understanding ofccp directive 307: procedures for reviewing contractor compensation ... ·...

Understanding OFCCP Directive 307: Procedures for Reviewing Contractor Compensation Systems and Practices Part 1 of 2

March 6, 2013 10:00 – 11:00am

Patrick Nooren

Dan Kuang

Biddle Consulting Group, Inc.

Biddle Consulting Group Institute for

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Biddle Consulting Group, Inc.

193 Blue Ravine, Suite 270

Folsom, CA 95630

916.294.4250

www.biddle.com | www.bcginstitute.org

Patrick Nooren Ph.D. ([email protected])

Daniel Kuang Ph.D. ([email protected])

Contact Information

Copyright (c) 2013 Biddle Consulting Group, Inc 3

mailto:[email protected]

mailto:[email protected]

Compensation Enforcement: A Historical

Perspective and Why the OFCCP has to Get it Right

this Time.

“Unwrapping” the New Directive

Summary/Conclusions

Agenda


Compensation Enforcement: A

Historical Perspective and Why the

OFCCP has to Get it Right this

Time.


The Rise of the Compensation Standards

and Guidelines July 2003: Active

Case Management

1990 2010 2000 • Dramatic reduction of Agency resources under Charles James

(788 FTEs – 585 FTEs)

• Designed to focus Agency resources on issues of systemic

discrimination

• Statistics drove investigations

• Resulted in 6+ consecutive years of record enforcement


June 2006: Comp Standards and

Guidelines - SSEGs, Regression,

Anecdotal Evidence Codified

1990 2010 2000 • OFCCP realized that “litigation-worthy” analyses were necessary to

successfully investigate compensation.

• Comp Standards (i.e., what the Agency will do) and Guidelines (i.e., what

contractors should do) were released in 2006

• Included guidance regarding regression, SSEGs, and the need for anecdotal

evidence to support statistical findings (most of the time)

The Rise of the Compensation Standards

and Guidelines


2006-2011: Comp Standards

Enforcement Era

1990 2010 2000 • The bar set high for compensation enforcement (is that such a bad thing?)

• Comp investigations are inherently quirky, can be very time consuming, and

typically involve several stages: 1) SSEG argument, 2) Regression argument,

3) Anecdotal evidence

• On the contrary, systemic hiring investigations are relatively straightforward

by comparison (and the OFCCP has a successful history of enforcement)

• No systemic compensation-based conciliation agreements in 4+ years (until 2011 – Astra Zeneca)

The Fall of the Compensation Standards

and Guidelines

Splat!


1990 2010 2000

2009/2010: Change of

Administration and Significant

Increase in OFCCP Budget

• President Obama inaugurated January 20, 2009

• January 29, 2009 – Ledbetter signed into law (Paycheck Fairness Act fails)

• January 2010: Establishment of the Equal Pay Enforcement Task Force

• Patricia Shiu becomes director of OFCCP – Former EEO litigation attorney

(OFCCP is an “enforcement agency”)

• OFCCP receives $20M+ budget increase and approval for 200+ more FTEs

• Tremendous amount of pressure to perform!


and Guidelines


1990 2010 2000

Jan 2011: Notice to

Rescind Comp Standards

and Guidelines

• “Standards have limited OFCCP’s ability to effectively investigate, analyze,

and identify compensation discrimination”

• OFCCP wants to dramatically lower the bar by eliminating the requirement for SSEGs, regression, and anecdotal evidence . . . (which, by the way, are

firmly codified in legal precedent)

• So . . . why lower the bar if the new strategy isn’t quite as legally defensible?


and Guidelines

Because some organizations will conciliate.

10 Copyright © Biddle Consulting Group, Inc.

1990 2010 2000

Feb 2011: Release of

OFCCP 2012 Budget

Justification

• “OFCCP is making the issue of pay equity a top priority”

• “OFCCP plans to develop and implement a web-based compensation data

collection tool that would enable the agency to identify indicators of pay

disparity among federal contractors”

• “The scope of the data is yet to be fully determined. Current possibilities

include salary, gender, race and ethnicity data for each employee OR

average compensation and variances for each group by gender, race and

ethnicity”

It’s a Big Deal for the OFCCP . . . And They

Have to Get it Right This Time!


1990 2010 2000

August 5, 2011: OFCCP submits

NPRM for compensation data

collection tool



• OFCCP proposes changes to the audit scheduling letter to allow for

collection of individual employee-level compensation data (still not yet

codified as of today)


1990 2010 2000

February 2012: Release of

OFCCP 2013 Budget

Justification



• OFCCP Outlines the Federal Contract Compliance System (FCCS), a cloud-

based tool that will include:

– Basic case and content management functionality

– Dashboard reporting

– Automated data analysis

– Electronic submission of AAP data and other HR reports

– Integration of a compensation data collection tool


1990 2010 2000

February 2013: OFCCP Formally

Rescinds Comp Standards and

Guidelines and Releases Directive 307



• Standards and Guidelines are no longer in effect

• Directive 307 formally replaces all previous directives on the subject of comp

enforcement and broadens (dramatically) the ability of the OFCCP to

investigate compensation

• OFCCP now bringing a wide variety of enforcement and analytical strategies

to bear

• There has NEVER been more pressure to perform!!


• Pat Shiu public announcement (February 16):

– “ . . . the ‘Voluntary Guidelines’ and ‘Compensation Standards’ . . . have

limited OFCCP’s ability to conduct full investigations into employer pay

practices and to use every tool that should be at our disposal . . . Moreover,

we are aligning our enforcement with the principles used to enforce the main

federal law against employment discrimination – Title VII of the Civil Rights

Act of 1964 . . . “

• Interesting to note: Standards and Guidelines discuss(ed), at length, how they

were firmly rooted in court precedence and Title VII. They clearly outlined (and

cited) how certain strategies (previously used by OFCCP) were non-defensible

and how analyses needed to consider only “similarly situated employees.” The

new Directive, while being extremely different than the Standards and Guidelines,

outlines how it, not the Standards and Guidelines, follows court precedence and

the law.



• Effective for all audits scheduled on or after February 28, 2013

• Also applicable to current/open reviews to the degree they don’t

conflict with current guidance or procedures (specific to the audit?)

• 2006 Compensation Standards and Voluntary Guidelines govern

determinations regarding the issuance of an NOV for systemic

compensation discrimination in any OFCCP review scheduled,

opened, or otherwise pending on February 28, 2013



Summary of OFCCP Compensation Investigation Procedures

• Compliance Officer (CO) will:

1. Conduct preliminary analysis of summary data

2. Conduct an analysis of individual employee-level data

3. Determine the approach from a range of investigations and analytical tools

4. Consider all employment practices that may lead to compensation

disparities

5. Develop pay analysis groups

6. Investigate systemic, small group, and individual discrimination

7. Review and test factors before accepting factors for analysis

8. Conduct onsite investigation , offsite analysis, and refinement of the model



1. Conduct a Preliminary Analysis of Summary Data

– Used to determine if, and where, further investigation is necessary (and

individual employee-level data is necessary)

– “Summary compensation data submitted in a format other than by AAP job

group, or the contractor’s existing pay grade or band system, generally is not

acceptable for analysis” - data by job title (only) will, likely, not be accepted

– Includes quantitative and qualitative review:

o Size of the overall average pay difference / largest average pay difference within AAP job

groups, or the contractor’s existing salary bands and/or grades

o The number of job groups or grades where average pay differences exceed a certain

threshold

o The number of employees affected by average pay differences within job groups or grades

o Compliance history, OFCCP/EEOC complaints, anecdotal evidence, potential violations on

other practices, or data integrity issues, amongst others.



1. Conduct a Preliminary Analysis of Summary Data (cont.)

– Determinations will also include factors such as agency resources and

priorities

– Preliminary analyses will not be used to limit further requests or to define

specific issues the OFCCP may pursue at later stages of the review (no more

trying to force the OFCCP to “focus” on just one area)



2. Conduct an Analysis of Individual Employee-Level Data

– Used to conduct an in-depth evaluation of the compensation data

– Show-Cause notice will be issued if data is not received in a “timely” manner

– Must be submitted in electronic format (if maintained electronically)

– If at any point, the CO determines that there is sufficient evidence of

potential compensation discrimination, OFCCP may proceed to an onsite

investigation



3. Determine the (Best) Approach from a Range of Investigative and

Analytical Tools

– Specific analytical strategy to be based on underlying facts, available data, particular

comp system and practice(s)

– No single tool to be used in every case

– Analytical strategy will be determined in consultation with supervisors, OFCCP

statistical experts, Solicitors of Labor, and national office personnel

– Strategy may be refined, or a new strategy may be used, at any point in the

investigation

– Three (3) guiding questions will dictate the approach and resolution:

o Is there a measurable difference in compensation on the basis of sex, race, or ethnicity?

o Is the difference in compensation between employees who are comparable under the

contractors wage or salary system?

o Is there a legitimate (i.e., non-discriminatory) explanation to the difference?



3. Determine the (Best) Approach from a Range of Investigative

and Analytical Tools (cont.)

– Upon finding a difference, the CO will conduct a factual investigation to

address each question

– Investigation may include a review of workforce data, compensation

policies/practices, interviews, examination of payroll systems and HRIS

data, non-statistical analyses such as cohort comparisons, and statistical

analyses such as regression



4. Consider All Employment Practices that May Lead to

Compensation Disparities

– Including, but not limited to:

o Starting salary, base pay, non-base pay, and other practices

o Access to opportunities affecting compensation (such as higher paying positions,

work assignment, training, preferred shift work, access to overtime, pay increases,

incentives, higher commissions or desirable sales territories, etc.)

o Policies and practices that result in a “Glass Ceiling”

o “Funneling” into high/low paying positions

– Interesting note: many of these are no longer technically a “compensation”

analysis . . . they are tailored to evaluate the distribution of opportunities . . .

this is a very different analytical structure



5. Develop Pay Analysis Groups

– Used to test for statistically significant differences in large groups of

employees

– Pay Analysis Groups (PAGs) will be created to “ . . . more easily identify

potential systemic discrimination . . . ”

– PAGs are groups of employees potentially from multiple job titles, units,

categories, and/or job groups, that are comparable

– Regression is the likely tool for analyzing PAGs

– OFCCP will use statistical controls, as necessary, for different titles/levels –

CO are to include regional/national support and SOL to develop models



5. Develop Pay Analysis Groups (cont.)

– COs are to consider a broad variety of information when creating PAGs,

such as: industry, types of jobs, compensation practices, role (manager,

supervisor, individual contributor), level of employee, function, pay structure

(e.g., largely commission, salary, etc.), performance review practices, other

common practices amongst PAG members

– COs also to create PAGs to evaluate:

o Assignment (e.g., sales/territory routes)

o Classification (women/minorities into entry-level v. men/whites starting higher)

o Placement (aka “funneling” – minorities get the “back of the house” jobs)

o These types of analyses do NOT evaluate compensation . . . they evaluate the

allocation and/or distribution of equal opportunities



5. Develop Pay Analysis Groups (cont.)

– COs develops and applies the model at the desk audit phase, using

preliminary data and information

– CO may also require an onsite to develop preliminary PAG analysis model

– Analyses will be continuously refined throughout the process of the

investigation



This is where the blood will be shed!!

I cannot wait to see the highlight reels for when the first

couple arguments reach the Administrative Law Judge!!

6. Investigate Systemic, Small Group, and Individual Discrimination

– Systemic

o Use regression to analyze PAGs

o Use “adverse impact-type” analyses to evaluate distribution of

opportunities

– Small Groups

o May be by title or specific unit/location

– Individual Discrimination

o CO starts by identifying similarly situated employees

o CO conducts a comparative/cohort analysis



6. Investigate Systemic, Small Group, and Individual Discrimination

(cont.)

– Similarly Situated

o ”The determination of who is similarly situated is case-specific. Who is similarly

situated for the purposes of an individual analysis or review of a single specific

employment decision may be determined based on different criteria than when

conducting a systemic discrimination analysis”

o “For the purposes of evaluating compensation differences, employees are

similarly situated where it is reasonable to expect they should be receiving

equivalent compensation absent discrimination.”

o “Relevant factors in determining similarity may include tasks performed, skills,

effort, and responsibility, working conditions, job difficulty, minimum

qualifications, and other objective factors.”

o “In some cases, employees are similarly situated where that are comparable on

some of these factors, even if they are not on others.”

o CO will request applications, personnel files, performance ratings, compensation

histories, etc.



7. Review and Test Factors Before Accepting Factors for Analysis

– COs will evaluate information from the contractor regarding factors

considered when making compensation decisions

– OFCCP will consider all factors, offered by contractors; however, the CO

will evaluate the factors using a four (4) step process:

1. Is the data complete and accurate? Has the data been collected/retained? (Think:

starting salary and all factors related to it. Education: has the data been updated?)

2. Is the factor relevant to compensation in terms of the contractor’s policy and

how it was applied? (Statistically relevant or practically relevant?)

3. Was the factor consistently applied? (Do you have documentation to prove it?)

4. Does inclusion of the factor lead to an adverse impact issue? Is it tainted by

discrimination? (Does your organization have all of the necessary validity

documentation? Example - If performance scores are to be included, does your

organization have evidence of validation? Is the process “job-related and

consistent with business necessity?” Training for reviewers? Use of multi-rater

panels? Higher-level review of ratings? An analysis of ratings for impact? Etc. )



8. Conducting Onsite Investigations, Offsite Analysis, and

Refinement of the Model

– After consideration of all relevant information, CO will coordinate with statistical

analysts, Regional Solicitor of Labor (RSOL), and supervisors to determine course of

action

– The contractor will be given an opportunity to timely provide any additional relevant

facts for consideration

– If the information is insufficient, and an onsite has not yet been scheduled, the CO

can coordinate an onsite to collect any/all additional information

– Additional data will be requested . . . including interviews

– If, during interviews, the CO discovers that a factor was not consistently applied, and

it results in adverse impact, the OFCCP can/will refine the model to eliminate the

factor (even if it is related . . . but it simply wasn’t uniformly applied and documented)

– Resolution of the investigation will be made based upon all available

information/analyses



Confidentiality of Information

• Freedom of Information Act (FOIA) applies to all information collected

during the investigation

• Citizens can make a FOIA request to receive the information

• OFCCP must inform organizations affected by a FOIA request of the

request itself and allow them to respond prior to any release of the

information/data

• OFCCP will not release any data during the course of an active

investigation

Note: Contractors can dummy code sensitive information. However, cross-

walks must be provided to allow interpretation.



So . . . Does this sound like a rock-solid assurance of confidentiality?

Summary/Conclusion

• “The cost of being a federal contractor has gone up. Budget/bid accordingly.” Pat Shiu

• OFCCP compensation Standards and Guidelines are no longer in effect

• Directive 307 dramatically increases the stakes . . . as well as the

compliance requirements for contractors

• The amount of time/effort/costs for contractors to defend against claims

of compensation-based disparities will increase dramatically (to put it

lightly)

• Contractors will need to be proactive to best protect their organizations

• Diligent/proactive contractors absolutely can take steps to dramatically

reduce legal exposure . . . but it won’t be easy or quick

We hope to see you all at the follow-up to this presentation, which will dive

more in-depth into the directive, how it will likely be applied, what it means

to contractors, and what you can do to buffer against the “coming storm”



• Part 2: An In-Depth Discussion of the New OFCCP Compensation

Directive, its Effect on Contractors, and Recommendations for

Limiting the Liability (and the Pain)

– March 22, 10am pst

– Two (2) hours

– $99

– http://www.bcginstitute.org/event/comp-directive-webinar

– Free to BCGi Platinum members

– If you are not a Platinum member, click on the “Checkmark”

Upcoming BCGi Platinum

Presentation


http://www.bcginstitute.org/event/comp-directive-webinar








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