How should an employer audit its pay practices? What role does a compensation professional play during an investigation by the federal government? How does the federal government conduct its analyses? If an employer conducts a self-audit, is it a safe haven?

Author Jude Sotherlund, a former Department of Labor (DOL) official, tackles these difficult questions and more in the new WorldatWork book, When Pay Plans Go Wrong.

Sotherlund, principal author of the Office of Federal Contract Compliance Programs’ (OFCCP’s) A Report on the Glass Ceiling Initiative, and its sequel, Pipelines of Progress, advises a review of one’s compensations system(s) using the current federal investigators’ techniques, as well as one based upon how the employer’s compensation system(s) actually functions. By following the book’s self-audit procedures, she says, an employer can gain confidence that its systems are functioning in a nondiscriminatory fashion.

“Serious consideration should be given to elimination of the taboos of compensation dialogues,” she writes. “A fair system is much easier to communicate than one steeped in vagueness. A proactive approach to pay equity should help provide assurances to stockholders of corporate integrity and accountability.”

Sotherlund discusses many methodologies used to audit base pay and makes recommendations as how to do so properly. She explains the systemic approach to conducting an internal audit with a thorough description of each systems analysis, including shadow, outlier, mean, median, cohort, market rate and regression.

The book devotes one chapter to broadbanding, a practice that poses a host of pay equity issues, and also takes a look at model employers and “best compensation practices,” as recommended by the DOL’s OFCCP.

Overall, Sotherlund succeeds in tackling a difficult subject and making it not only understandable, but also useful and actionable to compensation professionals and HR generalists alike.

“In most workplace settings, it would seem unfeasible for the HR professional to review every performance evaluation and salary determination to ensure fairness,” she writes. “Yet, with the help of compensation professionals, HR has the tools to do just that. By building a partnership, compensation professionals and human resources can be empowered to cooperate and ensure that there is greater oversight in the area of pay equity.”

Testimonials

Table of Contents

Preface by Cari M. Dominguez, CCP

Introduction

Chapter 1: Framing the Issues of Workplace Inequity

• Emergence of Diversity: Affirmative Efforts of the 1990s
• Diversity as a Business Imperative
• Affirmative Action Backlash
• Where Is the Anticipated Diversity Today?
• The Persistence of Access Problems
• Paycheck Equity
• Whose Responsibility Is It?

• Differences of Opinion on Pay Inequity

• Oversight Committees and Public Interest Groups
• The “Cops on the Beat”
• The Equal Employment Opportunity Commission
• U.S. Department of Labor’s Office of Federal Contract Compliance Programs
• Requirement of an Annual Submission
• Privatization of Pay Equity?
• U.S. Congress Weighing In

• 10 Steps to an Equal Pay Self-Audit for Employers
• Initial Placement
• Starting Salary
• Figure 1: PayMeNow Company
• Same Title — Two Salary Grades
• The Baseline — A Cohort Job-by-Job Analysis
• Figure 2: Salary Grade 14 — Market Analysts
• A Shift in Focus
• The Salary Grade: “We’re All Peers Here”
• Comparable Worth
• The Systemic Approach: In General
• The Systemic Approach: How-To
  - Shadow Analysis
  - Mean (Average) Analysis
  - Figure 3A: Salary Grade A Range
  - Figure 3B: Salaries of Men Within Salary Grade A
  - Figure 3C: Salaries of Women Within Salary Grade A
  - Median Analysis
  - Outlier Analysis: Statistically Significant Differences
  - Factor Analysis: Correlation with Other Employment Variables
  - Figure 4: Most Influential Factor Affecting Salaries — Time in Grade
  - Market Rate Analysis
  - Multiple Regression Analysis
• Lawyers Critical of Systemic Approach
• Compensation Manuals
• An Alternate Systemic Approach

• Figure 5: Company ABC’s Salary Grade Structure
• Driving Forces Behind Broadbanding
• Pay Bands vs. Diversity Bands
• Figure 6: HR Banding — Difficulties in Relating
• Auditing Compensation in the Broadbanding Environment
• Figure 7: General Pay Equity Approaches
• Subset Analysis by Zone, Quartile or Family
• Figure 8: Salary Band C
• Band Analysis
• Business Unit Analysis
• Multiple Regression Analysis
• Promotional Activity Using Broadbanding
• Figure 9: Compressing 15 Standard Salary Grades into 5 Broad Pay Bands
• Total Cash Compensation
• Federal Investigations: A Mixed Lot
• A Federal Example
• Figure 10: 2003 Salary Table for Federal Government Employees
• Figure 11: New Ranges — Three Traditional Salary Grades Wide

• Figure 12: The Choice Between Individual and Group Plans

• The Bonus
• Referral Bonus
• Sign-on Bonus
• Retention Bonus
• Spot Bonus
• Total Cash Compensation
• Stock Options
• Definitions
  - Qualified incentive stock option
  - Nonqualified incentive stock option
• Executive Compensation
  - Phantom stock plans
  - Stock appreciation rights
  - Stock grant plans
  - Restricted stock plans

• Figure 13: 360-Degree Feedback
• Performance Reviews
• Systemic Assessment

• Best Compensation Practices
• Proactive Salary Adjustments

• Executive Leadership
• Coordinated Compensation Committee
• Competitive Compensation
• Complementary Diversity Efforts
• Corporate Board Representation
• Communication

Endnotes and Selected References