more than double the national average.  
  
There have been attempts recently to try to regulate pay equity: Colorado, California, and a dozen other states require employers to file reports that address the issue and 14 states prohibit questions about salary in the interview process. This trend, combined with the fact that pay is one of the largest expenses that an organization incurs and the unsettling news that a third of millennials are willing to share their salaries (compared to 8% of baby boomers), often publicly on sites like Glassdoor, has caused corporate America to pay attention.  

A formal audit of an organization’s pay practices, whether it is driven by ethical concerns or the threat of litigation, is usually conducted by an outside consulting firm or internal HR department with the assistance of counsel. It is important to partner with legal counsel to try to protect the audit and its findings from discovery in litigation. As Lisa Reimbold, Senior Attorney at Clark Hill, states, “We are seeing an increase in Equal Pay Act Claims as states, such as California, are starting to amend the statutes to make it easier for employees to bring these claims. Today, courts are looking more closely at job duties and less at job titles when evaluating Equal Pay Act claims. Getting ahead of these claims, by auditing your payroll and evaluating your comparable workers can prevent costly litigation and damages.”

A few tips to keep in mind if you determine that it is time to analyze your company’s salaries: 

  • Remember that the cost of remedying the issue will not be as great as the cost of losing valuable employees who are upset about feeling unfairly treated.  According to a recent Korn Ferry study only 5% of employees end up eligible for increase after an audit. Most employees receive increases of 4-6% and the costs average just .1% to .3% of salary budget.  

  • When you pull data from your HRIS system, include job title, department, job grade or level, hire date, gender, race, job location, hours worked, salary, performance scores, education level and years of experience. 

  • Analyze data for each job separately. It may be appropriate to look at competitive data for the job to determine if you are in line with the external market.

  • Adjustments may be made over time or immediate, depending on the findings. and may be shared with the employee as a “market adjustment” separate from merit, cost of living or promotional increases.

  • In order to keep your salaries in line going forward, make sure that job descriptions are accurate and up-to-date, so that any differences in salaries can be justified by education, experience and skills requirements.

  • Every hiring, compensation and promotion decision should be audited by a central function such as HR to ensure that it does not create inequity.

HR/AA is happy to assist with an analysis, which may include consultation with our Clark Hill colleagues to ensure that your pay system is in line with the market and addresses any internal equity concerns.  We also assist with ensuring that your hiring and promotional practices are documented and in line with best practices.


The views and opinions expressed in the article represent the view of the author and not necessarily the official view of Clark Hill PLC. Nothing in this article constitutes professional legal advice nor is intended to be a substitute for professional legal advice.
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