To determine if two employees in the same occupation are paid equitably relative to each other three comparisons should be made:
- Competence: capable of doing work of the same complexity, difficulty and variety?
- Contribution: perform at the same level?
- >Compa-ratio: their pay rates compared to their pay range midpoints the same ratio?
If the answers are all “yes” and they are paid the same then they are equitably paid.
If one or more of the answers is “no” then further analysis is necessary. What they look like, what they believe and where they came from should have no influence on how they are paid… that is mandated by law and by ethical principles. Whether they are paid equitably will depend on the reasons for any differences in their pay.
(NOTE: equity as discussed here refers to internal equity. Employees in different jobs may be paid differently due to differences in the pay rates prevailing in the labor market… an issue of external competitiveness).
Determinants Of Pay
Competence: Professionals are typically classified into grades within the pay structure based on their competence level. They are assigned to a level in a multi-level classification structure, based on their qualifications and the level of work they are capable of performing. Two Civil Engineers classified into the same level will have the same pay range, which establishes their pay potential while in that level. Misclassification will produce inequity.
Contribution: The majority of organizations subscribe to paying for performance. If the two Engineers perform at different levels their pay actions should reflect those differences, and over time different performance levels should result in different pay rates. For those organizations who progress pay rates using automatic step rates, irrespective of performance, they may justifiably be accused of paying inequitably. Although it can be argued that longevity, loyalty and more experience warrant consideration when administering pay rates, those who contribute the most could justifiably believe that they are inequitably paid relative to lesser performers.
Compa-ratio: The compa-ratio is computed by dividing an employee’s current pay rate by the midpoint of the pay range for the person’s assigned grade. It should reflect both the level of the individual’s competence relative to the requirements of the job and the level of performance over time. If both of these are similar for the two Civil Engineers different compa-ratios might signal inequitable pay rates. However, differences in starting rates may result in differences over time. If the starting rates were properly determined based on the entrant’s qualifications the differences in pay rates at a later time may still be considered equitable. On the other hand, if an entrant’s starting rate was influenced by individual characteristics, inequity may exist.
Statistically testing for pay equity can result in conclusions that are not warranted. The fact that an organization’s male Engineers are paid higher than its female Engineers in aggregate says little about whether pay rates are equitable. If there are statistically significant differences the law mandates that a legitimate reason must be demonstrated, as do the principles of fair treatment. If the males are rightfully classified as Senior Engineers and the females as Engineers, this might indicate that differences are attributable to competence. But if the differences in the classifications are not justified then an organization needs to remedy the process used to assign employees to levels in the career ladders. If the males have higher performance ratings the pay rate differences may be attributable to contribution. But if the ratings are not equitable the organization needs to correct the process of determining ratings.
Perceptions of unfair treatment will result in strong emotional reactions from employees. Even if their perceptions are wrong, they need to be addressed. An employer who bases their claims of fairness on the 3 C test needs to explain why these criteria are sound business practice and not caused by personal bias. If management fails to do this, they will increase their potential liability in the form of legal action or employee dissatisfaction.