2016 HR FLORIDA CONFERENCE & EXPO www.hrflorida.org

Managing Pay Transparency in the Office Presented By: Charu Avasthy, MBA, PHR, SHRM-CP Senior Consultant Berkshire Associates Inc. August 30, 2016 www.hrflorida.org

Agenda What is the Pay Transparency Rule? How Does it Impact Contractors? Pay Transparency Enforcement Pay Equity Analyses Best Practices

Executive Order 13665 Prohibiting Pay Secrecy Pay Transparency Executive Order 13665 Prohibiting Pay Secrecy

Why is Pay Transparency Important? OFCCP cited a number of reasons in support of the E.O. and the new Rule: It is more difficult to discover compensation discrimination if employees are prohibited from discussing pay Market efficiency is diminished if employees are fearful of discussing pay Pay transparency helps level the playing field for women and people of color

Executive Order 13665 Prohibits taking adverse action against applicants or employees because they inquire about, discuss, or disclose their own compensation or the compensation of another employee or applicant

Exceptions: Protection does not apply: To an employee who discusses or discloses pay information about other employees when that information is obtained as part of the employee’s essential job duties* If an individual violates uniformly applied company policy while sharing pay information *Disclosure is allowed in very narrow circumstances

Who is Covered by the New Rule? The Rule became effective on January 11, 2016, and applies to federal contractors and subcontractors who meet these criteria: New or modified federal contracts or subcontracts with a date of January 11, 2016, or later Have contracts totaling over $10,000 in one year

What Types of Pay Can Be Discussed? The Final Rule includes a broad definition of “compensation,” including: Salary Wages Overtime pay Shift differentials Bonuses Commissions Vacation and holiday pay Allowances Insurance and other benefits Stock options and awards Profit sharing Retirement

The Rule Does NOT Require: Company is not required to provide pay information requested by applicant or employee No additional data analysis, reporting, or tracking No changes to requirements for job postings or advertisements No changes to advertising tag line No additional required training

Impact on Contractors

Actions Review contract effective dates/renewal dates Review contract dollar amounts Review policies regarding disclosure of pay information Narrowly tailored

Actions Determine which jobs require access to pay information as an essential function of the job Examine oversight process for disciplinary action Post statement and include it in your handbook Inform and train supervisors and managers

Essential Job Function Defense An employer is allowed to take adverse action if an employee discusses or discloses pay information that they obtained in the performance of an “essential job function” There are some exceptions which we will discuss in a few slides

Definition of “Essential Job Functions” Information is obtained as a part of an employee’s “essential job functions” if: Access to compensation information is necessary to perform that function or another routinely assigned business task, or The function or duties of the position include protecting and maintaining the privacy of employee personnel records, including compensation information

Exceptions to the Exemption An employee who has access to pay information through performance of essential job functions MAY be protected when disclosing pay under some very strict circumstances: Responding to a formal charge or complaint As part of an investigation, proceeding, hearing, or action Consistent with an employer’s legal duty to provide such information Disclosing their own pay Discussing pay information obtained by other means

Essential Job Function—Example A Payroll Administrator has access to pay information to perform their essential job functions Payroll Administrator notices one employee is paid substantially more than another and they are in the same job Payroll Administrator tells the employee who is earning lower pay about the disparity Can the employer discipline the Payroll Administrator?

Considerations: Results Did the Payroll Administrator disclose information that was obtained in the performance of the essential functions of the job? Yes Did the Payroll Administrator have a duty to keep this information confidential? Yes Did any exceptions apply? No

Essential Job Functions–Another Example What if? Two clerical employees who are performing the same job swap information about their own pay to each other over their lunch break The lower paid employee then complains to another employee about being paid less and discloses the first employee’s pay Can any of the three employees be disciplined?

Considerations: Results Did either of the two clerical employees obtain pay information through the performance of their essential job duties? No, it was a discussion between two employees about their own pay What about the clerical who shared the co-worker’s information with a third employee? Can the company discipline this person for sharing someone else’s pay information? No, the information was passed from one employee to another informally Did any of the three employees have a duty to protect the information? No

Workplace Rule Defense Show the action was taken based on a consistently and uniformly applied workplace rule Workplace rule cannot be a prohibition against discussing, disclosing, or asking about pay Ensure there was no discriminatory motive influencing the action

Workplace Rule Example 30-minute lunch break rule Three employees who have never been late returning from lunch Monday—one employee returned late and was fired Wednesday—two employees returned late and were fired The two employees had discussed unfair pay practices at lunch on the day they were fired Can the employer fire these two employees?

Considerations: Results Was this a legitimate workplace rule? Yes Did the employer know they had discussed pay at lunch on Wednesday? No Was the discussion of pay a motivating factor to firing the two employees? No, employer did not know about the discussion Would the action have been the same if the employees were not discussing pay? Yes

OFCCP Enforcement

OFCCP Enforcement Agency will investigate complaints from applicants and employees During compliance reviews, OFCCP may Confirm required “EEO is the Law” posting Confirm Pay Transparency Policy Statement is posted and in employee manuals Review existing company policies for pay transparency problems Interview employees about company practices/culture surrounding pay decisions

Pay Equity Analyses

Your Pay Analysis Project Plan Make your business case Assert Attorney-Client Privilege Collect data Conduct pay equity analyses Correct unexplained disparities Plan for the future Your Pay Analysis Project Plan

Collect Data What will be the level of analysis? What will be the unit of analysis? What factors influence pay decisions? What data is tracked in the HRIS? How will other data be collected?

Compensation Data: Item 19 Employee Data Employee ID Race Gender Job Title EEO-1 Category Job Group Hire Date Base Compensation* Annualized Salary; and/or Wage Rate Typical Hours Worked in a Workweek *As of date of Workforce Analysis/Org Display Other Compensation** Overtime Bonuses Incentives Commissions Merit Increases Locality Pay **For the 12-month period preceding date of Workforce Analysis/Org Display

Factors Influencing Pay Time in company Time in grade Time in position Performance ratings Highest level of education Field of expertise or study Starting salary Years of relevant experience Certifications Market data Promotion history Geographic location

Conduct Pay Equity Analyses Preliminary Analysis Cohort Analysis Multiple Regression Analysis

Preliminary Analysis t-test Fisher’s Exact Test A high-level statistical analysis of the differences in mean or median compensation between protected and nonprotected comparator groups t-test Large groups (30/5/5) Applied to mean Significant at 2.0 or greater Fisher’s Exact Test Small groups (< 30/3/3) Applied to median Significant at .025 or less

Preliminary Analysis

Cohort Analysis A visual comparison of salaries for employees in the same group (i.e. job title) to help determine if there are pay equity issues, and if so, the reasons for variance in pay Nonstatistical review of non-discriminatory factors that are likely to explain differences in pay

Cohort Analysis

Multiple Regression Analysis A statistical analysis to identify the percentage of pay variance explained by, and significance of, merit variables Analyzes the impact of a combination of multiple factors, as well as the protected predictor, on pay

Multiple Regression Analysis

Methods for Correcting Disparities Lump sum increase Stand alone or In conjunction with merit increases Distributed over time With normal pay increase or Outside normal pay schedule Differentiate equity increase from merit increase

Limiting Inequity in the Future Review salaries regularly to mitigate future inequities Analyze decisions related to compensation Begin tracking data that is not in HRIS Develop process for avoiding red-circles Maintain accurate, well-written job descriptions Research relevant salary survey information Maintain and enforce consistent compensation policies Maintain appropriate records Even if statistical disparities still exist, do the research and be able to explain them

Best Practices

Best Practices: Pay Transparency Include pay nondiscrimination statement in employee handbooks Post statement where visible to employees and applicants

Best Practices: Pay Transparency “EEO is the Law” Poster and Supplement

Best Practices: Pay Transparency Update EEO clause in subcontracts and purchase orders, but can still incorporate by reference

Best Practices: Pay Transparency Determine who is covered by essential functions exception and train appropriate managers on new rules Continue to conduct annual salary equity analyses under attorney- client privilege Provide oversight to disciplinary actions and terminations to ensure protected activity is not a basis for decision Enhance compensation information storage and disposal practices

Questions? 800.882.8904 bai@berkshireassociates.com For more information about any of the updates covered in this presentation, please contact us at: 800.882.8904 bai@berkshireassociates.com For a copy of this presentation and additional resources, please visit: www.berkshireassociates.com/presenters