Quick guide to Equal Pay & Psychological Contract

1. Equal Pay & Psychological Contract
Sheena Tooke
LL.M, MBA, FCIPD, FCMI, CMGR, MBTI

2. Equal Pay &
Psychological
Contract
The
Legislative
Framework
Solutions

3. The Legislative
Framework
Inequalities legislation is not
about achieving fair wages, it is
about achieving equal
treatment for men and women
Equality Act 2010 = Enforce
equality in all areas of
employment + Eliminate pay
discrimination
European Commission Law =
European Directives focuses on
+ Gender Equality
The right to equal pay for work
of equal value is laid down by
the Equal Pay Directive in
Article 141 of EC Treaty: and
states that "Each Member State
shall ensure that the principle
of equal pay for male and
female workers for equal work
or work of equal value is
applied"

4. Comparators
• A woman or man can claim equal pay for
equal work with the opposite sex by
selecting a man or woman to whom they
would like to be compared, this is the
“Comparator”.
• Thus must satisfy s79 - Equality Act 2010.
• Of being in "the same employment” the
geographical work location or international
location is irrelevant.
Pay Structure
Common
Terms

5. Comparators-
cont’s
In addition to an active or hypothetical comparator to make
a claim of unequal pay, statistical data from other sources
can be used to support a comparator claim, such as:
Office for National Statistics and Institute for Fiscal Studies
The Annual Survey of Hours & Earning (ASHE)
Labour Force Survey (LFS)

6. Equality Act 2010
• (1) Makes provisions for equal pay claims under three circumstances
• (a) “like work” or
• (b) “work rated as equivalent” or
• (c) “equal value”,
• Each situation is symmetrical in design so that it can apply to both
men and women

7. LIKE WORK
• Like work focuses on the actual work being done and not the person
doing it or what is stated on the employment contract
• Like work is defined be two things:
1) the work does not have to be identical, merely broadly similar
2) whether any differences which do exist are of practical importance
• Such as: level of responsibilities, skills required to do the work, the time
of day, training required and physical effort.
• Warning: an employer cannot insert differences in a contract if in
practice these difference never arise.

8. Work Rated as
Equivalent
Work rated as equivalent is where
the man’s job has been rated
equivalent under the company’s
job evaluation scheme (JES):
In other words being given equal
value, in terms of the demand
made on the worker.

9. Work of Equal
Value
Where man and
woman are doing
work of equal value.
Such as effort, skills
and decision making.

10. Genuine
Material Factor
(GMF) Defence
• Personal Factors
• Difference in individual performance
• Difference in experience ( competency,
performance or output)
• Organisational Factors
• Operational efficiency as “economic
grounds”
• Difference in collective arrangement
• Labour Factors
• Market forces – recruitment and
retention factors
• Proportionality Test
• Recruitment

11. What counts as Pay in Equal
Pay
• Everything that employee’s value in the employer
relationship that encompasses in monetary and non-
monetary terms, comes under the philosophy of
‘Total Reward’ remuneration package.
• Basic pay
• Pension
• Health care/insurance
• Holiday entitlement
• Commission
• Training and development Work life balance
• Sick pay
• Fuel Allowances
• Bonus
• This classification is important because a
remuneration package -- as the use of incentive
schemes and rewarding are perceived as equal
in employment terms as these are not excluded
from equal pay claims.

12. Tangible Cost
The estimated cost for defending
an equal pay claim from inception:
Full three day hearing
Independent advice or an
independent expert report
Backdating for successfully equal
pay claim
This is for up to 6 years before the
claim date (in England, Wales and
NI)
5 Years in Scotland
USA - Solicitors Lawsuit Uncapped
France Germany – EU Directive
In addition, interest may be
awarded on arrears of pay

13. Non-Tangible Cost Effects
Recruitment and Retention
Company Branding – Employee
Branding Business Ethics
Psychological Contract v
Healthy Psychological Contract
- The lack of trust
- Poor transparency
- Lack of consistency

14. Non-Tangible Cost Effects
Distributive equity –
individuals’ perceptions
about how they are
treated and rewarded
compared to others
Procedural equity -
individuals’ perceptions
of the fairness of the
process of setting pay

15. Total pay
satisfaction
"Love of Money" making the
correlation between income:
the love of money +pay equality
comparison = total pay
satisfaction
The correlation between
motivation and gender pay
equality and job satisfaction is
very high on the agenda for
women more than man

16. Reasons that
will be very
difficult, if not
impossible, to
justify as they
are not taken
lightly by
tribunals are:
The organisation cannot
afford equal pay
It creates difficulty with
the workforce
The employee accepted
lower pay on appointment.

17. There are a number
of ways to avoid
liability to prove
that pay does not
deliberately or
accidentally, directly
or indirectly
discriminate on the
grounds of sex.
That it can be demonstrated
that GMF was responsible for
the inequality.
No GMF but justified under the
proportionality test .
Have a job evaluation scheme in
place that has been accepted by
employees or employee bodies.
Carrying out an Equal Pay Audit.

18. Solutions

19. Solutions
Genuine
material factor
(GMF) defence
Pay structures
Job evaluation
schemes

20. Salary
Structures/PAY
RANGES
• Each grade or band has a pay range or scale with a
minimum and a maximum. It also has a reference point.
• The reference point is the market rate i.e. the going rate
for the job in the market and is equivalent to the mid-
point or the maximum of the range depending on the pay
progression method used.
• MIN--------------------MID-POINT------------------------------MAX
Reference Point
Or
• MIN-----------------------------------------------------------------MAX
Reference Point

21. Analytical job evaluation
schemes
• Job evaluation is a method for comparing
different jobs to provide a basis for a grading and
pay structure. Its aim is to evaluate the job, not
the jobholder.
• Analytical schemes
• Jobs are broken down into components or
demands, known as factors, and scores are
awarded for each factor. The final total gives the
overall rank order of jobs.
• Non-analytical schemes
• Whole jobs are compared with each other. There
is no attempt to break the jobs down and analyse
them under their various demands or
components.

22. What Is Red Circle
When an employee is overpaid, salary lingo describes their base pay as a “red circle rate,”
or a rate of pay that is above the maximum salary for a position
1.The employee is demoted, but keeps the current compensation.
2.The employee is deemed a “high performer.”
3.There is a reorganization or an acquisition
4.Market erosion of current role
5.Retention

23. Internationally Recognised
GMF- defence if, due to an equal
pay audit or a job evaluation study
with results that indicate that the
jobholder is overpaid or that the
job has been restructured.
Both actions either freeze or
increases the salary over a equal
period of time until the process of
annual salary increases for other
staff means that they catch up
with that person's salary and the
anomaly is removed.

24. Solution’s
1. Freeze the employee’s pay or Give less-frequent salary
increases.
2. Reduce the employee’s base pay and make up the
difference using lump-sum payments.
3. Reduce salary (this is a rare circumstance).
4. Promote the employee to a higher-level job he or she
can perform
5. Look to career-development opportunities.
6. Red-circle the job and not the person.
7. Eliminate the differential after a period such as a year or
gradually over time.
8. Leave pay alone but address as performance issue over
a period of time.
9. Dismiss and re-employee with different terms.
10. Regional Weighting

25. Thank You