OFCCP Spotlight on Compensation

by Mancheski, Jeremy Friday, November 04, 2011
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Should Federal contractors be proactively analyzing pay during this time of transition at OFCCP?

For more than a decade the Office of Federal Contract Compliance Programs (OFCCP) has been talking to the Federal contractor community about Pay Equity enforcement. OFCCP was giving presentations about how statistical analyses, particularly multiple regression, was going to become a part of regular audits at Industry Liaison Group (ILG) meetings around the country as early as 1999. In addition to public statements regarding pay equity analyses, the OFCCP published guidelines in 2006 explaining how the Department of Labor wanted contractors to utilize statistical analyses and how OFCCP was going to enforce their strategy to root out pay discrimination.

However, the grand strategy did not pan out as expected. Aside from a few select cases and a lot of dialogue, the OFCCP did not gain traction in compensation enforcement leading up to the Obama administration. In fact, it could easily be argued that pay equity enforcement has been non-existent in the EEO industry since the days of the average salary comparisons, also known as the “Dubray Analysis” in the 1990’s.

Despite the appearance of compensation being dormant as an enforceable strategy by the Department of Labor, change is in the air. The impetus for tangible change began immediately after President Obama signed the Lilly Ledbetter Fair Pay Act of 2009; this was the first bill Obama signed after his inauguration. The Ledbetter act showed that the new democratic White House meant business and Pay Equity was a priority. As part of the transition to a new administration, President Obama appointed an attorney named Patricia Shiu to run the OFCCP. Prior to joining the OFCCP, Ms. Shiu worked for 26 years as Vice President for Programs at the Legal Aid Society-Employment Law Center in San Francisco. Since her arrival, the OFCCP has been transformed, in dramatic fashion, into an enforcement agency that is getting back to its roots in auditing Federal contractors from top to bottom. While her predecessor, Charles James, focused on systemic discrimination, Shiu has focused on the entire process with full desk audits coupled with proposing dramatic changes to what appears to be almost every regulation and protocol associated with Affirmative Action.

Among several changes proposed by the new OFCCP, pay equity continues to receive a lot of press in 2011. Beginning with a Pay Equity Task Force, created by the White House in 2009, down to the OFCCP’s enhanced audit strategy. Compensation is now identified as a high priority for the OFCCP and as a result it is emerging as a priority for Federal contractors as well. Note that in the summer of 2011, both Department of Labor Secretary Hilda Solis and OFCCP Director Pat Shiu stated that OFCCP investigations into compensation will increase from a small percentage to 20 or as much as 40 percent.

Despite what we are seeing in the press, it may seem premature to state that conducting detailed compensation analyses should be made a priority for Federal contractors. Especially at a time when the OFCCP has asked the Office of Management and Budget (OMB) to rescind the compensation guidelines while no immediate replacement is available and the introduction of a new compensation data collection tool is still pending. Additionally, the concept of additional burdens for contractors to remain in compliance is a hot topic because OFCCP has posted Notice of Proposed Rulemaking (NPRM) to update the regulations associated with Veterans and a new NPRM for Individuals with Disabilities is expected to be released very soon. So, why should contractors be telling their legal team and executives that staying in a holding pattern is not in their best interests? Actually, there is a legitimate reason for being concerned despite OFCCP’s past struggles to wage a successful campaign against discrimination in pay. Following are reasons that Federal contractors should consider conducting proactive analyses;
  1. In 2011, OFCCP began a more aggressive campaign to collect more detailed compensation data in almost every audit.
  2. In audits around the country, OFCCP has been questioning salaries all the way down to the cohort level, asking why person A is making more than person B.
  3. As part of the proposed changes to the Itemized Listing within the Desk Audit letter, OFCCP is proposing to collect detailed pay data in every audit.
  4. OFCCP is actively collecting data beyond base pay such as bonuses, commissions and more. The point being that OFCCP can now analyze base pay AND total pay for potential discrimination. OFCCP has also made it clear that they are not waiting for new guidelines or changes prior to conducting pay analyses; they are simply following the principles of Title VII. Contractors often do not collect all of the factors necessary for analyzing or explaining pay. Therefore, contractors should be looking at all of the factors that affect pay and ensure that the information/data is available should mounting a defense be necessary.
  5. A proactive analysis provides an opportunity to make changes on the company’s terms without additional payouts related to interest and back pay for “make-whole” relief.
  6. Historically, statistical analyses, like multiple regression, can be used in court as a tool to identify discrimination in pay. Despite OFCCP’s various proposed changes, the use of multiple regression as the primary tool to identify statistically significant issues is likely to continue.
The bottom line is that federal contractors need to direct more resources toward collecting/maintaining data regarding pay decisions to ultimately conduct regular compensation analyses. Federal contractors should make significant effort to control their data and maintain the ability to track the outcome of their pay decisions. Contractors need to understand that they need to have the ability to explain pay decisions with specific records supporting those decisions as a method of defense against the scrutiny that is already being witnessed in the industry. Should contractors choose to wait until OFCCP releases new data collection tools and guidelines, then they risk being at the mercy of an audit or worse, a claim of discrimination. While experienced practitioners will say that proving discrimination in pay is difficult, they will also agree that OFCCP is making every effort to expose every facet of employer pay practices and contractors historically have not maintained the recordkeeping or analysis practices to withstand an aggressive review by the government.