US employers must remain alert to pay equity risks

The Lilly Ledbetter Fair Pay Act, signed into law in the US in January 2009, put renewed focus on rewards fairness by effectively eliminating the statute of limitations for individuals to file claims of pay-discrimination based on race, color, religion, sex, national origin, age or disability. The law enables individuals to file pay-discrimination claims for events that occurred years earlier, exposing employers to additional risks and making it potentially more difficult to defend claims.

Now, as the world’s economic turmoil subsides and employers consider their rewards programs for 2010, it is critically important that pay equity continue to be emphasized. Following are five reasons to keep pay equity prominently in mind this year:
 
1) Presidential emphasis. In his Jan. 27 State of the Union address, President Obama reiterated his administration’s focus on equal pay, noting that “We’re going to crack down on violations of equal pay laws – so that women get equal pay for an equal day’s work.” Coincident with the speech, the President announced the establishment of a National Equal Pay Enforcement Task Force to ensure that the agencies responsible for equal pay enforcement are coordinating efforts and limiting potential gaps in enforcement.

2) Important action on the Paycheck Fairness Act. The US Senate Health, Education, Labor and Pensions (HELP) Committee announced plans to hold hearings on the Paycheck Fairness Act, which passed in the House in 2009. This proposed legislation would amend the Equal Pay Act, potentially increasing damage awards and the size of class actions as well as the burden for employers to justify pay differentials.

3) Significant EEOC activity. This past year saw significant activity within the federal agencies that oversee pay discrimination. For FY 2009, more than 93,000 workplace discrimination charges were filed with the Equal Employment Opportunity Commission (EEOC) – continuing 2008’s record level of activity. The Commission also obtained record monetary relief for victims of discrimination last year.

4) Impact of cost-cutting measures. Difficult workforce and rewards decisions made over the past year in response to the economic downturn (for example, pay freezes and reductions in force) may have inadvertently opened up the potential for pay inequities claims.

5) Certain industries at exceptional risk. Developments over the past year have indicated that certain industries are more at risk of having inadvertent pay equity problems or being actively targeted for scrutiny by federal government agencies, as follows:

• Financial services firms will face increased pay equity risk as they shift compensation from objective, results-based rewards to subjective, less-dynamic base pay rates.

• Construction companies will face increased scrutiny due to federal directives stemming from the American Recovery and Reinvestment Act (ARRA).

• Health care organizations are under greater scrutiny as the government looks to establish that they are federal contractors.

• Food services firms will likely continue to be heavily targeted for audit by the Office of Federal Contract Compliance Programs (OFCCP).

How Mercer can help

Past actions cannot be undone. But employers can take steps to reduce their present-day risk of exposure to pay-discrimination claims – identifying potential inequities and targeting pay changes to “level the field.” The risks of pay inequities are substantial. Damages, particularly in class-action lawsuits, can total tens or hundreds of millions of dollars. Organizations’ reputations as employers are on the line – and so is their brand equity, as claims of unfair pay practices can influence customer behaviors.

Mercer’s human capital business is uniquely qualified to help employers:

• Identify their risks. Through our analytical consulting strength and proprietary technology, we measure and quantify the risks associated with current reward (and, as appropriate, other potentially discriminatory) practices.

• Develop plans to mitigate them. We are experts in designing short- and long-term plans of action to manage and mitigate risks over time – from determining pay-out strategies for targeted compensation adjustments to re-designing compensation plans. While risk should be minimized, the integrity of compensation programs that serve organizations’ ultimate business objectives need not be compromised.

• Measure and monitor progress over time. We not only remedy current problems – we help employers put processes in place for ongoing monitoring and measurement to stay on track and mitigate future risks.