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OK to base pay on performance–without bias

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in Discrimination and Harassment,Human Resources

If you’re thinking about switching to a production-based compensation system that pays more to the most productive employees, don’t worry too much about the plan’s possible disparate impact on some groups.

As long as you don’t use the system to discriminate against a particular group—or favor another—and you allow every employee to participate on an equal basis, courts are unlikely to conclude that any uneven results were caused by discrimination.

Recent case: Jamie Goodman was a financial advisor for Merrill Lynch, now part of Bank of America. The company adopted a production-based compensation system in which those who delivered the best results got bigger retention bonuses—and had wealthier clients steered their way. In effect, the system created a situation in which success bred more success.

Although Goodman was near the top, she insisted that the system discriminated against female financial advisors.

She sued, arguing that, because fewer women were among the top producers, they got less access to the wealthy clients who generated the most income for the firm. This disparate impact, she argued, was sex discrimination.

The court disagreed. It said she would have to show that the company adopted the system purposely to compensate men more than women. She had no such evidence.

Instead, the company argued that the system itself looked only at productivity and was sex blind. It never set out to limit female pay, nor did it adopt the plan to do anything other than reward high producers. (Goodman v. Merrill Lynch, et al., No. 09-CIV-5841, SD NY, 2010)

Final note: When you design a compensation system, make sure you document the reasons for the system. Those reasons should be grounded soundly in business needs and offer a logical explanation for the system. They should also be applied to everyone who meets the criteria, regardless of protected status.

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