Federal Contractor Compensation Reviews: How Do Your Pay Practices Measure Up?

The Office of Federal Contract Compliance Program’s (OFCCP) number one enforcement priority is identifying and addressing “systemic pay discrimination” to help narrow the “persistent pay gap between males and females,” according to its FY2016 budget request justification. To achieve its goal, the OFCCP intends to hire more investigators with expertise in conducting complex data analyses for evaluating pay practices.

“Systemic pay discrimination” is a pattern or practice that results in measureable discrimination. The term can also refer to a practice applied systemically that results in pay discrimination; for example, steering women into lower-paying, non-labor positions. There is no specific numeric definition of a systemic case, but because these cases involve more than one individual by definition, violations carry bigger penalties.

It is vital that contractors analyze compensation before receiving a notice of an audit. If a contractor receives an audit letter, it only has 30 days to provide the OFCCP with employee-level compensation data including base salary, hours worked in a typical workweek, and any other compensation or adjustments to salary. These include bonuses, incentives, commissions, merit increases, locality pay, and overtime identified for each employee.
Legal counsel should direct and control compensation analyses to protect against discovery in an OFCCP audit. If your statistical analyses reveal potential discrimination, legal counsel must direct further statistical analyses to determine where the potential discrimination is occurring. Contractors must then address these issues.

OFCCP critically evaluates compensation factors such as starting salary; the ability to negotiate starting salary or pay increases; who determines where in a wage range a person will be compensated; who makes initial compensation decisions; what level of review is conducted for compensation decisions; when compensation is reviewed and the results of these reviews; steering groups into lower-paying positions or positions with less opportunity for advancement; and promotional compensation. OFCCP closely scrutinizes performance reviews as a factor affecting compensation. How are you ensuring that performance reviews are objective and fair?

The OFCCP will want to know this if you are audited. Compensation scrutiny began in earnest in 2013 when the OFCCP began a three-year effort to completely overhaul its pay-discrimination enforcement strategy. In 2014, the OFCCP began significantly targeting systemic issues, and systemic cases now compose the vast majority of the agency’s pay-discrimination enforcement activities. Seventy-one percent of pay discrimination settlements in 2014 involved systemic violations, compared with only 13 percent in FY2013. By 2016, the OFCCP expects that “virtually all compensation violations and successful settlements will involve systemic issues.”

MSEC’s Affirmative Action Planning Services prepares compensation analyses as part of the Affirmative Action Planning service. This service is managed by legal counsel, and compensation analyses are conducted under the direction and control of legal counsel.

If you have questions about compensation analyses or MSEC’s Affirmative Action Planning Services, please call me at 800.884.1328.