OFCCP Releases Revised “Pay Equity” Directive 

By Cassie Alfheim, Evan Szarenski

On August 18, 2022, OFCCP released Directive 2022-01 Revision 1 - Advancing Pay Equity Through Compensation Analysis. The revised Directive comes on the heels of several months of discussion and debate regarding Directive 2022-01, entitled “Pay Equity Audits,” and its implications for producing attorney-client privileged materials to the agency.  

As we outlined in our blog post in March when Directive 2022-01 was originally released, a directive is sub-regulatory and does not have the ability to impose new standards or requirements on the federal contractor or subcontractor community. In this light, the revised Directive simply outlines OFCCP’s procedures for evaluating contractors’ internal compensation analyses. 

One of the most obvious revisions to the Directive is the name itself and the language used regarding compensation analyses. At this summer’s National Industry Liaison Group (NILG) conference, representatives from OFCCP backed away from the nomenclature of “Pay Equity Audits” and emphasized this term was not illustrative of any new obligations for federal contractors. Director Yang notes in an accompanying OFCCP blog post today:  

“[A]lthough the original Directive used the phrase “pay equity audit” to refer to contractors’ obligations under 41 CFR 60-2.17(b)(3), this revised Directive instead uses the term “compensation analysis” to avoid any confusion regarding the nature of a contractor’s obligations.” 

Further, Director Yang  mentions three things federal contractors and subcontractors should know about the revised Directive: 

1. “[The revised Directive] explicitly reaffirms the agency’s position that it does not require the production of attorney-client privileged communications or attorney work product. 
2. It identifies the documentation that OFCCP requires from a contractor to determine that the contractor has satisfied its obligation to perform a compensation analysis. 
3. It explains the documentation required from a contractor when its compensation analysis identifies problem areas to demonstrate that it has implemented action-oriented programs.” 

While the initial directive gave some clarification regarding honoring privilege for pay analyses done outside of 60-2.17(b)(3), the federal contractor community remained anxious about producing comprehensive privileged pay analyses during an OFCCP compliance review. Today’s revised Directive outlines several options for federal contractors and subcontractors in this situation state: 

• “First, a contractor may make available a redacted version of its compensation analysis, provided that the non-redacted portions include the required facts described below.  
• Alternatively, a contractor may conduct a separate analysis during the relevant AAP period that does not implicate privilege concerns and provide that analysis to OFCCP in full.  
• Finally, a contractor may generate a detailed affidavit that sets forth the required facts described below but does not contain privileged material.” 

If a federal contractor or subcontractor does not provide its full analysis, the data it does provide must demonstrate the following: 

1. “when the compensation analysis was completed; 
2. the number of employees the compensation analysis included and the number and categories of employees the compensation analysis excluded;  
3. which forms of compensation were analyzed and, where applicable, how the different forms of compensation were separated or combined for analysis (e.g., base pay alone, base pay combined with bonuses, etc.);  
4. that compensation was analyzed by gender, race, and ethnicity; and 
5. the method of analysis employed by the contractor (e.g., multiple regression analysis, decomposition regression analysis, meta-analytic tests of z-scores, compa-ratio regression analysis, rank-sums tests, career-stall analysis, average pay ratio, cohort analysis, etc.).” 

OFCCP also recommends (but does not require) providing the following information, as applicable, in an effort to help the agency understand how the contractor evaluates its existing compensation systems. 

1. “all employee pay groupings evaluated; 
2. an explanation of how and why employees were grouped for the analysis; 
3. which, if any, variables, factors, measures, or controls (e.g., tenure, education, structural groupings, performance ratings, prior experience) were considered and how they were incorporated in the analysis; and 
4. the model statistics for any regressions or global analyses conducted (e.g., b-coefficients, significance tests, F-tests, etc.) for race, ethnicity, and gender-based variables.” 

In addition to the above changes, the Directive also includes a new discussion about the action-oriented programs under 41 CFR 60-2.17(c). Arguably, this discussion attempts to place new obligations on federal contractors. Specifically, the directive states OFCCP will require the following documentation for every problem area identified under 2.17(b): 

1. The nature and extent of any pay disparities found; 
2. Whether the contractor investigated the reasons for pay disparities; 
3. That the contractor has instituted action-oriented programs; 
4. The nature and scope of the action-oriented programs; and 
5. How the contractor will measure the impact of the action-oriented programs. 

Note, however, that the data that OFCCP says it will require under 2.17(b) does not include the problem areas identified. Consequently, it appears that contractors can avoid the detailed reporting under 2.17(c) by not explicitly identifying any problem areas in the documentation submitted to OFCCP. 

DCI will continue monitoring OFCCP’s implementation of this directive and will provide any updates.