Charles Henzi - DRG :- equal pay for work of equal value:

2016-04-28

Whilst we have had employment equity legislation with its associated statutory reporting requirements with us for many years now; we understand that amendments to the Employment Equity Act effective April 2015 have introduced a new dimension to compliance with employment law. What's special in these amendments?

We refer specifically to how employee pay equity is dealt within the Amendment, in that it is explicit in requiring employers to ensure that equality prevails in the area of employee remuneration and benefit practices. Employees are now enabled to claim unfair discrimination in such regard. It remains up to the employer to prove to the contrary in the event of such claims.

How does this development challenge employers?

The irony here is that it shouldn't challenge employers at all, especially where they have been following generally accepted best practice guiding employee reward. What it does do is to reinforce the message that competent human resource and employee remuneration practitioners have been conveying for years, namely, that the equity construct should prevail in all aspects involving the employment of people and especially in their compensation.

In this context we need to regard equity as comprising two distinct categories:

External Equity refers, in the employment market context, to an enterprise's capacity to attract talent i.e. knowledge and skills. Talent contributes to an enterprise's ability to differentiate itself as a preferred supplier of goods or services in the eyes of its clients. As such, talent and therefore, external equity becomes a strategic business imperative, which should resonate with any truly business-minded employer. Here, the 'equal value' aspect is the value that the market attaches to a set of knowledge and skills. Successful enterprises are no strangers to competitiveness!
Internal Equity takes us into what might be referred to as 'warm and fuzzy' terrain. The focus shifts to: what's fair? It takes us into the realm of ethics, values and perceptions. However, enterprises conducting their business according to these themes will see no challenge with internal equity; it should come naturally to them!

Having said this, external equity, with competitiveness as its theme, nevertheless carries a fairness caveat. This being, in instances where human capital of lowerlevel skills are in abundant supply;
our value system must militate against the temptation to exploit people on the basis of supply and demand. By this we mean that an enterprise will remain cognisant of living-wage as opposed to minimum-wage levels, in applying the fairness principle.

How does DRG Outsourcing guide enterprises in approaching the subject of employee pay equity?

Well, there is a short answer and a longer answer.

Firstly, the acid test which comes in two parts:

Are you able to look an employee in the eye, hand on heart, and state categorically that, relative to both the employment market and their colleagues, he or she is paid fairly?
If an employee declares a formal dispute relating to a perception of being unfairly paid, relative to a colleague in another job perceived to be of lower or equal value, (as the amendments enable her or him to do), and such dispute escalates to the CCMA for a ruling; will you be capable of presenting a well-reasoned argument, founded upon unassailable best-practice, to convince the commissioner otherwise?

And the longer answer?

This involves the implementation of a logical process, which becomes a component of an enterprise's people and therefore, business practice.

Typically, this is how the process unfolds:

Firstly, as is the case with any strategic initiative, a guiding philosophy (vision and values) is important. A business strategy must be supported by a human capital strategy which, in turn informs an employee reward strategy. There are financial metrics which inform the viability of our reward strategy, for example, the ratio of employment costs vs. sales turnover, other costs and so on, to inform our decisions. Then:

A logical organisation structure supporting the execution of business strategy is in place, depicting the reporting relationships between roles without any ambiguity
Current and comprehensive job descriptions are in place to inform job grades, which are determined by means of a widelyapplied job evaluation system and methodology, ideally, delivered by an independent expert user. Properly determined job grades are fundamental to the design of pay and therefore equity best-practice. A job grade is the primary measure of job value, therefore, becomes the first point of reference in determining pay levels and assessing equity, both internal as well as external
With job grades in place, a pay structure, founded upon pay levels typical for such grades in the marketplace (derived from a credible and representative remuneration practices survey) is implemented
With job grades and a salary structure in place, actual pay levels applicable to individual employees or employee categories may be superimposed over such structure to discover equity anomalies. Such anomalies may be threefold:
Above or below employment market pay levels
Unequal pay for work of equal value within the enterprise
Unequal pay for work of equal value compounded by apparent demographic and gender bias
The resolution of such anomalies will then be incorporated into the enterprise's equity strategy and plan - important topics for statutory reporting and Department of Labour assessments of income differences
Finally, remuneration practices followed by the enterprise must be defined, guided and governed by set of formal policies and procedures.

So you advocate a formal and properly structured approach to the design and implementation of employment equity. I can see this happening in large corporates who are focused upon risk management, and who would regard employment equity compliance as important in this regard. Is this recommended approach this not out of the reach and capability of smaller enterprises?

It is surprising to us to discover how many larger enterprises have not fully either grasped or addressed the implications of employment equity compliance. Often the understanding of employment equity relates only to demographics per job category and required affirmative action initiatives rather than the equal
pay for work of equal value principle. Until a statistical analysis of pay distribution by job level and demographics is conducted it's a case of: 'you don't know what you don't know'. When we present our findings in this regard our clients' reaction ranges from surprise, through denial, to concern.

It is never too early for a growing business to start laying the foundation for employment equity. Many of our clients are in the 40 to 150 employee category. Entrepreneurially founded and driven enterprises are generally focused more on survival, then growth; rather than the niceties of best-business-practice. Employers become 'designated', that is, compelled to become statutorily compliant upon attaining either a headcount or turnover threshold, applicable to the sector within which they operate. Often, they reach this threshold without realisation and are unprepared for the obligations that come with designation. We help enterprises to get ready for compliance as painlessly and cost-effectively as possible; without damaging the entrepreneurial spirit that had propelled their success. Our motto: 'Do it right and do it once!'

Finally, when an employer embarks upon such a process and discovers pay anomalies as you have described, how does it go about resolving them?

In advising employers on remedies to pay anomalies and remembering the three previously mentioned categories, we are really talking about risk management. Compliance risk in the context of employment equity, competitive risk in the context of talent and reputational risk in the context in terms the enterprise
value system where perceptions of unfairness might impact upon employee motivation.

Transparency is an important guiding principle in fixing anomalies where we have either overpaid or underpaid employees; and yes, we often come across overpaid people, relative to best-practice and fairness. In such cases employees must be formally counselled. They need to understand that, whilst being overpaid is 'not their fault', their situation relative to colleagues in jobs of equal value is unfair. The
employer has a number of options, requiring careful judgement in implementation:

Salary reduction according to fair labour practice procedures
Salary freeze
Future salary adjustments lower than the norm

In cases where employees are relatively underpaid the solution, bar budgetary constraints, may seem simple, however, when increasing an individual's salary dramatically or out of phase with annual adjustments, a number of dynamics come into play:

Disgruntlement on the part of the other employees
Heightened expectations of future increases
A sense of being 'cheated' and expectations of 'back pay'
Again, careful counselling will be needed in implementation

In both cases the anomaly resolution process must be managed according to an implementation plan which is made clear to the affected employee.

The discovery and resolution of pay anomalies must be incorporated into policy and procedure with each case carefully documented for the record, to ensure consistency of approach.

DRG Outsourcing (Pty) Ltd
Tel: +27 (0) 31 - 767 0625
Fax: +27 (0) 31 - 767 3280
david@drg.co.za
www.drg.co.za