2E03 Compensation

Investigation of potential compensation discrimination presents complex and nuanced issues. This subsection discusses approaches COs may take to analyze a contractor’s compensation policies and practices, as well as the pay transparency provision that contractors must follow to ensure that applicants and employees can freely inquire about, discuss and disclose their compensation.

a. Analyzing Compensation. The choice of the best approach for a case depends upon the underlying facts, the available data, and the contractor’s compensation system and practices. As such, OFCCP takes a case-by-case approach to analyze compensation issues. In every case, there are three key questions to be addressed and the on-site review may provide data or information necessary to answer them:

  • Is there a measurable difference in compensation on the basis of sex, race or ethnicity?102
  • Is the difference in compensation between employees who are comparable under the contractor’s wage or salary system?
  • Is there a legitimate, nondiscriminatory explanation for the difference?

An on-site review may include analysis of workforce data and contractor compensation policies and practices; interviewing personnel and employees; examining payroll and HRIS data; and any other information necessary to understand or analyze compensation data or practices. In conducting the on-site review, COs examine all employment practices that have the potential to lead to compensation disparities. Prior desk audit results may assist the CO in identifying particular practices or issues to investigate.

Compensation means any payments made to, or on behalf of, an employee or offered to an applicant as remuneration for employment. Compensation may include, but is 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. Compensation discrimination includes unexplained and unmerited differences in how employees earn, or contractors distribute, compensation in these areas based on sex, race or ethnicity. In examining compensation issues, COs must be mindful to include how the contractor treats fringe benefits. For example, if the contractor is not providing equal fringe benefits and/or not making equal contributions to insurance plans or pensions for men and women, this may constitute discrimination.

The compensation a group of employees or an individual employee receives may be negatively affected by the denial of equal access to certain earnings opportunities. COs must examine employee access to opportunities affecting compensation such as higher-paying positions, job classifications, work assignments, training, preferred or higher-paid shift work, and other such opportunities. COs 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. Differences may be observed in these and other areas including:

  • Base salary;
  • Job assignment or placement;
  • Opportunities to receive training, promotions, and other opportunities for advancement;
  • Earnings opportunities; and
  • Access to salary increases or add-ons such as bonuses.

COs must focus the on-site review on the information and practices relevant to the employer, industry, and types of workers. For example, overtime issues are relevant to hourly and nonexempt workforces, while high-level salaried positions may involve substantial bonuses, stock options and other incentive compensation. For sales employees, both commission and account or territory assignment practices may be relevant.

In addition to reviewing potential evidence of systemic pay discrimination, COs may use on-site reviews to determine if there is sufficient evidence to support an inference that individual or cohort pay differences are due to discrimination. Absolute pay differences between comparators, without any other evidence of pretext or possible discrimination, generally are not sufficient to support an individual disparate treatment analysis.

For purposes of evaluating compensation differences, employees are similarly situated where it is reasonable to expect they should be receiving equivalent compensation absent discrimination. Relevant factors in determining similarity may include tasks performed, skills, effort, level of responsibility, working conditions, job difficulty, minimum qualifications and other objective factors. In some cases, employees are similarly situated where they are comparable on some of these factors, even if they are not similar on others. For example, when evaluating a job assignment issue, workers are similarly situated when their qualifications are comparable, even if they are assigned to jobs at different levels. Who are similarly situated for 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. On-site reviews allow COs to make assessments of similarly situated employees or jobs by observing, by conducting interviews, and by reviewing documents.

OFCCP will evaluate, on a case-by-case basis, information from the contractor regarding the factors the contractor considered in making compensation decisions. A factor is an element that the contractor offers to explain differences in employee compensation under its compensation system and practices. Factors may include internal and external elements potentially affecting compensation. A factor may be a qualification or skill that the worker brings to the position such as education or experience. It may also be an employment element such as position, level or function, tenure in position or performance ratings.

COs will use information gathered at the on-site review to evaluate whether factors identified by the contractor actually explain compensation, whether they are implemented fairly and consistently, whether data regarding the factors are accurate and whether the factors should be incorporated into the CO’s compensation analysis.

The CO must also confirm that the amount of compensation offered to individuals with disabilities (including veterans with disabilities) is not reduced due to them receiving a reasonable accommodation or any disability income, pension or other benefit received from another source. To verify compliance with this requirement, the CO will request the files of identified individuals with disabilities and/or disabled veterans, along with those of people without disabilities in the same job titles, and compare their compensation.

b. Pay Transparency. During the on-site review, the CO must evaluate whether the contractor has any policies that forbid applicants or employees from inquiring about, discussing or disclosing their compensation.103 COs must verify that applicants and employees are not disciplined, discharged or in any way discriminated against for discussing their compensation by reviewing company policies and practices, and by interviewing employees and managers. COs must also determine whether the contractor has disseminated the Pay Transparency Nondiscrimination Provision either by electronic posting or by posting hard copies of the provision in conspicuous places available to employees and applicants.104

Even employees whose essential job functions include access to the compensation of other employees or applicants, such as payroll personnel, are protected from discharge or other forms of discrimination when discussing or disclosing their own compensation. However, contractors can restrict these employees from disclosing the compensation of other applicants or employees when they have a duty to protect that compensation information. Still, there are some circumstances when employees with such essential job functions may disclose the compensation of other employees or applicants. For example, they may disclose compensation data of other employees and applicants to a CO during an OFCCP compliance evaluation. They may also disclose the compensation of other employees or applicants in response to a formal complaint or charge, in furtherance of an investigation, proceeding, hearing or action, including an investigation conducted by the employer, or if the disclosure is consistent with the contractor’s legal duty to furnish information. Further, these employees may disclose the compensation of other applicants or employees based on information that they received through means other than essential job functions access. Similarly, these employees may pursue their own possible compensation discrimination claim or discuss possible disparities involving the compensation of other employees to a management official with the contractor or while using the contractor’s internal complaint process.

102. In situations where there are sufficient data and analytic power to use regression analysis, a measurable difference generally means a statistically significant difference, two standard deviations. In the situation of disparities in small groups and/or individual compensation, a measurable difference and sufficient evidence will be determined in conformance with Title VII principles.

103. See 41 CFR 60-1.4(a)(3).

104. For more on the Pay Transparency Nondiscrimination Provision posting requirements, see FCCM 2M00(b).