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Compensation Policy: Respond Now to the Ledbetter Fair Pay Act

You Must Review Your Employee Compensation Policy: The Effects of Obama’s Signature on the Lilly Ledbetter Fair Pay Act

By Stacey Carroll

Lillyledbetter The equal pay bill President Obama recently signed into law directly affects the American workplace, especially your employee compensation policy. In an effort to combat racial and gender inequality in the workplace, President Obama changed the day-to-day reality for HR and compensation managers - possibly forever. In a nutshell: You better be ready to explain yourself.

How Does the Lilly Ledbetter Fair Pay Act Affect Your Compensation Policy

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According to a recent Associate Press article, the new law, the Lilly Ledbetter Fair Pay Act, extends the period of time an employee has to take their pay discrimination cases to court. Instead of needing to act within 180 days of the first discriminatory action (a paycheck, in most cases), workers have 180 days after their last discriminatory paycheck. If an employee is entitled to restitution, the calculation will be based on the previous two years. So, what does this equal pay bill mean for you?

Compensation managers will need to be able to back up every benefit and compensation decision they make to show why it is non-discriminatory. This will mean having a well-defined compensation plan by which workers’ salaries are determined. If you don’t have an employee compensation policy, you need to get one. The cost of losing a lawsuit can be expensive - not just in retroactive compensation payments but in court fees and bad press, too.

What an Employee Compensation Policy Should Include

Your employee compensation policy should address all salary actions, including hiring, promotions, bonus payouts and merit-based salary adjustments. Anytime an employee is receiving compensation from your company, you’re at risk for unfairly favoring or discriminating against that employee. Any manager can put the company at risk without realizing it. By documenting when and why compensation decisions are made, you can minimize the risk to your organization. All managers should be trained on your company’s policies for approving pay changes.

How to Avoid Trouble - A Solid Employee Compensation Policy

The key to maneuvering in this new, more carefully-watched compensation environment is having a solid employee compensation policy in place. A compensation policy must include a clear compensation philosophy and a well thought out compensation structure that is based on information about your external market coupled with considerations for internal alignment. This information should be reviewed periodically to ensure that it is kept up to date.

Probably most important, though, is a well-executed training and education effort for managers and employees. You can turn to sites like PayScale.com for access to up-to-date, accurate salary information about the jobs within your organization. PayScale gives employers the ability to drill down to an employee’s specific years of experience, education attained and other compensable factors on each job, helping employers justify pay inequalities for employees doing the same or similar jobs.

For information on how PayScale is helping other organizations establish and maintain compensation plans, please email us at comptoday@payscale.com. Or check out our other articles on compensation plans.


Additional Resources on the Lilly Ledbetter Fair Pay Act:

Library of Congress Documentation on the Lilly Ledbetter Fair Pay Act

Lilly Ledbetter’s Testimony Before the Committee on Education and Labor

A Statement from the Lilly Ledbetter Fair Pay Act’s Sponsor, Rep. George Miller (D-CA)

Further Details and Commentary on the Lilly Ledbetter Fair Pay Act from Politifact.com

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