OFCCP Publishes Proposed Standards for Evaluating Compensation Discrimination and Guidelines for Employer Self-Evaluations

Originally published December 29, 2004

By David John Santeusanio (Boston) and Paul Martin Thomas (Washington, D.C.)

On November 16, 2004, the United States Department of Labor's Office of Contract Compliance Programs (OFCCP) published two proposals in the Federal Register (69 Fed. Reg. 67,246) for public comment: (1) standards for evaluating systemic compensation discrimination, and (2) guidelines for employer self-evaluation of compensation practices. The OFCCP's proposals signal a fundamental shift in the agency's method for compensation analysis and underscore the OFCCP's increased focus on systemic compensation discrimination.

Contractors' Obligations to Evaluate Their Compensation Systems

The OFCCP enforces Executive Order 11246 (EO 11246), which prohibits covered federal contractors and subcontractors (contractors) from discriminating on the basis of race, color, national origin, religion, or sex. OFCCP regulations require most contractors to develop and maintain annual written affirmative action programs (AAPs). In connection with developing AAPs, contractors are required to evaluate their "[c]ompensation system(s) to determine whether there are gender-, race- or ethnicity- based disparities," (41 C.F.R. 60-2.17(b)(3)), although contractors are permitted to choose their own form of self-evaluation techniques. Additionally, in connection with responding to an Equal Opportunity Survey or an OFCCP compliance review, the contractor must provide annualized compensation data showing, among other things, total compensation by race and gender. With the new proposals, the OFCCP seeks to increase contractor compliance by providing guidance for auditing compensation practices during a compliance review, and as a result, establishing a stronger basis for pursuing investigations of compensation discrimination.

OFCCP Proposes a Definition of "Similarly Situated" Employees and Adopts the Multiple Regression Analysis

The first proposal published by the OFCCP is the Proposed Standards for Systemic Compensation Discrimination Under EO 11246 (Proposed Standards). The Proposed Standards have two significant components: (1) guidelines for determining which employees are "similarly situated" for purposes of comparing contractor pay decisions; and (2) the adoption of multiple regression analyses to identify disparities in compensation. The Proposed Standards reject the compensation analyses previously used "informally" by certain regions of the...