For some workers, the bulk of their income is commissions or other incentive-based pay, not their salary or base wage. For years, the Equal Employment Opportunity Commission, sales employees, and class action plaintiff attorneys have been interested in fair pay for sales workers and, in particular, pay discrimination involving female sales workers. A recent EEOC settlement demonstrates the need for employers to separately analyze all components of incentive-based workers’ pay.
EEOC is not the only agency interested in incentive-based pay. For federal contractors, an audit by the Office of Federal Contract Compliance Programs means turning over to the agency not just base wage and salary data, but also separately identifying for each employee other significant components of pay, “such as bonuses, incentives, commissions, merit increases, locality pay or overtime….” This requirement is based on the agency’s recognition that analyzing base pay alone may not get to the heart of a wage-gap or fair pay issue.
The case brought by EEOC alleged violations of the Equal Pay Act and Title VII of the Civil Rights Act based on the assertion the company paid female sales representatives a lower base pay than male sales representative, and that females did not operate on a level playing field regarding commissions. EEOC alleged female sales representatives were required to sell more than males to earn the same commission.
The company settled the matter without admitting liability. However, a proactive and thorough analysis by the employer of both base pay and commissions likely would have revealed these issues, or at least prompted questions designed to reveal the issues, and avoid the claim in the first place. As part of any analysis of pay components, such as commissions and overtime, employers should be asking not only how much is earned, but also exploring the terms and conditions on which those incentives are earned. Strategic analyses can and should include exploration of how assignments are made and whether objective and defensible criteria are used uniformly and consistently to distinguish the earnings of one employee from another. Likewise, any analysis should ask whether such decisions adversely affect any race or gender group, and why. For example, how are sales territories or overtime hours assigned?
For the same reason, OFCCP requires contractors to separately identify each pay component for every employee and employers should analyze each component separately. Analyzing “total compensation” may mask significant and, perhaps, indefensible differences in one or more components of pay. In addition, an assertion that total pay is fair cannot legitimately defend a claim that any one component is discriminatory.
A proactive pay analysis with experienced attorneys (subject to the attorney-client privilege) should look at all significant components of pay separately. Likewise, it also should look beyond how much employees earn to the terms and conditions dictating how incentive pay is earned. Such analyses may turn up interesting issues that, if timely addressed, may help avoid employee and government agency claims.