OFCCP Compensation Standards

By | June 16, 2006

On June 16, 2006, the OFCCP published Final Standards for Systemic Compensation Discrimination.  The final standards are found at: http://edocket.access.gpo.gov/2006/pdf/06-5458.pdf.

The final standards focus on systemic compensation discrimination define “systemic compensation discrimination” to be discrimination under a pattern and practice of disparate treatment and note that OFCCP has not issued significant interpretive guidance on systemic compensation discrimination under Executive Order 11246.

The final standards state that the agency is rejecting the “controversial ‘pay grade theory’.”  The previous OFCCP theories were informally known as the “DuBrey analysis.” The preamble to the final standards do, however, indicate that this aspect of the standards does not restrict the OFCCP’s use of pay grade information or any other information as an indicator of potential discrimination.

The final standards set forth groups of similarly situated employees as the appropriate unit of analysis.  This is a legally sound portion of the proposed standards.  This type of grouping has been available to contractors since the revision of the scheduling letter in 1999 since Paragraph 11 seeks data by range, rate, grade or level.  Astute contractors have always submitted data by groups of similarly situated employees.

The final standards state that employees are similarly situated if they are similar with respect to the work they perform, their responsibility level, and the skills and qualifications involved in their position.  The final standards also state that OFCCP will not base its determination that employees are similarly situated on the fact that the contractor has grouped employees into a particular grouping, such as a pay grade or pay range, or employees pay can progress to the top of the pay grade or range based on performance or without changing jobs.

The final standards state that other factors may have a significant bearing on determining which employees are similarly situated.  These factors may include department or other functional unit, employment status (e.g., full-time versus part-time), and compensation status (e.g., union versus non-union, hourly versus salaried versus commissions).

The final standards stress that preexisting groupings, such as pay grades or AAP job groups do not necessarily constitute groups of similarly situated employees.  OFCCP field staff, nevertheless, have requested data submitted by compensation levels of similarly situated employees be cross referenced by EEO-1 Categories or AAP Job Groups; and summarized  data submitted by compensation levels of similarly situated employees be cross referenced by pay grades/bands.

The final standards state that systemic compensation discrimination exists where there are statistically significant compensation disparities between similarly situated employees after taking into account legitimate factors which influence compensation.  The standards indicate such legitimate factors may include education, experience, performance, productivity, and location.

The final standards indicate that OFCCP will consider a compensation disparity statistically significant if it is significant at a level of two or more standard deviations.  This level is generally accepted by statisticians; has been accepted by the courts since the Hazelwood decision in 1977; is recognized by the Uniform Guidelines on Employee Selection; and has been accepted by OFCCP compliance staff for decades.

The final standards state that the only statistical methodology that the OFCCP will utilize to analyze compensation data is multiple regression analysis.  The preface to the final standards addresses concerns regarding the complexity of multiple regression analysis and the potential cost involved in collecting and computerizing data.  The preface states that “the agency does not require or expect the contractor to gather data, build databases, or perform multiple regression.  The OFCCP will do all of those activities.”

The final standards confirm that in determining whether a violation has occurred, OFCCP will consider whether there is anecdotal evidence of compensation discrimination, in addition to statistically significant compensation disparities.  Except in unusual cases, the agency will not issue a Notice of Violation alleging systemic compensation discrimination without providing anecdotal evidence to support OFCCP’s statistical analysis.  In unusual cases, the agency may assert a systemic discrimination violation based only on anecdotal evidence, if such evidence presents a pattern or practice of compensation discrimination.

The preface to the final standards indicates that the OFCCP uses a tiered-review approach in evaluating data submitted for desk audit.  The steps are 1) a comparison of group average compensation; 2) a request for employee specific information if the comparison indicates a significant disparity; 3) a cluster regression of the employee-specific data; and 4) a comprehensive evaluation of the pertinent compensation practices if the cluster regression indicates significant disparities.

Please contact us by calling (732) 446-2529 or sending us an e-mail at glennbarlett@gbcs.net if you are interested in discussing the OFCCP’s Compensation Standards.