United States: Compensation Analyses

Last Updated: January 21 2013
Article by Jon Zimring

Compensation is tricky. Many factors go into establishing compensation and it is subject to many changes through time even where no organizational change takes place—and 21st century business is in almost a constant state of organizational change. Whether it is through corporate restructuring, downsizing, sale or acquisition or for other reasons, today's workplaces are constantly shifting and individuals are constantly shifting within those workplaces. All that shifting stresses even the most carefully planned compensation models. So how do employers keep up with the need to ensure that compensation is, and remains, fair? And why is it necessary to do so?

The "why" is more apparent than the "how" The recent election has demonstrated that if there is one area of civil rights law and regulation that continues to be at the forefront of American politics, it is compensation disparities. This revolves especially around the ever persistent "gender gap," the stubborn statistical fact that women continue to make less than men, even though performing equal work, throughout the U.S economy. This was the impetus behind the 2009 passage of the Lilly Ledbetter Fair Pay Act, President Obama's National Equal Pay Task Force, OFCCP's rescission of its permissive 2006 compensation directive and the EEOC's 2012 pilot program of Equal Pay Act compensation audits. The issue played a prominent role in the political debate in the recent election and it is sure to get further attention in light of its outcome.

So with a clearly apparent "why," the next question is "how." In a word, the initial answer is "carefully." Whatever its reasons for doing it, the first thing any organization should keep in mind is that internal compensation audits or analyses are discoverable unless properly cloaked under the attorney-client privilege. Given the simple statistical facts on the "gender gap," it is very likely that any employer undertaking a compensation analysis will uncover at least the appearance of some discrimination in compensation. The last thing any employer wants is to actually create discoverable evidence that will be useful in a lawsuit or regulatory action against it. It is therefore best, before beginning any compensation analysis, to engage counsel to properly cloak that analysis in the attorney-client privilege.

The next answer to the question of "how" depends on the organization and its goals in doing the compensation analysis. For federal government contractors, what is currently triggering OFCCP compensation follow-ups in compliance reviews is race and gender-based disparities in excess of 2% or $2,000. The safest way to avoid this problem is to proactively self-assess and adjust, either by performing "cohort analyses" on each job in which such disparities arise or by performing broader regression analyses, or a combination of both methods. For employers that are not federal government contractors, there are many ways to self-analyze compensation, and which is best depends on the individualized objectives of the organization and its reasons for wanting to perform a self-analysis.

This article is for general information and does not include full legal analysis of the matters presented. It should not be construed or relied upon as legal advice or legal opinion on any specific facts or circumstances. The description of the results of any specific case or transaction contained herein does not mean or suggest that similar results can or could be obtained in any other matter. Each legal matter should be considered to be unique and subject to varying results. The invitation to contact the authors or attorneys in our firm is not a solicitation to provide professional services and should not be construed as a statement as to any availability to perform legal services in any jurisdiction in which such attorney is not permitted to practice.

Duane Morris LLP, a full-service law firm with more than 700 attorneys in 24 offices in the United States and internationally, offers innovative solutions to the legal and business challenges presented by today's evolving global markets. Duane Morris LLP, a full-service law firm with more than 700 attorneys in 24 offices in the United States and internationally, offers innovative solutions to the legal and business challenges presented by today's evolving global markets. The Duane Morris Institute provides training workshops for HR professionals, in-house counsel, benefits administrators and senior managers.

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