The New OFCCP Tipping Point Test

by Jana Moberg, DCI Consulting Group

As most of you are aware, Item 11 of OFCCP’s scheduling letter requests that compensation data be submitted with the desk audit submission. Item 11 reads: “Please provide annualized compensation data (wages, salaries, commissions, and bonuses) by either salary range, rate, grade, or level showing total number of employees by race and gender and total compensation by race and gender.” As quoted here, contractors are requested to submit the total number of employees and total compensation by race and gender at the aggregation level of their choice. For instance, a contractor may elect to submit its data grouped by job title or Similarly Situated Employee Group (SSEG). In the desk audit phase, if an “indicator” of potential discrimination is identified, OFCCP will request additional data and the audit will move into a second phase known as the 12-factor mini-regression. The question is: what is an indicator?

Prior to 2010, OFCCP appeared to be using a procedure termed the three-prong test (or tipping test) when analyzing the initial data submitted by contractors. Through this method, a contractor would “fail” the test if each of the following were found:

    • Titles with a 5% or larger difference in pay between males and females*
    • The total number of females across the male-favored titles is at least 30
    • The number of females in the male-favored titles represent at least 10% of the total of females in the AAP
    • The percentage of females in male-favored titles is at least 3 times the percentage of males in female-favored titles

In 2010, contractors began noticing that OFCCP appeared to have no consistency in the manner in which it analyzed Item 11 data. In fact, at NILG, OFCCP publicly denied ever using the three-prong test and refused to respond to contractors’ requests to identify the screening procedure it was using.

It is our understanding that a new internal (to OFCCP) directive was released in the summer of 2010 giving compliance officers guidance on the procedure for screening Item 11 data. We are now coining the new screening mechanism “double deuce.” Using this new procedure, a contractor would receive the “12-factor” (sometimes we are seeing a 14-factor) request if it has pay differences of either $2,000 or 2% between the average compensation of compared groups in at least ONE job grouping. As a result of this new screening procedure, clients are reporting an increase in the frequency with which they are receiving 12-factor letters. Furthermore, clients are reporting that when they submit Item 11 by title or SSEG, OFCCP is quickly responding that it wants the data by job group – a grouping that is never used by contractors to actually make compensation decisions nor is it a specified grouping mechanism in the Item 11 request.

The change in screening has important implications for contractors. The Item 11 screen is designed to identify contractors that might be engaging in systemic compensation discrimination. With this new method, it appears that OFCCP may be moving away from systemic-level analysis. In the new procedure, it is possible to be flagged for a 2% difference in ONE male-favored job group even if there is also one female-favored job group.

The new procedure appears to be fairly liberal in the sense that a pay difference of $2,000 or 2% is not uncommon – especially when conducted by job group – and is often found in cases when the compared groups would not have a statistically significant difference in average compensation. In other words, it seems that this new procedure may identify most, if not all, contractors as having potential discrimination. Should this be the case, the procedure could not be considered a “screening” tool, as a screening tool would provide a division of those contractors with evidence of discrimination from those without evidence. Using such a liberal difference in pay may lead OFCCP to conduct an in-depth analysis of ALL contractors, rather than flagging those contractors with greater likelihood of yielding an investigation resulting in some corrective action.

Due to the implications of using the new screening procedure, we set out to compare the failure rates of the new method with the previously used three-prong test. To do so, data from over 225 AAPs were analyzed using both the old three-prong screening method and the new $2,000/2% method at the levels of job title, SSEG, and job group. Using the old three-prong method, 8.4% of contractors by job title, 18.1% by SSEG, and 39.7% by job group would fail. Using the new $2,000/2% method, 100% of contractors by job title, 100% by SSEG, and 99.6% by job group failed.

Given the nearly 100% failure rate with the new method, all contractors should expect to receive the 12-factor letter and be prepared to submit their data to OFCCP for further analyses. The question that arises for the contractor community is this: With a 99% failure rate, is the OFCCP’s new screening method an actual “screening” method or is it an attempt by OFCCP to expand the scheduling letter without permission from the Office of Management Budget? We would like to hear your thoughts.

*Job title used as aggregation level for data; gender (with females as minority group) used as comparison groups.

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