Proposed section 60-20.4 “Discriminatory Compensation” in the Notice of Proposed Rulemaking (NPRM) for the Sex Discrimination Guidelines addresses the OFCCP’s enforcement of the prohibition of compensation discrimination as dictated by E.O. 11246. This section of the NPRM opens with the OFCCP’s objectives for the revised regulation as related to compensation. Predictably, much of what is proposed is in keeping with Directive 307: Procedures for Reviewing Contractor Compensation Systems and Practices. These objectives include:

1) Clarification of the basis of the OFCCP’s enforcement in Title VII case law, not under the Equal Pay Act (EPA).

2) Definition of compensation, including the components of what the OFCCP proposes to review as compensation, and an update to the related terminology.

3) Explanation of contractors’ obligations as related to compensation discrimination.

The OFCCP notes in the NPRM that they are removing all reference to the EPA and related case law in the proposed regulation. They note that jurisdiction of enforcing the EPA resides with the EEOC, and that the OFCCP’s alignment with Title VII allows them additional flexibility in comparing jobs and determining similarly situated workers. The OFCCP presents an example of identifying more subtle forms of discriminatory compensation through job segregation based on sex. This example demonstrates the OFCCP’s continued interest in and focus on steering in job assignment as a form of compensation discrimination.

The definition of compensation that the OFCCP presents in the NPRM follows the flexibility mentioned with Title VII alignment. Ranging from base pay in salary and wages to stock options and awards, this definition covers all monetary remunerations an employee may receive. Further, the OFCCP attempts to define what compensation discrimination may look like. Through the examples provided, it is clear the OFCCP includes any manner of personnel decisions to be reviewable as compensation discrimination; such as, work assignments, opportunity for training, and advancement in the organization.

Finally, the OFCCP’s objective of explaining contractors’ obligations to not discriminate in employee compensation includes a statement of contractors’ obligation to provide equal opportunity in all compensation and ensure pay equity. More specifically, the OFCCP states that contractors must maintain data, conduct internal reviews, and monitor pay practices for potential discrimination. As a concluding statement, the OFCCP reminds the reader of contractors’ obligation to comply with the EO ban on compensation discrimination. From here, the OFCCP moves on to discussing their case-specific approach and methodology in reviewing contractor compensation systems and practices. The NPRM also specifies here that the OFCCP does not require anecdotal evidence in determining pay discrimination.  All of this is intended to explain contractors’ obligations; however, there is no mention of what steps contractors should be taking to ensure their internal reviews meet the OFCCP’s expectations for demonstrating their compliance with the regulations.

Directive 307 Principles embedded in NPRM

As discussed, the NPRM outlines the OFCCP’s stance that Title VII principles are broad and flexible.  The NPRM goes as far as citing guidance found in the OFCCP’s Directive 307.  As a reminder, a Directive is sub-regulatory, but if the language in the NPRM is finalized into regulatory form, the provisions will carry more weight than Directive 307 does currently.  Specific aspects of Directive 307 outlined in the NPRM include:

1.) Comparing jobs that are similarly situated in a broad and flexible manner;

2.) Outlining that the OFCCP does not require anecdotal evidence to support a pay violation – statistics alone may be evidence of pay discrimination;

3.) And ascertaining that the OFCCP has the right to conduct investigations using a case-by-case evaluation and may use different statistical tools or standards in different situations.

As aforementioned, the NPRM also embeds examples of steering as a concern for compensation enforcement.  This highlights that the agency has placed a high level of priority on allegations of steering, and will continue to monitor audits for evidence of steering.  Moreover, the proposed regulatory text at 60-20.4 specifically cites performance review systems as a compensation review practice that may be evaluated for discrimination.  Contractors should continue to monitor personnel policies in their organizations to ensure steering is not occurring, and that the performance appraisal process is non-discriminatory based on gender, race, or other protected groups.

In the same fashion as Directive 307, the agency limits the type of practical guidance found in the NPRM for best-practice contractors who are interested in conducting pro-active EEO compensation analytics.  In the summary prior to the NPRM language, the OFCCP states that, “The proposed new text in § 60-20.4 provides a clearer general statement of the contractor’s obligation to provide equal opportunity with respect to wages and other forms of compensation….federal contractors have affirmative duties to maintain data, conduct internal reviews, and monitor pay practices for potential discrimination, as well as comply with the Executive Order’s ban on discrimination in the payment of wages, salaries, and other forms of compensation.”

The proposed regulatory text is vague at best in describing how a contractor would implement a proactive EEO pay analysis, leaving the definition of “similarly situated” up to interpretation:

“Contractors may not pay different compensation to similarly situated employees on the basis of sex. For purposes of evaluating compensation differences, the determination of similarly situated employees is case specific. Relevant factors in determining similarity may include tasks performed, skills, effort, levels of responsibility, working conditions, job difficulty, minimum qualifications, and other objective factors. In some cases, employees are similarly situated where they are comparable on some of these factors, even if they are not similar on others.” (emphasis added).

Discussion and Implementation

The result of the OFCCP’s update to the compensation discrimination section of the Sex Discrimination Guidelines is a slate of questions related to contractor implementation of their obligations. Without guidance as to what methods contractors should utilize to accurately detect potential discrimination in compensation, contractors are left with the rescinded Standards and Guidelines for those analytic methods that have been used by both the contracting community and the OFCCP. Although these methods often stand on the side of tried-and-true statistical standards and can be successfully used to detect disparities, they may lead contractors to a false sense of compliance if the OFCCP changes their definition of similarly-situated from contractor to contractor. There are many examples of best-practice contractors that place emphasis, resources, and value on complying with their compensation obligations that may be blind-sided in coming audits due to their inability to anticipate how the OFCCP will group their workforce for analysis and what statistical methods will be utilized to review their data.

If the language in the NPRM is codified, contractors can expect potentially messy and long defense-driven audits with focus on compensation.  The OFCCP has clearly stated its heightened focus on personnel processes such as performance appraisals and work assignments during a review of compensation equity.  The OFCCP will use a case-by-case approach to enforcement, likely utilizing strategies differently in multiple audits.  Contractors are encouraged to participate in the public comment period to voice their concerns with the proposed regulatory language.

By  Jana Garman, M.A., Consultant and Joanna Colosimo, Senior Consultant, DCI Consulting Group 

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