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Changing compensation systems? Here’s how to avoid age discrimination claims

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in Compensation and Benefits,Discrimination and Harassment,Human Resources

Economic times are still tough, and employers continue to look for ways to save money, including reviewing how much they pay their employees. If you are contemplating changing your compensation structure to reflect today’s lean job market, do so carefully—especially if you suspect you may be overpaying some employees for the work they do.

The problem: Older, more experienced workers may be at the top of your pay scales.

Begin by getting expert help to determine the market rate for wages. If you discover that your pay plan is too generous, make gradual adjustments to bring high earners back into your wage bands. You can do that by giving smaller raises to those already earning near the top of the new range, with larger increases going to those who earn less. Even­tually, everyone will fall within the new range.

Done right, this won’t set you up to lose an age discrimination lawsuit.

Recent case: John worked for Exxon Mobil in a marketing position and was older than 40. Exxon Mobil wanted to make its salary bands comparable to those of its competition, so it hired two consulting firms to gather information and develop new salary ranges.

The new range for John’s position started at $45,000, topping out at $77,000. John already made more than $77,000.

Exxon Mobil didn’t reduce the salary of anyone whose pay fell over the top. Instead, it provided larger annual increases to those who were within the range. The rest received lower annual increases.

John sued, alleging age discrimination.

Based strictly on statistics, it was clear that older workers got lower percentage increases than younger workers. The reason: Younger workers were clustered within the new salary band, while older workers with more experience fell above it.

The court said that Exxon Mobil had reasons other than age for its moves. For example, the company concluded that experience shouldn’t necessarily mean a higher salary and that the cumulative benefit of experience diminished over time.

John argued that the company was saying older workers couldn’t learn as well as younger ones.

The court disagreed. Instead, it accepted Exxon Mobil’s contention that the relative value of additional experience declines with years on the job.

It was therefore perfectly reasonable—and not age discrimination—to pay those with more experience a lower annual increase until everyone finally met at the top of the salary band. (Blandford v. Exxon Mobil Corporation, No. 10-6795, 6th Cir., 2012)

Final note: Exxon Mobil did everything right in this case. It sought outside help to determine what an appropriate salary range for a position should be. It clearly articulated why it believed years of experience alone didn’t necessarily have to correlate with higher earnings. And it eased employees into the new salary plan by providing lower annual increases to those already earning more than the new maximum rate. That convinced the court that age discrimination did not occur.

Remember, documenting good, sound business decisions is key to later defending those decisions.

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