Compensation Plan Self-Audits – Yes or No?

With the economy recovering and preparation for next year’s compensation salary structure and pay increases occurring, now is a good time to assess whether you should conduct a base pay plan self-evaluation.

Increased scrutiny of compensation systems from governing boards, government agencies, employees, media and communities means employers need to have legitimate factors to explain variations in pay among workers. Analysis of how pay rates are determined and allocated will help you respond to or perhaps avoid disputes. However, leaders in the organization must be ready to take steps to remedy any disparities before conducting an audit.
Internal review of job classification changes, promotions, pay increases or other personnel actions, along with consistently applied guidelines, will provide solid answers to clarify how your compensation system is administered. You want to avoid appearing arbitrary and capricious. Asking managers for the business case behind pay decisions, establishing universal criteria which supports such actions, requiring chain of command approvals, and analyzing the impact of changes provide a “due diligence” explanation of your compensation plan.

If you are a federal contractor or subcontractor with affirmative action obligations, be aware as you conduct your assessment that the Office of Federal Contract Compliance Programs (OFCCP) recently published a Notice of Proposed Rescission for the Interpretive Standards for Systemic Compensation Discrimination and Voluntary Guidelines for Self-Evaluation of Pay Practices.  In place since 2006, the OFCCP has determined that these guidelines are not effective enforcement tools and may eliminate them. Of course, the OFCCP will continue to “investigate, analyze and identify compensation discrimination.”