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