Friday, April 1, 2011

Proving Compensation Discrimination

One of the difficulties in developing a sound compensation system is to measure both the value to the company and the value to the market.  Every compensation system I have defended has tried to do both, though, as a recent Seventh Circuit decision (Randall v. Rolls-Royce, March 30, 2011), shows, the two goals don't always co-exist all that comfortably.  

The exempt employee compensation system for Rolls-Royce's manufacturing plant in Indianapolis balanced both goals, as the court described:
Rolls-Royce determines the compensation of its employees (all its employees, but this case concerns just those exempt from the minimum-wage and maximum-hours provisions of the Fair Labor Standards Act) in two steps. The first is to establish a broad pay range for each class of employees whom it deems of equal value to the  company. We’ll call these broad ranges “compensation categories.” The class is spread over five of these  categories. The second step, which is based on Rolls-Royce’s recognition that it must meet competition from other employers for the employees it wants to hire or retain, is to create within each broad range a narrower range based on prevailing market wages for each of the jobs in question—“prevailing market wages” meaning wages offered by competing employers. Because of these ranges within ranges, the class that the plaintiffs want certified sprawls over twenty different compensation grades, including supervisory and nonsupervisory positions and encompassing starting salaries ranging from $40,050 to $190,750.
Rolls-Royce’s expert showed that any seeming sex-based disparity in base pay (that existed before this system was adopted) disappeared once "differences in the jobs performed by male and female employees in each compensation category are corrected for." Plaintiff's expert, however, failed to adjust for differences in the jobs occupied by male and female employees. 

It's OK, in other words, to have broad "compensation categories" and still make market-based distinctions for the specific jobs that fall within those categories.

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