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Be aware of salary increase caps when promoting employees

March 19, 2018

By Anthony Kaylin, courtesy of SBAM Approved Partner ASE

When promoting an employee to a new position, what pay should be established?  Many employers have policies such as “up to 14% from previous base when promoting, including merit.”  A policy like that becomes especially problematic when the employee being promoted from one position to another is not even close to the pay range of other employees in the same title. 
In Bowen v. Manhein Remarketing, Bowen, a woman, was hired as an automobile detailer in 2002.  Three years later the assistant general manager promoted her to arbitration manager. Bowen replaced a male arbitration manager. Manheim paid that male predecessor $46,350 during his first year as arbitration manager, but Bowen’s starting salary was set at $32,000. Bowen’s salary did not reach $46,350 until her sixth year as arbitration manager.

After learning about the pay disparity with her male predecessor, Bowen sued Manheim under the Equal Pay Act and Title VII.  At a summary judgement hearing, an affidavit of the HR Manager was offered in support of Bowen’s claims.  Bowen also showed that although she was an effective arbitration manager, her salary for a few years was below the minimum salary for arbitration managers, and it was consistently well below the midpoint salary for arbitration managers. Manheim, for example, paid Bowen $37,001.60 in 2007; $41,000 in 2008; $46,075.63 in 2010; and $46,075.63 in 2011. But under Manheim’s compensation guidelines the midpoint salary for an arbitration manager was $49,400 in 2007; $52,900 in 2008; $55,500 in 2010; and $56,500 in 2011.

In 2007 the HR Manager conducted an employee opinion survey and found that women thought they were paid less than men.  The HR Manager investigated and found that it appeared that a “good ole’ boy” system existed at Manheim. For example, while discussing a female employee’s application for an assistant general manager position, the male General manager told the HR manager that he would not hire a woman as an assistant general manager because Manheim would be “the laughing stock” of the community if it made such a hire. He also told the HR Manager once that he would never allow a female to work as a mechanic. 
Another employee opinion survey was conducted in 2009 with similar comments made.  The HR Manager then instructed Manheim’s payroll administrator to run reports comparing women’s and men’s pay and prior pay increases. This investigation revealed that women were paid similarly but that their pay was “thousands of dollars less than men’s pay for the same jobs.”   The results were reported to corporate who then required women, including Bowen, to get equity increases. 

At summary judgement Manheim won.  Manheim showed that the pay differential was for nondiscriminatory reasons, including the fact that the previous manager had greater experience, not only in the position, but brought a different skill level to the role than Bowen.  She never did the role before she was promoted.  

On appeal Bowen prevailed.  The 11th Circuit Court of Appeals found that Manheim had set the previous manager’s salary near the midpoint of the compensation range for arbitration managers but consistently set Bowen’s salary at the bottom of the range.   The court held that a jury could find that prior salary and prior experience alone do not explain Manheim’s disparate approach to Bowen’s salary over time.  Specifically, once Bowen established herself as an effective arbitration manager, prior salary and prior experience would not seem to justify treating her different than the predecessor.  Further, Bowen was able to raise the question of whether Manheim’s managers made decisions based on gender as opposed to business reasons.  Therefore, it appeared that a jury could find pretext in that actions of Manheim’s managers.
HR made a difference to the organization by identifying a problem that the leadership was willing to rectify. 

However, there was a major issue not discussed.  It appears that the HR Manager did the analysis on her own, not under the direction of the attorney.  A class action lawsuit could have resulted if the situation blew-up.  The analysis would have been the basis for the lawsuit.   The takeaway is that the employer set the price for the position.  Any internal promotion into it should include a market price salary – not one with a “hometown” discount.  This approach is a difficult one, but in the end, the messaging would strengthen the employer of choice messaging in the global war for talent.

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