Recommendations on 
Implementation of Equal Value

Excerpt from “Feasibility Study on 
Equal Pay for Work of Equal Value”

Authors:

Sung Yun-Wing
Zhang Junsen
Ng Sek-Hong
Paul Hempel

External Expert:

Mark Killingsworth

10.2.	Recommendations on Implementation of Equal Value

10.2.1. Companies Subject to Equal Value Requirements
It is recommended that companies with fewer than 200 employees be exempt from the requirement to implement equal value at this time. While this seems like a rather high cut-off point, there is an important reason why this recommendation is made. Implementing equal value requires a high degree of Human Resource sophistication, a situation which does currently exist in Hong Kong. In addition, considering the difficulty in making these adjustments, it is recommended that companies be given a five year period before all wage adjustments need to be made.
This cut-off point is also consistent with the practice in other countries. The Canadian province Ontario enacted the Pay Equity Act of 1987, effective 1 January, 1988, which required private sector organizations to proactively implement equal value. This legislation originally applied to private sector employers with 500 employees, requiring wage adjustments to be made by January 1991. Private sector employers with 100-499 employees were given until January 1992 to make wage adjustments (Kovach, 1996, p. 43).
There are currently no tertiary institutions in Hong Kong offering a postgraduate level degree in Human Resource Management (HRM), and a Masters degree in HRM can be considered a basic professional qualification. It is only the larger companies that are likely to have the managerial sophistication necessary to operate an equal value program, even with the assistance of management consultants. Other countries have placed more stringent coverage requirements, but these countries have also had a better developed HR profession.
Compared to the Ontario legislation, our recommendation is to allow a longer period of time to make adjustments, as well as limiting coverage to the larger employers. This recommendation is based in large part due to differences between Canada and Hong Kong, since Canadian companies have a greater familiarity with the concepts behind equal value, and the skills required to implement equal value are more readily available in Canada.

10.2.2. Use the All-Jobs Line for Wage Comparisons
Female jobs can be compared with a number of different salary lines:  the male line, composed of jobs with over 70% male incumbents; the balanced job line, composed of jobs with between 30% and 70% male incumbents; and the all-jobs line, composed of all jobs within the company. It is recommended that the all-jobs line be used as the basis for wage comparisons.
Proponents of equal value usually call for the use of the male-jobs line, since this will result in larger wage adjustments for female jobs. However, there are a number of reasons why we recommend the use of the all-jobs line instead of the male-jobs line or the balanced-jobs line:
1.	The all-jobs line reflects that pay for all the jobs in the organization, rather than a small subset of jobs. Using the all-jobs line will give a more stable estimate of wage line since there are a larger number of jobs and employees covered.
2.	Small variations in employee composition within jobs can result in shifting jobs from one class into another. For example, suppose that a particular job category has three male and two female incumbents, which would make it a balanced class job. Then, if one of the female incumbents were to leave, the job would shift to the male-job category. The experiences reported for Minnesota in the US indicates that this can be a serious problem, and makes the male-jobs line very sensitive to small staffing changes. The end result is that often a male or female would be hired solely for the purpose of preventing a job from becoming a male or female dominated job category.
The estimation of the wage line is critical to the end results, and the review of compensation practice discusses some of the difficulties that can be experienced when conducting salary surveys and creating market wage lines. While it is not recommended that companies be required to conduct salary surveys using the Multiple Regression Salary Survey methodology reviewed in this report, it is recommended that salary surveys of the market wage line include both job and employee characteristics. As the earlier discussion of compensation principles has indicated, salaries reflect both job and person characteristics, and it is necessary to take into consideration person characteristics such as education and experience. Thus, if women are relatively junior or inexperienced, it may appear that they are underpaid when in fact the salary system is fairly designed and administered. When only job characteristics are considered, erroneous alternative conclusions might be reached.

10.2.3. Compare Both Male, Female, and Balanced Jobs to the All-Jobs Line
When comparing wages to the all-jobs line, it is recommended to compare all jobs, male, female, and balanced, to the all-jobs line. If female jobs are paid below the line, then those jobs would be given pay increases to bring them up to the line. Similarly, if male jobs were found to be below the line, then those jobs would be brought up to the line as well. The pay of jobs above the line should be frozen until the differential is eroded by inflation.
This recommendation is intended to reduce some of the adversarial environment often found when equal value has been implemented. This recommendation would make the implementation of equal value gender-neutral. When implementation of equal value is only applied to female jobs, as was the case with Minnesota, then incumbents in non-female jobs perceive the introduction of pay increases for female jobs to be inequitable. By not making equal value “favour” female jobs, male job holders should perceive equal value more positively. Finally, not including balanced jobs will mean that female incumbents in those jobs will not receive any protection against discriminatory pay.

10.2.4. Pay Claims to Be Made with Reference to the All-Jobs Line
When making claims of discriminatory pay policies, it is recommended that claims be made only in reference to the all-jobs line. Claims of discrimination would need to demonstrate that the pay system is discriminatory, or that a non-discriminatory pay system was administered in a discriminatory fashion. In particular, it should not be sufficient to make a claim of discrimination by making comparisons with a specific job or incumbent.
This recommendation is intended to eliminate some problems that the UK system has evidenced. Under the UK system, it is sufficient for female plaintiffs to find one male worker that is overpaid, and then demand a comparable pay level. It must be recognized that all companies will have a few unusual cases where individual workers will have unjustifiable or unusual pay levels. As long as there is not a systematic, discriminatory pattern to these unusual cases, these cases should not unjustly cause labour costs to increase. It is only when there is evidence that the pay system is systematically operating to discriminate should wage adjustments be required. By making claims against the all-jobs salary line, this goal can be achieved.

10.2.5. Labour Market Conditions to be Reflected in Final Pay System
The narrow and strict implementation of equal value would require that jobs be paid based purely upon job evaluation points, but this does not allow the proper functioning of the labour market. It is recommended that companies be allowed to vary from strict equal value when it can be demonstrated that staffing difficulties have resulted (or will result). The examples from all the countries reviewed have indicated that strict adherence to the concept of equal value has the negative effect of hindering the proper functioning of the labour market. These negative effects can be manifested in two manners:
1.	Lack of labour supply or high levels of labour demand can lead to the range of market wages diverging from the wages resulting from an equal value exercise. In these situations, adherence to equal value wages will lead to difficulties in staffing those positions. Given the rapid changes in the labour market in Hong Kong due to the shift towards a knowledge and service based economy, situations like this are predicted to be a common occurrence as companies’ labour requirements continue to change. Therefore, it is important that companies be allowed the flexibility to address these staffing concerns.
2.	In other industries and/or occupations, excess supply of labour can be present. Given the changes in the types of labour demanded in Hong Kong, this excess supply of labour is not inconsistent with a lack of supply of other forms of labour. If equal value were to force employers to maintain excessively high wages levels, this would reduce the incentive of individuals with outdated skills to seek new skills. When wages are prevented from falling, individuals would prefer to try to find another job of the same type rather than seek an alternative job. Thus, allowing wages to fall when there is an excess supply of labour will help speed up the rate of adjustment to changes in demand, since workers with outdated skills would feel additional pressure to acquire new skills.
Clearly, in order to prevent abuses of these conditions, it would be necessary to require that companies provide adequate justification and market research to show that variations from equal value results are due to labour market conditions. At the same time, it is important to allow the proper functioning of the labour market. Australia’s abandonment of wage setting and equal value provides a clear example of why it is important to allow the labour market to function properly.

10.2.6. Strategic Orientation of Company to be Reflected in Pay Evaluation
Job value does not exist independent of the companies’ need for the job. Therefore, our final recommendation is that companies be allowed to include their strategic requirements in setting job wages. This recommendation is consistent with the application of equal value within both Canada and the US, and is intended to mitigate some of the difficulties experienced in the UK and Australia. The discussion of both the UK and Australia highlighted some of the difficulties that companies have when they are not allowed to base their wages upon their business requirements. Compensation is a powerful tool that companies use to attract the right employees and reinforce desired behaviours, and it is important that this be allowed to continue. This recommendation will allow companies to continue using their compensation system as a management tool, while requiring that any pay differences that might appear discriminatory to be justified based upon admissible business requirements.