You need a wage administration program, seriously

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Crystal Spraggins, SPHR

Among the list of things that hardly any business leader wants to create is a wage administration program.

Developing a wage administration program (best defined as policies and procedures used to make compensation decisions) is time consuming, complicated, and expensive, right? Plus, the market will always tell you what to pay someone—you don’t need no stinkin’ wage administration program tying up your hands when you’re ready to make a job offer!

Related: Free Sample Compensation Report

Hmmm … tell that to the owners of the Extended Stay Hotels. The chain was sued recently by the EEOC under the claim that it unlawfully paid female employees lower wages than male employees for performing equal work. (EEOC v. HVM L.L.C., D/B/A Extended Stay Hotels, Civil Action No. 8:13-cv-01980.) According to the EEOC, guest services representative Latoya Weaver, who’d given her resignation but then offered to rescind it for a raise, left the company making nearly 14% less than the two male employees who were hired shortly thereafter.

Giving Extended Stay Hotels the benefit of the doubt, let’s say entry-level rates for guest services representatives had increased 25% since Weaver’s first day on the job five years previous, and no one would take the job at what Weaver had been making. In that case, the hotel would have had no choice but to pay the men more. It happens.

Sure. But when it happens and someone at your company complains to a governmental agency, are you prepared to show written proof that your decision was based on economics and not bias? Or are you hoping the powers that be will take your word for it?

That’s why you need a wage administration program. Seriously.

Could your compensation practices survive a DOL audit?
In 2008 (more recent data are not yet available), the DOL collected more than $185 million in back wages for more than 228,000 employees. Audits are sometimes conducted randomly, but a single employee complaint is all that’s needed to bring the DOL to your door.

Creating a wage administration program is not just about defending yourself in the case of a lawsuit, however. There are all sorts of good business reasons to have a wage administration program.

Wage administration programs save time and money

Wage administration programs reduce the need to make pay decisions reactively, a practice that opens the door for inconsistency, unusually high (“red circle”) rates, unusually low (“green circle”) rates, noncompetitive rates, and above market rates. They also save decision-making time, promote clarity and transparency, and ensure that strategic choices are being made regarding what’s most likely your highest expense, wages.

Related: Identifying and Resolving Internal Compensation Inequities Within a Position

In fact, there are so many good reasons to have a wage recommendation program, there’s no reason not to have one.

How to get started

If you’re ready to take the plunge, you have options that don’t have to be complicated or terribly expensive. Hiring a reasonably priced but expert outside consultant to help assist with the process is one, and PayScale has many resources for motivated DIYers.

Related: When and How to Hire a Compensation Consultant

So what are you waiting for?

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