Best Employment Practices for Compensating Employees
- Establish and Follow a Written Compensation Policy. The policy should address all the potential factors used in the employer?s compensation decisions. Make sure the policy reflects your goals, includes a non-discrimination statement and allows for exceptions, pay decreases and red circling.
- Consistently Base Compensation Decisions on Non-discriminatory Factors. The factors you rely upon must be consistently applied and fully explain the reason for any pay differential.
- Apply all of the Factors Set Forth in the Compensation Policy. If a factor does not apply to a particular employee, say so instead of ignoring it. Not following a policy is worse than not having a policy.
- Explain the Specific Reasons for Each Compensation Decision to Employees. The explanation should provide the employee with an honest assessment as to how the employee's job performance factored into the employee's new salary.
- Have an Attorney Supervise an Audit of your Compensation Policy. The audit will examine whether unintentional discrimination affects pay decisions and examine whether there are unexplainable statistical disparities. Supervision of this study by counsel (when done for the purpose of providing legal advice) will protect the report from disclosure in litigation.
- Compare Employees Who Perform the Same Job. If compensation decisions are made by comparing the relative performance of employees, any legal analysis will examine the work actually performed, not the characteristics of the employee who holds the job. Of course, the relative experience or performance may be used to justify any salary disparity.
- Mandate a Contractual Statute of Limitations. Within reason, discrimination statutes permit the employer to contractually shorten the time for filing a lawsuit.