On August 24, 2018, OFCCP issued DIR 2018-05, Analysis of Contractor Compensation Practices During a Compliance Evaluation, which outlines OFCCP’s standard procedures for reviewing contractor compensation practices during a compliance evaluation. The directive, which replaces OFCCP DIR 2013-03 (known as Directive 307), clarifies OFCCP’s approach to compensation evaluations including the use of statistical and other evidence, pay analysis groupings and statistical modeling practices. The directive reinforces OFCCP’s commitment to greater transparency, consistency and efficiency in compliance evaluations.
Issuance and Applicability of DIR 2018-05
- Why did OFCCP issue DIR 2018-05?
- When did the Analysis of Contractor Compensation Practices During a Compliance Evaluation go into effect?
- What happens to compliance evaluations that are currently in progress?
- How does DIR 2018‐05 relate to the Supply and Service Scheduling Letter that requests certain data from contractors at the beginning of a compliance evaluation?
- Are contractors required to conduct a self‐audit of their compensation system?
- How does OFCCP address confidentiality concerns?
Pay Analysis Groupings (PAGs)
- What is a "pay analysis group" and how does OFCCP use it in the compensation analysis?
- How does OFCCP determine similarly situated employees for comparison purposes?
- How will OFCCP analyze the compensation data for possible small group and individual pay discrimination?
OFCCP Desk Audit and Analysis
- What analytical methods will OFCCP use to review contractor compensation systems and practices?
- What "snapshot" date should contractors use when submitting compensation data at the desk audit?
- Does OFCCP require contractors to submit the compensation data in a particular form or format?
- How will OFCCP conduct a preliminary analysis of compensation data to determine whether to proceed past the desk audit?
- How many employees must a pay analysis group have to be “sufficient size” to conduct a meaningful statistical analysis?
- Does OFCCP control for job title within a pay analysis grouping?
Compensation Evaluation Procedures, Including Onsite Review and Off-Site Analysis
- In what circumstances will an onsite visit to the contractor’s facility occur?
- What constitutes a (difference) in compensation that could result in a violation?
- What is anecdotal evidence?
- Is anecdotal evidence necessary to support a violation?
- How will "factors" that the contractor asserts are relevant to compensation be considered and analyzed by OFCCP?
- Will the model used by OFCCP to analyze compensation data be refined if the contractor provides factors that may explain disparities in pay?
- What sorts of remedies will OFCCP seek when attempting to resolve cases with compensation discrimination findings?
Why did OFCCP issue DIR 2018-05?
OFCCP rescinded DIR 2013-03 (referred to as Directive 307) and issued DIR 2018-05 to:
- Provide transparency to contractors about OFCCP’s approach to conducting compensation evaluations;
- Support compliance and compensation self‐analyses by contractors under applicable law, and OFCCP regulations and practices; and
- Generally improve compensation analysis consistency and efficiency during compliance evaluations.
DIR 2018-05 increases transparency about the agency’s practices and approaches to determining similarly situated employees, creating pay analysis groups, conducting statistical analysis and modeling, and other analytical matters relevant to conducting sound compensation compliance evaluations and contractors’ self‐audits. Ultimately, OFCCP believes that this new directive will provide clear guidance to contractors, which will result in more effective self-auditing, and benefit American workers by facilitating the elimination of pay discrimination.
When did the Analysis of Contractor Compensation Practices During a Compliance Evaluation go into effect?
Directive 2018‐05, Analysis of Contractor Compensation Practices During a Compliance Evaluation is effective as of August 24, 2018. The review procedures established in the Directive apply to all OFCCP compliance evaluations scheduled on or after August 24, 2018.
What happens to compliance evaluations that are currently in progress?
The procedures established in this directive apply to all OFCCP reviews scheduled on or after August 24, 2018.
How does DIR 2018‐05 relate to the Supply and Service Scheduling Letter that requests certain data from contractors at the beginning of a compliance evaluation?
At the beginning of a review, OFCCP sends a Scheduling Letter requesting the contractor to provide compensation, as well as other data, to OFCCP to review during the desk audit phase of a review. The Scheduling Letter’s enclosed Itemized Listing requires employee-level compensation data rather than aggregate data. DIR 2018-05 not only reflects this data production request but also clarifies OFCCP’s statistical methodology for analyzing the data. DIR 2018-05 does not alter any existing recordkeeping or reporting requirements that already apply to contractors.
Are contractors required to conduct a self‐audit of their compensation system?
Yes. Section 41 CFR 60-2.17(b) requires contractors to perform in-depth analyses of their total employment processes that include an analysis of their compensation system(s) to determine whether there are gender, race, or ethnicity‐based disparities. OFCCP does not dictate a particular method of analysis for meeting this regulatory requirement; however, contractors may find the principles discussed in DIR 2018-05 useful in developing self-audits. Regardless, the existing regulations already require that, at a minimum, all self‐audits specifically assess whether race or gender‐based compensation disparities exist, that self‐audits occur periodically, and that results are reported internally to management.
How does OFCCP address confidentiality concerns?
The regulation at 41 CFR 60-1.20(f) allows a contractor that is concerned with the confidentiality of information such as lists of employee names, reasons for termination, or pay data, to use alphabetic or numeric coding or use of an index. The coding or indexing for pay and pay ranges must be consistent with the ranges assigned to each job group to be acceptable for purposes of the compliance evaluation. The contractor must provide full access to all relevant data on-site as required by 41 CFR 60-1.43.
What is a "pay analysis group" and how does OFCCP use it in the compensation analysis?
OFCCP defines a pay analysis group as a group of employees (potentially from multiple job titles, units, categories and/or job groups) who are comparable for purposes of analyzing a contractor’s pay practices. A pay analysis group may be limited to a single job or title, and regression analysis may be performed separately on distinct units or categories of workers. Alternatively, a pay analysis group may aggregate employees from multiple job titles, units, categories and/or job groups in order to perform a regression analysis, with statistical controls added as necessary to ensure workers are similarly situated. (Statistical testing for practices that impact pay such as job assignment may require a different analytic grouping than testing for pay differences within a single job.)
How does OFCCP determine similarly situated employees for comparison purposes?
OFCCP defines 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.
OFCCP achieves comparisons of similarly situated employees in its analysis by: (1) developing pay analysis groupings (PAGs) of comparable employees; and then (2) statistically controlling for further structural differences among members of the PAG (e.g., division, business unit, product line, location) and individual employee characteristics related to the contractor’s pay determinations (e.g., company tenure, prior experience, education, grade level). This approach helps OFCCP balance its objective of reviewing contractor compensation practices for potential broad systemic disparities while keeping truly dissimilar jobs with entirely separate pay models separate.
How will OFCCP analyze the compensation data for possible small group and individual pay discrimination?
After analyzing the compensation data for possible systemic discrimination, OFCCP may conduct comparative analyses of small groups of individuals that are similarly‐situated, to determine if there are pay differences due to discrimination.
What analytical methods will OFCCP use to review contractor compensation systems and practices?
OFCCP focuses on identifying and resolving compensation disparities through its compliance evaluations where there is evidence that the disparities were the result of systemic discrimination, whether pattern or practice discrimination, disparate impact discrimination, or both. In most cases, OFCCP relies on multiple linear regression as the statistical method to determine whether there are statistically significant gender, race, or ethnicity disparities after controlling for legitimate pay related factors. In rare circumstances, OFCCP may rely on non‐statistical analysis, or cohort, analysis when the pay analysis groups are very small.
What "snapshot" date should contractors use when submitting compensation data at the desk audit?
The pay as of the "snapshot" date for compensation data that contractors submit in response to OFCCP’s current Scheduling Letter should be the same date used for the organizational profile and workforce analysis provided in the AAP.
Does OFCCP require contractors to submit the compensation data in a particular form or format?
If contractors maintain compensation data in a readable and useable electronic format (Microsoft Excel or similar), it must be provided to OFCCP in that format upon request. OFCCP encourages contractors to provide all data electronically via electronic file transfer, secure email or other protected storage device in MS Excel. This will expedite the review and analyses that OFCCP conducts. If the contractor maintains data in a spreadsheet or database, the contractor must submit the data to OFCCP in that format upon request. If OFCCP requests data in a searchable format maintained by the contractor, the data should not be submitted as a Word document, PDF, hard copy or other format that requires data entry, conversion or manipulation to be used as a spreadsheet or database.
How will OFCCP conduct a preliminary analysis of compensation data to determine whether to proceed past the desk audit?
Upon receipt of a contractor’s Affirmative Action Program (AAP) and support data OFCCP will initiate a desk audit. The first step in the desk audit is to review the AAP and data to confirm that it satisfies the requirements of the Itemized Listing enclosed with the Scheduling Letter. Once OFCCP confirms the data are complete and acceptable, OFCCP will then determine appropriate pay analysis groupings (PAGs). OFCCP’s objective is to use PAGs that mirror a contractor’s compensation system. If a contractor provides its compensation hierarchy and job structure in the submission to the Itemized Listing, OFCCP will attempt to design its analysis based on that structure. This assumes that the structure provided is reasonable, that OFCCP can verify the structure as reflected in the contractor compensation policies, if necessary, and that the PAGs are of sufficient size to conduct a meaningful systemic statistical analysis. In determining reasonableness, OFCCP may review whether employees within each job group are under a similar compensation system and have a similar job function.
If the contractor did not provide PAGs in the submission to the Itemized Listing, OFCCP will begin by using either the contractor’s AAP job groups or EEO-1 Report groups. OFCCP generally prefers using the AAP job groups provided they are reasonable and sufficient in size. After determining the initial PAGs, OFCCP will analyze whether there are statistically significant gender and/or race pay disparities within each group using methods common in the statistics profession such as regression analysis. To the extent sex, race, and/or ethnicity segregation exists across the pay analysis groupings or in particular titles, OFCCP would review the data for possible promotion or job steering issues that can result from stereotyping on these bases.
How many employees must a pay analysis group have to be “sufficient size” to conduct a meaningful statistical analysis?
There is no bright‐line rule, and professionals may disagree, about what constitutes sufficient size for a meaningful systemic statistical analysis of an employer’s compensation system. OFCCP’s approach, however, is to first review each of the pay analysis groups to evaluate whether they contain at least 30 employees under a similar pay system performing broadly similar job functions. OFCCP then additionally tries to ensure that there are at least 10 observations (or employees) per control variables to be able to conduct a sound statistical analysis. For example, if a model evaluating pay had five control variables (e.g. sex, year in the job, other years in the company, years of prior experience, and required certification) that pay analysis grouping would ideally have at least 50 employees.
Does OFCCP control for job title within a pay analysis grouping?
OFCCP will attempt to control for, or take in account, job title if pay legitimately varies by job title. In many instances controlling for factors like grade level, department, or business unit sufficiently distinguishes functional differences in job titles, so that additional controls for job title itself are not necessary. However, when OFCCP does control for job title, it does so by creating a series of component dichotomous (0-1) variables to be compared to a reference category. To capture meaningful pay differentials across the categories, OFCCP requires that each category contain at least five observations. If a category has fewer than five observations, OFCCP will join those observations with their ordinal counterpart (e.g. nearest grade or level) or to the category with the nearest average pay. With this approach, OFCCP meaningfully controls for pay differentials across job titles while minimizing the risk of saturating the model with low frequency employee controls.
In what circumstances will an onsite visit to the contractor’s facility occur?
OFCCP may schedule an onsite visit for any compliance evaluation in order to ensure OFCCP obtains all relevant information regarding a contractor’s compensation system and practices to conduct a thorough investigation. The field office will decide whether the results of the desk audit analysis of compensation data warrant an onsite visit. Additionally, if at the desk audit stage OFCCP finds that more information is needed to conduct or refine the analysis, OFCCP may request additional information prior to or proceed to an onsite investigation.
What constitutes a (difference) in compensation that could result in a violation?
OFCCP may examine any differences in pay, other earnings or benefits, job assignment/placement, training/advancement opportunities, differences in opportunities to increase compensation, or other unexplained differences. In situations where there are sufficient data to use regression analysis, a measurable difference generally means a statistically significant difference of two standard deviations or more, consistent with Title VII. When analyzing whether there are discriminatory compensation disparities among small groups or individuals, OFCCP will determine whether there are measurable differences plus sufficient evidence that the difference is due to discrimination, according to Title VII law. Though OFCCP will generally rely on statistical evidence to establish a difference, it is not required in all compensation cases; other evidence may be used to evaluate potential discrimination in pay.
What is anecdotal evidence?
Anecdotal evidence refers to non-statistical evidence. Examples of anecdotal evidence can be varied and may include: testimony concerning biased statements, remarks, attitudes, or acts based upon membership in a protected class; examples of differential treatment through review of comparators or cohorts; testimony about individuals who were denied or given misleading or contradictory information about employment or compensation practices; testimony about the extent of discretion or the degree of subjectivity involved in making compensation decisions; or other non-statistical or supporting evidence.
Is anecdotal evidence necessary to support a violation?
OFCCP uses statistics to evaluate contractor pay practices under Executive Order 11246, and this approach is appropriate and consistent with Title VII principles. The U.S. Supreme Court has upheld the use of statistical analyses to constitute prima facie proof of a pattern or practice of discrimination. In determining which cases to pursue, OFCCP will be less likely to pursue a matter where the statistical data are not corroborated by non-statistical evidence of discrimination unless the statistical evidence is exceptionally strong.
How will "factors" that the contractor asserts are relevant to compensation be considered and analyzed by OFCCP?
A factor is an element that the contractor offers to explain differences in employee compensation. A factor may include: a particular skill or attribute; education; work experience; the position, level or function; tenure in a position; performance ratings; or other factors. When OFCCP conducts an analysis using pay analysis groups (see above), OFCCP will test the factors to confirm they are predictive of pay and neutral with respect to race, sex, and/or ethnicity. OFCCP would omit any factors that it determines from the evaluation are tainted by the contractor’s discriminatory procedures – or lack thereof.
Will the model used by OFCCP to analyze compensation data be refined if the contractor provides factors that may explain disparities in pay?
Generally OFCCP’s statistical analysts and other field and national office staff, will consult with representatives from the DOL’s regional Office of the Solicitor to decide on a preliminary analytical model. This decision is based on the information that is available about the contractor’s compensation system and practices. The contractor will be given an opportunity to provide additional information to be considered. Based on the new information provided or obtained during the onsite visit, the model may be refined.
What sorts of remedies will OFCCP seek when attempting to resolve cases with compensation discrimination findings?
OFCCP may pursue various forms of relief through conciliation to address the violation(s) and prevent the violation(s) from recurring. Depending on the facts of a case, remedies may include backpay and benefits, salary adjustments, and nonmonetary relief including modifying policies and practices, or providing training opportunities, work assignments, promotions or job placements. Where OFCCP finds strong evidence of discrimination that the contractor will not remedy in conciliation, OFCCP will pursue legal action. Remedies that OFCCP may seek include those listed above, as well as cancellation of current federal contracts and debarment from entering into future contracts if the contractor refuses to correct and remedy all violations of OFCCP’s laws and regulations.
The contents of this document do not have the force and effect of law and are not meant to bind the public in any way. This document is intended only to provide clarity to the public regarding existing requirements under the law or agency policies.
Last updated on August 24, 2018