1P00 General Principles of Compensation Data Analysis

Compensation is defined as any payments made to, or on behalf of, an employee or offered to an applicant as remuneration for employment, including, but not limited to, salary, wages, overtime pay, shift differentials, bonuses, commissions, vacation and holiday pay, allowances, insurance and other benefits, stock options and awards, profit sharing, and retirement.70 As stated, the definition is not exhaustive and can include other forms of compensation, such as paid family leave. OFCCP can investigate and seek remedies for discrimination in any form of compensation. In every review of potential compensation discrimination, there are three key questions to be addressed:

  • Is there a measurable difference in compensation on the basis of sex, race or ethnicity?
  • Are the differently compensated groups of employees comparable under the contractor’s wage or salary system?
  • Is there a legitimate, nondiscriminatory explanation for the difference?
    • Measurable difference. When statistical analysis is used, a measurable difference generally means a statistically significant difference - two or more standard deviations - consistent with Title VII principles. When nonsystemic comparisons of small groups are conducted, there must be a measurable difference in compensation plus sufficient other evidence (often in the form of anecdotal evidence).
    • Comparable employees. OFCCP follows the Title VII standard of comparing similarly situated workers to establish a case of compensation discrimination. The definition of “similarly situated” is a case-specific legal standard. In the compensation discrimination context, “similarly situated” means that employees are similar in all the ways that are relevant in the contractor’s compensation system. Relevant factors in determining similarity may include tasks performed, skills, effort, level of responsibility, working conditions, job difficulty, minimum qualifications, and other objective factors. Employees may be similarly situated where they are comparable on the factors relevant to the investigation, even if they are not comparable on others.
    • Legitimate, nondiscriminatory explanation for the difference. OFCCP considers all relevant factors offered by the contractor on a case-by-case basis to determine whether the factors are implemented fairly and consistently applied, whether they should be incorporated into a statistical analysis, and whether, as a whole, they provide a legitimate explanation for any pay disparities.

During a compliance review, the CO must examine all employment practices that appear to lead to compensation disparities. For example, there may be differences in employee access to opportunities affecting compensation such as higher-paying positions, job classifications, work assignments, training, preferred or higher-paid shift work, and other opportunities. The CO should also examine policies and practices that unfairly limit a group’s opportunity to earn higher pay, such as “glass ceiling” issues, and access to overtime hours, pay increases, incentive compensation, and higher commission or desired sales territories. The CO may investigate any observed differences in pay, other earnings or benefits, job assignment/placement, training/advancement opportunities, differences in opportunities to increase compensation, or other unexplained differences.

70. 41 CFR 60-1.3.