Abstract
Concerns about pay equity straddle the line between two legal arenas: wage and hour and sex/race discrimination. Although discussions of pay equity typically focus on concerns about discrimination in the workplace, this issue is ultimately about the wages that employees are paid. Indeed, the Equal Pay Act of 1963, upon which pay equity litigation at the federal level is often based (along with allegations of Title VII violations), was an amendment to the Fair Labor Standards Act to outlaw wage disparities based on the sex of employees. This chapter covers concepts of internal and external equity and describes the process of using multiple regression to evaluate the presence of pay difference between subgroups. Regression models are designed to take into account or “control for” legitimate factors that influence employee pay. These often include time-based factors such as seniority or job experience and non-time factors such as performance, starting salary, and type of hire (internal vs. external). Incorporating these factors into the model allows comparison of pay differences that may be due to discrimination after controlling for legitimate factor. Guidance on conducting the analyses and interpreting results is also provided.
The original version of this chapter was revised. A correction to this chapter can be found at https://doi.org/10.1007/978-3-319-74612-8_10
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Notes
- 1.
Gerhart (2000).
- 2.
Fitzpatrick and McMullen (2008).
- 3.
For example, retirement benefits or flexible schedules may compensate for relatively lower wages.
- 4.
For example, elements of Hackman and Oldham’s (1976) job characteristics theory may influence an employee’s satisfaction, thus offsetting sentiments of inequity if s/he is paid relatively low compared to the external labor market.
- 5.
“Similarly situated” is a Civil Rights Act (1964) Title VII standard. The Equal Pay Act (1963) defines comparators as those who are “substantially equal” to one another. Moreover, state laws have used even different language to define comparators, such as the “substantially similar” standard of the California Fair Pay Act (2015).
- 6.
The concept of distributive justice, based on Adams’ (1965) equity theory, reflects the extent to which an individual employee perceives that his or her work outcomes relative to his or her contributions match the work outcomes to contributions ratios of others in the organization.
- 7.
Milkovich and Newman (2005).
- 8.
Whether individuals are similarly situated depends on whether they share one or more important job-related characteristics that influence compensation. Characteristics may include similarity in tasks, skills required, effort, responsibility, working conditions, or complexity (cf. Sady et al., 2015).
- 9.
See Chap. 3 for more detail about FLSA exemptions.
- 10.
As an example: Assume an employee works 25 h per week and makes a total salary of $30,000 in a year. Their annualized salary would be calculated as $30,000 × (40/25) or $48,000.
- 11.
As an example: Assume an employee has an FTE value of 0.80 (i.e., works 80% of the hours a full-time employee works) and makes $50,000 per year. Their annualized salary would be calculated as (1/0.80) × $50,000 or $62,500.
- 12.
Analysis of “W2 earnings” can be particularly problematic given the confounding of earnings and time in job for any employees hired during the calendar year.
- 13.
A Latin phrase meaning other things equal. It is commonly used as a qualifier of general statements about relationships between phenomena in economics.
- 14.
Barbezat (2003).
- 15.
This metric is used to determine how an employee’s salary compares to the midpoint of the salary range for their position or pay grade. The ratio is calculated by dividing an employee’s actual salary by the midpoint of the salary range for that position or pay grade.
- 16.
This metric is used to determine where the employee’s salary falls within the entire range of salaries for their position or pay grade. It is calculated using the following formula (salary range minimum)/(range maximum − range minimum).
- 17.
For example, an established limitation of using age-as-a-proxy for actual years of experience is that it may overestimate actual years of prior experience more commonly for women than men. If women have been more likely to leave the workforce for more extended periods of time, using age-as-a-proxy for prior experience when such employees are in a regression equation will overestimate the amount of compensation that should be credited to those employees.
- 18.
Cannon (2008).
- 19.
See Sackett et al. (1988) for a discussion of the relationship between typical and maximum performance.
- 20.
Cohen et al. (2013).
- 21.
See Werner and Bolino (1997).
- 22.
Gerhart (1990).
- 23.
Increases result from cost-of-living adjustments, performance, promotion, or other factors.
- 24.
Correlation between two variables/characteristics means that values on one variable/characteristic are systematically related to values on the other variables/characteristics. For example, if time in company is correlated with sex, it may be the case that men tend to have more time in the organization than women or vice versa. To the extent that TIC is not a reflection of sex bias and it explains a difference in compensation between two protected class subgroups, it is a legitimate pay factor for compensation differences that is both correlated with compensation and the protected class variable.
- 25.
- 26.
Sady et al. (2015).
- 27.
Sady et al. (2015).
- 28.
In addition to variable statistics, the regression model results in a “predicted salary” for each employee based on the employee’s pattern of legitimate pay factors (e.g., time in job, performance). Each employee’s predicted salary based on these factors can be compared to their actual salary to identify discrepancies.
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Statutes and Regulations
California Equal Pay Act. (2015), Cal. Labor Code § 1197.5.
Civil Rights Act. (1964), Pub.L. 88-352, 78 Stat. 241.
Equal Pay Act. (1963), 29 U.S.C. § 206(d).
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Sady, K., Hanvey, C. (2018). Pay Equity. In: Wage and Hour Law. Springer, Cham. https://doi.org/10.1007/978-3-319-74612-8_9
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