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 senior employees for the work they do.
The problem: Older, more experienced workers at the top of your pay scales may sue if they believe your new salary structure penalizes them.
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, who is older than 40, was a marketer for Exxon Mobil. The oil company wanted to align its salary bands with those of its competitors, so it hired two consulting firms to gather information and develop new salary ranges.
The new range for John’s position topped out at $77,000. John already made more than that.
Exxon Mobil didn’t reduce the salary of anyone whose pay fell above the high end.
Instead, it provided larger annual increases to those who were below the top end. More senior staff, like John, received lower annual increases.
He sued, alleging age discrimination. Based strictly on statistics, it seemed like he had a case. Older workers clearly got lower percentage increases than younger workers, who tended already to be clustered within the new salary band.
But the court said Exxon Mobil had reasons other than age for its moves. For example, the company said it didn’t believe experience alone should necessarily warrant higher pay. In fact, it argued 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)