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Oh the Places We Might Go

Thomas J. Carnahan, PhD

OFCCP compensation directive adds insight, but still leaves a gap

On Friday, August 24, 2018, the OFCCP released its anticipated directive that we were all promised would help organizations fully understand the processes and procedures the OFCCP uses to enforce compensation compliance, previously identified as Directive 307. Unfortunately, Directive 2018-05 does very little to assist organizations’ understanding of the processes and procedures of the OFCCP’s compensation enforcement.

When speaking to attendees of the 2018 NILG conference in Anaheim, OFCCP’s Acting Director Craig Leen said that the goal of this new directive would be to remove the “mysticism” of the OFCCP and tell organizations exactly what the OFCCP will be looking at during an audit. The intent is to drive contractors to fix any disparate treatment or impact on their own. What was missed by AD Leen during this speech is that the nature of statistics does not allow this to occur. One size fits all doesn’t apply to multiple linear regression. It’s different for every organization based on what HR policies and procedures they have in place and the quality of the data they house from these HR efforts towards diversity, inclusion and objective decision-making around compensation. In fact, the regression formula may also be different for each group within an organization as well.

To their credit, in areas where the OFCCP could be objective and clear, such as how it codes variables and what statistical procedures compliance officers will use for a desk audit vs. full investigation, they hit a home run. But, on the other hand, these were things that we already knew. Nothing changed based upon that transparency. T-Tests, Mann-Whitney, and Multiple-Linear Regression have been the standard and will be the standard for doing compensation investigations whether it be for compliance or pay equity for the foreseeable future. No surprise there.

Where we, as contractors and consultants, were really hoping to get more information and guidance was the procedures used by the OFCCP to create Pay Analysis Groups or PAGs. PAGs are created by the OFCCP to bunch employees together to increase sample sizes so that regression becomes a useable statistical tool (>30 employees.) The first sentence of the section that should clarify this information for us (page 6 entitled Similarly-Situated Analysis Groupings), begins defining similarly-situated employees as “those who would be expected to be paid the same based on: (a) job similarity (e.g., tasks performed, skills required, effort, responsibility, working conditions and complexity); and (b) other objective factors such as minimum qualifications or certifications.” which was a great start.

This great beginning should have led into a discussion on how to create equity-based pay grades that would become the OFCCP’s definition of a PAG. Alas, we are left once again with an extremely subjective description for how PAGs are created. Basically, it’s up to you if you can defend it and it’s not a proxy for any form of discrimination (a.k.a., good luck). Taking a few literary liberties here, this is what I got from page 6-7. “If you use EEO-1 or AAP job group categories, we’ll try that too. If you use other forms of groupings, just tell us what they are, we’ll investigate them, and if they aren’t inherently discriminatory, we’ll use them too. Oh…except when we don’t…because sometimes we won’t. When will we use your groups and when won’t we? That’s based on our review and opinion.” Transparent as drywall.

So where are we? Well, pretty much in the same place as we were before. We KNOW what the states who expect full pay equity want. We have clarity on what the EEOC is striving for when it comes to harassment and pay equity, but the OFCCP continues to drive a spike into best practices for compensation departments by basically saying…”do what you want, but if for any reason we don’t like it, we’ll do it our way and we won’t really tell you what our way is – even though we think we have.”

Where do we go now? As always, the OFCCP definition of pay equity was based on significance and still is. The best way to make sure you don’t end up with a long, challenging audit and a migraine from the OFCCP is to institute a full policy of proactive pay equity. You’ll exceed the requirements of the OFCCP’s “significantly different” threshold and help protect yourself from the EEOC and State DOL’s. Plus…it’s just the right thing to do. Pay Equity is not a quick fix and likely not a painless one, but it a lot less costly than a PR nightmare and a government enforced financial settlement.

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