Heads Up: U.S. House Passes Paycheck Fairness Act

On Friday, the U.S. House of Representatives approved the Paycheck Fairness Act.  This legislation, if passed, promises enormous potential impact on the compensation management practices of employers.  Mike Haberman, author of HR Observations, blogs about the Act here and here, and also points us to a compelling statement given to Congress by Camille Olson, an attorney who testifies on behalf of the U.S. Chamber of Commerce.

As Ms. Olson notes in her testimony, the Paycheck Fairness Act, if enacted, would significantly amend the Equal Pay Act of 1963 with respect to employers' ability to set the wages of their employees.

From Ms. Olson's statement (emphasis mine):

And, until now, aside from prohibiting sex-based wage differentials, the EPA has left the determination of the value brought to a particular employer by the performance of a particular position and its duties to the employer, the employee, and the market. Section 7 of the Act, however, calls upon the Department of Labor to issue “Guidelines” to compare wages for “different jobs” in order to determine if the pay scales are “adequate” and “fair” – based on an outsider looking in. Also problematic is that these Guidelines would effectively preclude consideration of many of the factors that quite legitimately and necessarily drive salary decisions, including, most notably, marketplace factors. The “Guidelines” would be accorded the same deference as other guidelines promulgated by administrative agencies in the employment context, from great deference to, in effect, the law.

30 In short, the Paycheck Fairness Act’s Section 7, like Section 3 discussed above, would directly involve the Department of Labor in the wage-setting process of employers, and, just as problematic, inject the widely-rejected theory of “comparable worth” into that process. And in deciding what jobs are worth to individual employers, the Government would apparently exclude consideration of some of the factors most relevant to that highly individualized determination, such as: marketplace value and supply and demand; the nature of a position vis-à-vis whether it involves physical labor; a company’s position in the marketplace; employers’ varying business needs and priorities; employees’ educational backgrounds; employees’ experience, both qualitatively and quantitatively; and regional differences.

There is more than enough here that ought to concern HR professionals, beginning with an unprecedent ability of government and the courts to insert themselves into all practices related to pay decisions, from performance management to job evaluation.  I'd like, however, to focus on a particular element of the Act: the requirement that a government mandated approach be used to, in effect, override market influences on compensation.  Like previous attempts at comparable worth legislation, this is based upon the argument that the market is biased against female dominated jobs, necessitating that its influence be nullified in setting employee pay.

I don't deny that gender pay differences exists; in fact I've posted on this topic before.  I do believe, however, that the influences behind gender based pay differences are varied and nuanced.  And my 20+ years of experience in compensation convinces me that aiming an instrument as blunt and misguided as the Paycheck Fairness Act at U.S. pay administration practices will have consequences that are more harmful than good - particularly in its aim to negate the impact of the market.

I see the market performing an important task for society in exerting its influence on pay.  The market drives pay differences for a purpose, the purpose of meeting society's demands for different kinds of work and contributions.  Let me suggest a particular example to illustrate what I mean here.  The example I offer is the compensation of science and engineering occupations.  Our country is facing a shortage of qualified individuals for many scientific and engineering positions.  This phenomenon, as well as the decline in U.S. citizens choosing to become scientists and engineers has been documented in a wide range of sources.  Here are a couple of relevant facts taken from the National Science Board:

• The number of Americans ages 18 to 24 who receive science degrees has fallen to seventeenth in the world, whereas we ranked third three decades ago.
• Jobs in the U.S. requiring science and engineering skills are growing at a rate more than triple that of other occupations.

So our country's demand for many science and engineering jobs - jobs which are key to our nation's continued ability to compete and lead in the "flat world" - generally outstrips the available supply.  It also happens that these are occupations which women hold in the minority, although improvement is being made on that front.  Again, I quote data from the NSB:

• Women represented 12% of those in nonacademic science and engineering occupations in 1980, and 26% in 2005.

The market responds to a situation like this (a societal demand that is not being met) by creating incentives - in the form of higher wages - for those positions where there is greater demand than supply.  Our response to this shouldn't be, as comparable worth initiatives like the Paycheck Fairness Act suggest, to override market value and eliminate the incentive that the market has created so that equal pay is maintained between this (in urgent demand) male-dominated occupation and "comparable" (but in less urgent demand) female-dominated occupations.  Rather, we should be focusing our attention and energy on getting more women into scientific, engineering and other high-demand (and consequently high-paying) jobs (like Betty Shanahan, the CEO of the Society of Women Engineers is doing).

I will be the first to admit that the market doesn't provide perfect solutions in all cases, but I believe that handcuffing American business from responding to it could lead to negative consequences which far outweigh the intended benefits.  These consequences begin by interfering with an individual employer's ability to appropriately attract, motivate and reward the talent needed to succeed, and they could end by interfering with our country's ability to compete in a global economy through removing the incentives for people to develop the skills we need to do just this. I can even imagine that building an artificial pay premium bubble around some female-dominated occupations - in an attempt to create the pay "fairness" - will create the economic circumstances that drive the eventual outsourcing of that work to other countries.  Whose best interests are we serving now? 

You may agree or disagree.  Either way, I would strongly suggest that all HR and reward professionals become acquainted with the features and potential consequences of the Paycheck Fairness Act.  The companion Senate bill could be taken up after the August congressional recess.  Take a stand, and make your feelings known to your representatives. 

Creative Commons Photo:  "Capitol Hill, Washington D.C." by Will Palmer 

Comments

[Michael Haberman, SPHR]

Ann, a very complete and well thought out and written analysis. I hope this will prompt many to look into this. Perhaps it will also change a few minds of the people who thought this was a good thing.

[Career Encourager]

Ann - One of the reasons I LOVE working with you is that you are so very gifted at demystifying comp and making topics that appear complex simple and rational. This is an outstanding post on a critical topic for anyone in HR and Business leadership.

[Ann Bares]

Mike:

Thanks for the comments, and for laying the foundation here. I hope you're right, that through our posting we can convince more HR people to get up to speed on this proposed legislation.

Peggy:

Thanks - I appreciate the comment and feedback. Trying to take the mystery out of compensation is what makes blogging fun for me! Just as you demystify the whole career thing!

[E James (Jim) Brennan]

I read the Act and failed to find anything worthy of the C of C's ominously hysterical exaggerations about ignoring the Market. This is the same organization that has historically misrepresented every attempt to rectify centuries of proven discrimination against women and other protected classes, because it does not serve the interests of its members. Of course... Hey, they're a union and a lobbying enterprise.

Anyone who really studies The Market knows its weaknesses... it is totally amoral. The Market reflects and perpetuates the bias of its sponsors and will unblinkedly maintain systemic discrimination. Race discrimination was partially/mostly eliminated only through Affirmative Action. There has never been any affirmative action for women and other historically underpaid classes. The old self-adjusting Market often simply DOESN'T, when its operators continue to act from biased stereotypes. Nurses have been in shorter supply than engineers for a lot longer and the response has not been commensurately higher wages but instead imported talent and the replacement of RN functions by lower paid proxies, as it was for secretaries and other short-supply female-dominated positions. The pay of dentists has fallen relative to other medical professions as the female percentage increased to the tipping point, per Don Treiman and Heidi Hartman's Part-Correlation research for the NAS many decades ago. Their formulae are still valid.

Even the old ACA report in the early 1980s, by Chuck Shanie I think it was, on the pay of compensation association members proved it, because the last factor in the stepwise regression formula was... after you multiplied, added, etc., for all the positive standard skill, effort, responsibility and working condition factors that everyone knows ... to subtract 14% if you were female. Long story short, a Market approach can merely perpetuate historical discrimination ... because if female-dominated jobs have always been paid 86% of male rates, the surveys will continue to accurately predict the same bias. It's called systemic discrimination.

Granted, The Market rules that you can never pay below replacement-cost levels... but that same Market permits male-WASP jobs to be grossly relatively overpaid out of the savings from the tighly-constrained minimums paid to others. The problem is in the maximums, not the minimums. And with the psychology of the victims, who have refused to take up the axe handles of the men who bridled at the inequities they suffered.

None of this, of course, implies goverment control of job evaluation or pay classification... but the rules should be fair and not set according to biased principles. Every employer should be permitted its own unique pay structure as long as it is neutral in its treatment of protected classes. THAT's the real issue... and this legislation would promote that ideal. IMHO, of course.

[V.W.Zimnicki]

Here's what gets me; people who attempt to set the market price arbitrarily without full consideration of all the facts. For example; year after year 93% -94% of all job related deaths occur to men. That's because men take on the dangerous and difficult jobs that are necessary for maintaining our country's infrastructures. How does an office worker in an air-conditioned room deserve 'comparable worth' money equal to those working the difficult jobs, sometimes under the most trying environmental circumstances?

What about the long-haul trucker who is frequently away from his family for days-at-a-time? How do you compensate for that? Unfortunately, so many market issues like this are given short shrift by those with agendas.

If women were 50% of construction workers, oil-rig operators, etc, etc (you get the picture) than there would not be a (bogus) gender gap. Factor in that men on average work 5-6 more hours a week than women (Dept of Labor) and you have the REAL REASONS for any monetary differences between men and women. Logical and objective people know this, dogmatists do not!

[Norman L]

It is wrong to say that IT and engineering job personnel demands outstrip supply, either now or in the future; in fact quite the opposite is true. Please see Norman Matloff's web site for clarification, he is a computer science professor at UC Davis who specializes in H-1B and age discrimination issues.
Also I worked both as a programmer and an engineer for many years, and I know from observation and experience that Matloff is correct.