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Because new systemic compensation enforcement approach requires flexibility, OFCCP can provide “framework, not recipe” for evaluation, according to agency official

March 12th, 2013  |  Cynthia L. Hackerott

When the OFCCP makes a finding that a contractor’s pay practices are in compliance with Executive Order 11246, the agency wants that finding to be “really meaningful,” said OFCCP Senior Program Advisor Pamela Coukos during a March 11, 2013, OFCCP webinar on the agency’s new flexible, case-by-case approach to its analysis of systemic compensation discrimination. Findings of compensation compliance will be more meaningful going forward because the agency’s new approach, announced on February 26, 2013, will require the agency to do more thorough evaluations, Coukos stated. Because the new approach requires flexibility and case-by-case assessments, “we cannot give you a recipe, we can only give you a framework” for evaluating compensation, she observed. 

The policy announcement of the new approach was made in conjunction with the OFCCP’s “Notice of Final Rescission” (NFR) published in the February 28, 2013 Federal Register (78 FR 13508 – 13520) of its 2006 notices on systemic compensation discrimination. Along with the NFR, the OFCCP has also issued Directive No 307, entitled, “Procedures for Reviewing Contractor Compensation Systems and Practices.” Links to the NFR, the new directive, and related documents, including a FAQ, are posted on the OFCCP website.

Rescinded notices. On June 16, 2006, the OFCCP published two finalized policy notices in the Federal Register regarding systemic compensation discrimination. The 2006 notices were not regulations or changes to any regulations; rather, they were statements regarding how the agency intended to enforce existing regulations. The first notice, entitled “Voluntary Guidelines for Self-Evaluation of Compensation Practices for Compliance With Nondiscrimination Requirements of Executive Order 11246 With Respect to Systemic Compensation Discrimination,” contained guidelines for federal contractors’ self-evaluation of compensation practices (“the voluntary guidelines”). The second 2006 notice, “Interpreting Nondiscrimination Requirements of Executive Order 11246 With Respect to Systemic Compensation Discrimination,” contained standards regarding systemic compensation discrimination that the OFCCP would use in enforcing Executive Order 11246 (“the standards”). 

The agency maintains that the standards and voluntary guidelines forced OFCCP investigators to apply a narrowly defined, cookie-cutter approach to evaluating contractor pay practices. Investigators looked at each case the same way, regardless of the industry, types of jobs or pay practices, which conflicted with the basic principles of Title VII, the OFCCP stated. With the rescission of these notices, Coukos said, the OFCCP will enforce pay discrimination based on Title VII principles, the same way it does in hiring and other cases. Following Title VII principles will allow the OFCCP flexibility to address new legal developments, different kinds of industries, workers and pay practices, she stated. The standards and voluntary guidelines addressed a single type of pay practice, used limited evidence and used a highly specified analytic framework, Coukos noted. In contrast, courts say Title VII prohibits multiple forms of pay discrimination, allows for the use of various types of evidence and does not impose a rigid formula for proving discrimination. Put another way, the content of the rescinded notices did not reflect how Title VII works because Title VII is case specific, she said.

Investigative approach. Coukos explained that there are three key questions in every case: (1) is there a measurable difference in compensation on the basis of sex, race, or ethnicity? (2) is the  identified difference in compensation between comparable employees under the contractor’s wage or salary system? (3) is there a legitimate explanation for the difference (i.e. is the difference based on “an appropriate comparison”)?

The OFCCP will tailor the approach and tools to be used based on the contractor’s compensation practices. Differences may be observed with regard to: base pay; job assignment or placement; opportunities to receive training, promotions, and other opportunities for advancement; earnings opportunities; and differences in access to salary increases or add-ons, such as bonuses.

Directive 307 procedures. As it has in past practice, the OFCCP will continue to begin every desk audit with a preliminary analysis of the summary compensation data it receives from the contractors in response to Item 11 of the OFCCP’s audit scheduling letter.  This preliminary analysis will help the OFCCP determine: whether more information is needed; whether to proceed to an on-site; and how to allocate investigative resources. Depending on the results of the preliminary analysis, the OFCCP may request individual employee-level data from the contractor. 

Preliminary analysis.  During its preliminary analysis, the OFCCP will look at quantitative factors such as: the size of any overall average pay differences based on race and gender; the number of job groups or grades where average pay differences exceed a certain threshold; or the number of employees affected by race-or-gender-based average pay differences with job groups or grades. The agency will also examine qualitative factors such as compliance history, OFCCP or EEOC complaints, anecdotal evidence, potential violations involving other employment practices, and data integrity issues. There are no specific numerical thresholds attached to these factors, Coukos said.

Individual employee level data. In cases where the OFCCP requests individual employee-level data, it will request data on all employees covered by the contractor’s Affirmative Action Program. The OFCCP will examine all data and information provided. If needed, the agency will contact contractor to ask clarifying questions and request further information. Depending on its findings, the OFCCP will either proceed to onsite investigation or administratively close the case.

Compensation analysis stages. The OFCCP will analyze the compensation data it receives in stages.  In stage 1, the agency will analyze the data for potential systemic discrimination in large groups, referred to as “pay analysis groups,” to assess preliminarily whether there is an overall pattern of discrimination. If it determines it is necessary, the agency will move on to stage 2, where it will analyze smaller groups or units for discrimination. If warranted, the OFCCP will then go to stage 3 where it may analyze for individual discrimination.

Any statistical analyses applied may involve multiple regression analysis of pay analysis groups as appropriate, and the OFCCP fully expects to use multiple regression analysis “frequently,” Coukos said. In any event, every analysis will be case specific and as the agency gets more information, it may revisit how its constructs the analysis.

During an on-site review, the agency will continue to apply its standard “Active Case Enforcement” principles. As such, it will: investigate pay policies and practices both stated and actual; identify any additional data or records that may be relevant; investigate factors used to determine pay; conduct interviews; and identify anecdotal evidence.

Contractors’ explanations. During the investigation process, contractors may provide information regarding the factors considered when making compensation decisions. The OFCCP will review and test factors on a case-by-case basis, and incorporate them into the analysis as appropriate.

Self-evaluation. What contractors need to know regarding self-evalutions is “quite simple,” according to Coukos, just “follow the regulations.” As long as the contactor’s self-compliance meets the regulations at 41 CFR Sec. 60-2.17(b)(3) & (d), the contractor will be in compliance with its obligations. Essentially, “you have to do it, have to do it more than once in a blue moon, and have to look for race and gender differences,” she explained. No specific method is required she noted, adding that “no one has to apply our directive to their own pay systems,” but the agency has made it available for contractor  reference

Effective date. Directive 307 procedures apply to all OFCCP supply and service compliance evaluations scheduled on or after February 28, 2013 (i.e. where the date of the scheduling letter is on or after February 28). Otherwise, the OFCCP will apply the 2006 standards to determine whether to issue notice of violation.