Pay equity investigations increasingly require more detailed pay data

By Michael Burns, courtesy of SBAM Approved Partner ASE

Pay discrimination investigations have been around for a long time. After hiring discrimination, pay discrimination follows as one of the most common areas of discrimination complaint. Lilly Ledbetter’s Fair Pay law, passed in 2009, highlighted pay inequity and has put pay discrimination front and center with the Equal Employment Opportunity Commission (EEOC) and the Office of Federal Contract Compliance Programs (OFFCP). 

When the issue of pay discrimination comes up most employers think base pay. Base pay being what most employees receive in their paychecks. However, for many workers base pay is not the only form of compensation and in fact may not be the primary form of earning a paycheck. For a segment of the workforce, (sales) commission or other incentive-based pay is the bulk of their paycheck rather than their salary or “base” wage.

A recent pay discrimination case settled by the EEOC shows that employers using incentive pay  programs have to not only watch for discriminatory pay practices, but when necessary, produce incentive pay detail to defend against the complaint. This pay detail and analysis is not normally something employers concern themselves with.  

In the case at hand, the employer faced allegations that it violated the Equal Pay Act and Title VII of the Civil Rights Act. The EEOC asserted that the commission pay plan being used discriminated against female sales representatives.  Allegedly, the commission plan for females started with lower base pay and the rules of the incentive plan did not give the female sales personnel the same opportunities to make the commissions as their male counterparts had. 

The employer, being put in a position whereby it would have to demonstrate in detail its pay program did not discriminate, chose instead to settle the complaint without admitting liability. In the investigation stage the EEOC would expect the employer to present analysis of its different pay components – base pay, commissions, and overtime. The employer’s analysis would also have to the include explanations as to how assignments were made between male and female employees and whether decisions on these practices were done “uniformly and consistently to distinguish earnings of one employee from another.” This would be a tall order for most employers and their human resource departments.

In addition, the same concerns about how a pay practice applies to gender also applies to race.
Employers with larger groups of employees in certain classifications should be proactively examining pay for disparity between males and females. It is advisable these pay analyses be conducted under the auspices of an experienced attorney to provide attorney-client privilege should issues be discovered. Doing this proactive analysis will allow the employer to address unexplainable pay disparity (by race or sex) before the complaint is made to the government agency.