Compensation 101

As employers compete for top talent, especially quickly scaling organizations, compensation strategies are top of mind. Having a strong handle on everything compensation will not only help with recruitment but drive engagement of employees and improve retention.

We recently hosted an event with the team at Proskauer on Compensation 101. We discussed a breadth of topics that included: what employers should be thinking about when making compensation decisions, the Dos/Don’ts during the interview process and how to properly conduct pay equity analyses.  Below we’ve shared some of the key take-aways.

Breaking Down the Basics:

  • Gender based pay discrimination is prohibited. The Equal Pay Law states that employers are prohibited from paying unequal wages (including all forms of compensation: wages, benefits, bonuses) to men and women who perform substantially equal skill [experience, education, training], effort [amount of physical/mental exertion required] and responsibility [degree of accountability] under similar working conditions [physical surroundings and hazards] and within the same establishment [distinct physical place of business].
  • There may be legitimate reasoning for such a difference including  seniority, merit-based, quantity or quality of production and any factor other than sex including education, training or experience that is job-related to the position in question and consistent with business necessity.
  • If there are differences in pay, employers are required to prove why such differentials exist and should document such reasons.
  • California Fair Pay Law: In California, one employee cannot get paid lower wages than another employee of the opposite sex for substantially similar work, (formerly equal work) which is determined by analyzing skill, effort and responsibility and considering whether the work is performed under similar working conditions. The work doesn’t need to be compared in “same establishment” as is true for NY, and employees can discuss or inquire about wages of those in comparable roles throughout a company.

Inquiring About Salary History:

  • It is illegal for private employers to inquire about salary history in CA, CT, DE, HI, MA, OR, NYC, Albany County in NY, Philly, San Fran, Suffolk County in NY, PR, VT and Westchester County in NY
  • Employers also cannot search public databases for salary records or reports at any stage in the hiring process
  • Employers may not rely on applicants salary history to determine compensation for an applicant at any point in hiring process unless the applicant discloses the information willingly and without being prompted. In this case, the employer may consider the information when determining  compensation as well as verify the accuracy of the information
  • Employers are allowed to engage in conversation about salary expectations and about unvested equity or deferred comp being left on the table
  • NYC employers cannot simply have a disclaimer for individuals in NYC or those applying for jobs in NYC that they need not respond to boiler-point applications that request salary information. It is best to just to remove that question all together

Equal Pay Audits:

  • As a start-up, it is best not to perform equal pay audits if you do not have the means and willingness to take action if discrepancies are found. The worst thing a company can do is perform an audit, find differences and then put the evidence on the shelf without taking action.
  • Document everything with great detail as to why there are differences and why they are warranted if no action to remediate the differences will occur.

Best Practices During an Audit:

  • Develop a communication protocol
    • limit the number stakeholders involved
    • mark all documents privileged and confidential
  • Conduct the audit at direction of legal counsel
  • Develop and execute a remediation strategy shortly after analysis is complete to minimize potential liability

Ongoing Best Practices:

1) Train managers and decision makers on what factors can and cannot be used during consideration of compensation
2) Document all salary decisions and negotiations at hire and over time
3) Avoid gender pay gap
4) If job descriptions are updated, share them with employees and keep on record

Do’s & Don’ts of Interviews:

  • Do not ask age, date of birth, age of children, when an applicant attended or graduated from school. There are no appropriate questions to ask related to age
  • Do not inquire about an applicants religious denomination, affiliation, holidays observed or place of worship. You may frame a question as “apart from religious observances, will you be able to work when necessary?”
  • Do not ask about marital status or family planning or reproduction
  • Do not ask about race
  • Appropriate to ask for salary expectations and if a candidate is forfeiting deferred comp if any,do not ask for salary history
  • Do not ask for an emergency contact
  • Appropriate to ask if an applicant requires accommodation to perform essentials functions of a job. Do not ask if candidate has a disability, has been treated for a specific disease, how many days they were out sick last year or any prescriptions they are on
  • Do not ask an applicants national origin  or inquire into ancestry
  • Appropriate to ask which languages someone speaks or writes fluently in but do not  ask how they learned to read, write or speak a foreign language
  • Do not inquire about a criminal record
  • Appropriate to ask place of residence but do not ask if they rent or own home
  • Appropriate to ask an applicant to verify their legal right to work in the US after hire
  • Appropriate to ask about academic history and work experience, but do not ask about graduation dates or years of school attendance

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