MHRM 6601 Week 10 Pay Equity Review Example

Looking for the Unfairness a New Structure Creates: A Pay Equity Review of Stone Arch's Grades Five Months In, Comparing Compa-Ratios by Tenure and by Sex

Student Name

Walden University

MHRM 6601: Benefits, Compensation, and Resource Allocation

Instructor Name

Month Day, Year

Looking for the Unfairness a New Structure Creates: A Pay Equity Review of Stone Arch's Grades Five Months In, Comparing Compa-Ratios by Tenure and by Sex

Why Review a Structure This Soon

Stone Arch, the member-owned lender in this course's case, introduced its eight-grade pay structure on January 1, 2027. A structure built from a careful job evaluation and market data can still create unfairness, through the rules used to place people in it or through history it carries forward. This review, conducted in June 2027, compares compa-ratios within grades; a compa-ratio expresses someone's salary as a fraction of the midpoint for that grade. It asks two questions: do employees with longer service sit lower in their ranges than newer colleagues doing the same work, and do women and men in the same grade sit at different points?

Method

Compa-ratios were calculated for all 230 employees from June payroll. Within each grade, average compa-ratios were compared by tenure band (under two years, two to five years, over five years) and by sex. Differences of three points or more, such as 0.93 against 0.96, were flagged for closer review. Small groups were noted, since an average across four people can move several points because of one person.

Finding One: Newer Tellers Sit Above Experienced Ones

In grade 1, the nine tellers hired since January average a compa-ratio of 0.96. The twenty-one tellers with two to five years of service average 0.93. Newer employees are paid more, relative to the midpoint, than colleagues who trained them.

This gap traces to a design choice. The new hiring rate was set at $44,600, about 0.96, to compete for applicants. The January market adjustment gave existing tellers a flat $2,400, regardless of where they sat. Tellers who had been paid near the bottom before January received the same dollar amount as everyone else and stayed near the bottom, now below the new hires. This is pay compression created by the implementation, not by anyone's performance. Card et al. (2012) found that workers who learn they are paid below their peers become less satisfied and more likely to look for other jobs, and the new structure makes such comparisons easier.

Table 1

Grade 1 Teller Compa-Ratios by Tenure, June 2027

Composite organization. Midpoint $46,500.

Finding Two: Women in Grade 5 Sit Lower Than Men

In grade 5, which holds staff accountants and consumer lenders, the nine women average a compa-ratio of 0.98 and the five men average 1.05. Three of the four red-circled lenders are men, whose pay reflects a commission plan that ended years ago. Removing the red-circled employees, the gap narrows: women 0.96, men 0.99.

The remaining three-point gap traces to history. Starting-pay records show that the two men were hired from banks and negotiated starting salaries above Stone Arch's offer, while most of the women were promoted from member service roles and accepted the standard promotional increase. Research has found that men are, on average, more likely than women to negotiate salary when the norms for negotiating are unclear (Leibbrandt & List, 2015), and that differences in starting pay can persist for years (Blau & Kahn, 2017).

Table 2

Grade 5 Compa-Ratios by Sex, June 2027

Composite organization. Midpoint $71,800.

What the Evidence Can and Cannot Establish

The tenure finding is reliable: the cause is documented and the pattern is consistent. The sex finding is suggestive but not conclusive. With two men remaining after the red-circled employees are removed, one person's salary moves the average substantially. The review cannot establish that sex caused the gap, and it does not need to. Federal equal pay law (29 U.S.C. § 206(d)) permits unequal pay for equal work only on a short list of grounds, such as a seniority or merit system, and a gap that began with negotiated starting salaries is the kind of ground an employer should test carefully before depending on it.

Recommendations

Correct the compression: raise the tellers with two to five years who sit below 0.96 to at least that level, at a cost of about $28,000. Review grade 5 individually: for each woman below 0.98 with comparable tenure and performance to the higher-paid men, adjust pay, at an estimated cost of $12,000. Change the promotion rule so that internal promotions are placed at the same compa-ratio as external offers for the same job. Repeat this review every year, after increases are applied.

References

Blau, F. D., & Kahn, L. M. (2017). The gender wage gap: Extent, trends, and explanations. Journal of Economic Literature, 55(3), 789-865. https://doi.org/10.1257/jel.20160995

Card, D., Mas, A., Moretti, E., & Saez, E. (2012). Inequality at work: The effect of peer salaries on job satisfaction. American Economic Review, 102(6), 2981-3003. https://doi.org/10.1257/aer.102.6.2981

Equal Pay Act of 1963, 29 U.S.C. § 206(d).

Leibbrandt, A., & List, J. A. (2015). Do women avoid salary negotiations? Evidence from a large-scale natural field experiment. Management Science, 61(9), 2016-2024. https://doi.org/10.1287/mnsc.2014.1994