This is the third part of guidance on how employers can better protect themselves from compensation discrimination claims. I combine two shorter points into one post.
#3 – Use All of Factors Set Out In the Compensation Policy
The ultimate goal of most compensation policies is that employees who perform similarly within a similar rate range penetration should receive similar raises (typically measured in percentages) or similar salaries (depending upon other factors such as the value of longer experience).
To achieve this goal, make sure your written policy includes all of the relevant factors (dicussed in step number 1) and that all of these factors are fully evaluated in a consistent, non-discriminatory basis for every employee. If a certain factor does not apply or has not been met by the employee, the analysis should so state (see step number 4, below, for how to articulate this last point). Make sure the explanations given for pay decisions are consistent with the written compensation policy and what the employee is told at the time the compensation decision is announced.
Not following a written pay policy is usually worse than not having one. As addressed in step number 1, so I will again emphasize that your pay policy should be tailored to the employer’s actual practices.
Employers make mistake in compensation decisions they wouldn't make elsewhere. Employers that would never make the same mistake in a termination or promotion decision have been known, for example, to pay males more only because the employer viewed males as the “head of the household.” The legal theory is no different than the legal theory which condemns imposing a “no-premarital sex” policy on a non-married female employee once the employee becomes pregnant but never imposing any discipline on any unmarried male employee when the employer knows the male employee has engaged in pre-marital sex. Compare Cline v. Catholic Diocese of Toledo, 206 F.3d 651, 667 (6th Cir. 2000) with Boyd v. Harding of Memphis, Inc., 88 F.3d 410, 414 (6th Cir. 1996).
On the other hand, absent significant evidence that it causes a disparate impact, there is nothing wrong with a neutrally applied policy of paying “heads of household” more than others. EEOC v. J.C. Penney, Co., Inc., 843 F.2d 249 (6th Cir. 1988).
#4 –Articulate a Specific Rationale for Each Compensation Decision
An employer has no legal obligation to explain its compensation policies or its pay increase decisions to employees. Nevertheless, it is a good practice to have a compensation policy that is distributed to employees. The reasons for this are discussed in step number 1. There is also a strong benefit to offering to explain a particular pay increase decision to an employee. For one, an employer who knows it will need to explain its reasons will often put more thought into clearly articulating those reasons.
Compensation discrimination lawsuits are typically brought by employees who did not receive any explanation or a rational explanation for a particular pay decision. An explanation also provides the employee with concrete feedback on how the employee’s performance affects the employee’s salary. Of course, the discussion can be a trap for an employer who gives inconsistent or incomplete reasons for a particular salary decision.
Good business practices aside, courts, especially the Sixth Circuit, require employers to do more than simply state a bald-faced reason for a decision. Thus, it is legally insufficient to justify a salary differential merely by saying that employee “A” performed better than employee “B.” An employer’s “explanation of its legitimate reasons must be clear and reasonably specific.” Texas Department of Community Affairs v. Burdine, 450 U.S. 248, 258 (1981); see also Wright v. Murray Guard, Inc., 455 F.3d 702, 708 (6th Cir. 2006) (employer must base decision on particularized facts before it at the time decision is made and employee can show pretext by showing employer failed to make a “reasonably informed and considered decision”); Chapman v. AI Transport, 229 F.3d 1012, 1034-35 (11th Cir.2000) (if an employer rejects an applicant because he gave a “poor interview,” the employer must explain what specific characteristic it perceived as “poor”).
The burden, which applies equally to compensation decisions, is not onerous. The employer should, however, be as specific as possible. Remember, under federal and state law, you can now be sued for ages old compensation decisions so it will benefit you in the long run to be specific and accurate in documenting the reasons for compensation decisions.
Finally, if the performance policy sets goals by which performance will (or may) be “measured,” an employer must also make sure that its compensation policy justifiably and equally accommodates employees who achieve these goals. Of course, the difficulty of meeting those goals can justify different results, just so long as employees who have comparably difficult goals are treated the same.
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