OFCCP Guidance Clarifies Valid Pay Equity Factors

Allen Smith, J.D. By Allen Smith, J.D. September 4, 2018
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OFCCP Guidance Clarifies Valid Pay Equity Factors

​Compensation disparities among federal contractors may not be due to discriminatory factors such as gender or race, the Office of Federal Contract Compliance Programs (OFCCP) noted in recent guidance that rescinded a prior directive. The new guidance, Directive 2018-05, recognizes nondiscriminatory factors employers have long called for the agency to acknowledge, and should end disputes over these variables, said David Cohen, president of DCI Consulting in Washington, D.C.

"The OFCCP has an important role in helping federal contractors remain in compliance with workplace laws," said Nancy Hammer, the Society for Human Resource Management's vice president of regulatory affairs and judicial counsel. "Rescinding Directive 307 and replacing it with clear compliance guidelines encourages employers to review their compensations systems, knowing how their efforts will be measured by the agency."

Neutral Factors

The new directive, issued and effective Aug. 24, outlines factors that should be considered when undertaking multiple regression analysis, said Connie Bertram, an attorney with Proskauer in Washington, D.C. This analysis is a statistical model that helps the OFCCP, or employers if they are conducting self-audits, look at differences in salaries between men and women and determine whether the disparities are due to gender, race or nondiscriminatory factors, Cohen noted.

[SHRM members-only toolkit: Managing Pay Equity]

Under Directive 2018-05, age may be considered as a proxy for experience, he said. This is important because tenure is closely connected to salary. Most contractors don't have employees' prior experience stored in their human resource information systems, so the only way to determine actual experience is to examine each employee's file, he said.

Bertram cautioned that age may be treated as a proxy for experience only at the OFCCP's desk audit phase, not for onsite OFCCP reviews.

"Squared terms," including factors such as lengthy time in a position that results in salary compression, will not be considered until after the initial desk-audit phase, she added.

Another major shift is the agency's new recognition of salary surveys in the multiple regression model, Cohen noted. The OFCCP in the past has argued that such surveys might be tainted because the job market has historically suppressed the salaries of positions dominated by women.

Before the OFCCP will apply any of these or other relevant factors, it will test them for neutrality to make sure they do not have a discriminatory impact, Bertram said.

Directive 2018-05 also clarifies how race and ethnicity will be handled in its statistical model, no longer conducting a total minority analysis as has been done in the past, Cohen observed.

The OFCCP will create a variable for each race and ethnicity category with more than five employees, Bertram noted.

This will be a "big change" for many contractors and result in a new way of running multiple regression analysis, Cohen said.

With the new directive's lengthy section on how the OFCCP will factor in certain variables, it "makes it more likely that someone who knows how to develop statistical compensation models will be able to predict more reliably how the OFCCP will examine compensation audit or compliance reviews, and thus enable contractors to undertake meaningful self-audits," said Alissa Horvitz, an attorney with Roffman Horvitz in McLean, Va.

Pay Groupings

If an employer has developed pay groupings that are consistent with compensation systems and Title VII standards, the OFCCP will encourage the employer to submit them, Cohen said. If the groupings are reasonable, the OFCCP will use them in its multiple regression analysis. This should assist employers in self-audits, identifying problems and fixing them, he observed.

Directive 307 allowed the OFCCP to run its analysis in different ways without providing meaningful guidance to federal contractors about the factors it would consider, and, Cohen said, it used a confusingly broad term for pay groupings for comparing employees' compensation: "pay analysis groups."

Before that directive, analysis was run comparing only similarly situated employees, he noted. If employers don't provide the OFCCP with reasonable pay groupings, the agency will default to a murky pay-analysis-groups standard, he said, describing Directive 2018-05 as setting a standard that was somewhere between what existed before Directive 307 and the rescinded Directive 307.

Cheryl Behymer, an attorney with Fisher & Phillips in Columbia, S.C., added that the door has been left open for the OFCCP to reach an adverse finding, even absent anecdotal evidence, using statistics alone.

Under Directive 307, the OFCCP could use pay analysis groups that would include jobs that most employers would not consider at all similarly situated, noted Bill Osterndorf, president of HR Analytical Services in Hales Corners, Wis. For example, the OFCCP would occasionally group all office employees in a pay analysis group. The new directive, by contrast, states that the OFCCP's objective is for pay analysis groups to mirror a contractor's compensation system, he noted.

Other Directives

The OFCCP also issued Directive 2018-07, which would require federal contractors to verify that they have prepared a written affirmative action program (AAP). The details on this initiative have yet to be finalized.

Large employers would be hampered by one set certification deadline date, as opposed to a rolling certification date, Horvitz said.  "If an employer has a calendar-year AAP cycle, and has to stand up 100 AAPs, that's not going to happen by Jan. 31, and I don't think an employer should have to reset its AAP data cycle to accommodate an OFCCP certification requirement," she said.

In addition, the OFCCP released Directive 2018-06, reviving a program to recognize contractors with high-quality compliance programs. "I think it's wonderful to recognize employers that are innovative thought leaders among their peers for achieving diverse and inclusive workforces," Horvitz said.

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