OFCCP’s New Compensation Directive – What You Need to Know
OFCCP’s new Directive on how the OFCCP will review federal contractors’ compensation practices during a compliance evaluation stresses a commitment to transparency and outlines how the Agency it will review data, group employees for analytical purposes, perform statistical analyses, and communicate findings with federal contractors.
Data Request and Review Procedures
During a compliance evaluation, contractors provide employee-level data to the Agency for review. According to the Directive, the Agency will review the data to ensure the contractor has submitted everything requested in the scheduling letter and itemized listing. The compliance officer will request any missing information. Contractors who fail to respond to the request within seven business days may be at risk of receiving a Show Cause Notice.
Similarly-Situated Analysis Groupings
Once contractors submit data to OFCCP, the Agency will cluster employees into similarly-situated groups for analytical purposes. The Agency defines similarly-situated employees as those “who would be expected to be paid the same based on (a) job similarity (e.g., tasks performed, skills required, effort, responsibility working conditions and complexity); and (b) other objective factors such as minimum qualifications or certifications.” The Agency will prepare a statistical analysis controlling for differences among members of a pay analysis group (PAG) and individual employee characteristics.
Welcome news: the Agency will strive to prepare PAGs that mirror a contractor’s compensation system. However, the Directive makes clear, the Agency can do so only if contractors provide information regarding their compensation hierarchy and job structure that will enable OFCCP to develop meaningful analyses. If the Agency does not have information regarding the contractor’s compensation system, it will conduct its preliminary analysis using EEO-1 or AAP job groups as units of analyses and control for appropriate variables.
The Directive also details how the Agency will prepare its statistical analyses. Knowing this will allow contractors to prepare their own proactive analyses in anticipation of an audit. For example, the Agency will analyze base pay separate from total compensation and use age as a proxy for prior experience in its preliminary analysis.
Findings, Transparency, Conciliation
The Agency has committed to the following practices to facilitate transparency, consistency, and resolution of discrimination findings through conciliation:
- Upon completion of a desk audit, OFCCP will notify contractors, in writing, of the general nature of any preliminary compensation disparities the Agency will continue to investigate;
- Any Pre-Determination Notice for preliminary compensation findings will be accompanied by the individual-level data that will enable contractors to replicate the Agency’s formation of PAGs and regression results; and
- OFCCP will include representatives from its Branch of Expert Services to facilitate conciliation discussions.
Historically, the Agency often did not share their databases or methodology with contractors during the conciliation process. Moreover, Agency representatives involved in the conciliation process were unable to speak to the intricacies of the statistical models utilized by OFCCP statisticians. This increased transparency may improve the conciliation process by giving contractors the information necessary to make informed decisions regarding conciliation.
The transparency outlined in the Directive will better equip contractors to conduct their own proactive analyses and conciliate with the Agency. We will monitor how the Agency implements the practices in the Directive and report on developments.