Internal Compensation Structuring and Social Bias: Experimental Examinations of Point Factor Job Evaluation

Purpose – Research regarding pay inequities between the sexes is well established; however, internal compensation strategies and perceived labor pools (percentage of gender/minority applicants) have not been explored in depth. This paper aims to address this issue.Design/Methodology/Approach – A total of 381 business students and 101 compensation specialists/managers participated in two experimental studies to establish the impact of perceived labor pools’ ethnicity and gender on compensable factor weighting.Findings – Results supported hypotheses that significant discriminatory weighting of compensable factors would be established by the perceived ethnicity of the labor pool, the perceived gender of the labor pool, and participant gender.Research Limitations/Implications – A limitation of study one could be the population (business students) who may reflect a lack of knowledge of and/or a potential lack of interest in strategic compensation. Many of the students are likely to have had work experience but their exposure to compensation concepts was potentially limited. Accordingly, study two was conducted with experienced compensation specialists/managers in a real-world setting. While study two was methodologically stronger, evaluators were from an area with high proportions of technology occupations where compensation specialists may be more familiar with external compensation surveys due to rapid changes in jobs.Practical Implications – The ramifications of potential discrimination at the compensable factors weighting stage of defining compensation internal alignment are tremendous. The implications for pay structure, perceived fairness, and motivation can have an immense impact on overall organizational productivity and success. Internal equity discrimination can also have ramifications for vast litigation (the author was consulted by the EEOC in the use of the research for the purposes of class action lawsuits).Social Implications – As business students generally aspire to become members of the managerial cadre, the dangers of potential explicit or implicit bias in the weighting of compensable factors (and their interactions) can reduce the efficiency of the compensation plan, hamper motivation of those hired to work within its structure, and potentially set the stage for class action litigation. Accordingly, those tasked with teaching job evaluation (be they business professors, consultants, or human resources managers) need to address issues of social bias and encourage the committee to challenge the biases of which they may or may not be aware.Originality/Value – After a groundswell of interest in comparable worth and sex-related errors in job evaluation in the mid-1980s, research failed to establish perceived incumbent, applicant, and labor pool ethnicity and ethnocentrism on internal compensation structuring. This study builds on past research by establishing the impact of ethnocentrism on internal compensation structuring in point factor job evaluation, extending workplace ethnocentrism theory by applying it to Title VII in implementation, data collection and interpretation of job evaluation and, most importantly, establishing the impact of perceived labor pools’ demographics (and subsequent proportions of racial/ethnic group members associated) on differential compensatory factors weighting.