As the federal contractor world waits to see how Trump’s White House will shape OFCCP’s enforcement tactics, there is one tool of the Agency that is unlikely to go away any time soon – the compensation manager interview. There is little doubt that, even in a Republican administration, “equal pay” will remain a top enforcement priority of the Agency. To date, no effort has been as fruitful for the Agency’s investigations regarding the “pay gap” as these interviews.
History of the Compensation Manager Interview
Federal contractors know that each of their affirmative action plans (“AAPs”) may be subject to a periodic compliance review by the OFCCP. The OFCCP initiates these audits by sending a “scheduling letter” that requires the contractor to submit its AAP and additional supporting information to a particular OFCCP District Office within 30 calendar days. Traditionally, these submissions have set the tone for the compliance review. It used to be that a submission without unmet goals or adverse impact would lead to a quick closure and finding of no violations of Executive Order 11246, VEVRAA, or Section 503 of the Rehabilitation Act.
But times have changed. Now, while a submission rife with statistical indicators will still result in a long and messy review, a “clean” submission is no longer a reliable predictor of a quick closure, because OFCCP is digging deeper and exploring unpredictable paths in an arena that is fraught with hidden risks – compensation data.
Since it implemented Directive 307 (“Procedures for Reviewing Contractor Compensation Systems and Practices”) in February 2013, OFCCP has struggled with how to accomplish the Directive’s objective of conducting more in-depth and ad-hoc analyses of contractor compensation practices. At first, the Agency took “baby steps” away from its prior approach to investigate pay of onesie-twosie cohort-style analyses that looked for reasons for pay differences between specific individuals. The contractor community took those changes in stride. After all, such an approach is not materially different from the “two or two” test OFCCP had previously applied to identify job titles that were more likely to have discriminatory pay differences.
Shortly thereafter, however, OFCCP’s approach evolved into a secret “triggering test” that assessed pay discrimination risks based on the results of basic analyses and comparisons of average pay differences within a group. While the specific thresholds fluctuated over time, the playbook was the same – identify large workforces with greater pay differences and dig deeply in instances where a large number of people may be impacted by pay discrimination.
Over the past year, OFCCP’s approach has again shifted. Now, leveraging the power of statistics, OFCCP attempts to conduct sophisticated, multiple regression analyses in every audit. This is a significant departure from past approaches.
To conduct these advanced statistical analyses, OFCCP needs more information than it collects by way of the scheduling letter. The scheduling letter’s Item 19 requires that each contractor submit to OFCCP in its initial audit submission employee level compensation data reflecting gender, race/ethnicity, hire date, job title, EEO-1 category, job group, “base salary and or wage rate,” “hours worked in a typical workweek,” and “other compensation or adjustments to salary such as bonuses, incentives, commissions, merit increases, locality pay or overtime.” See Itemized Listing, Item 19. But, an individual employee’s pay is comprised of many more individual decisions, occurring over the employee’s career, than those listed in Item 19.
For example, performance ratings, prior related experience, education, whether the employee was previously employed by a company that the contractor acquired (and their pay rate with that acquired company), market factors, starting salary, eligibility for certain types of pay, and the quality and/or quantity of the employee’s work, may all contribute to an individual employee’s actual compensation. Yet, data such as these are absent from what OFCCP may analyze at the initiation of an audit. So too the data requested under Item 19 – including date of hire, job title, EEO-1 category, job group, base salary or wage rate, or typical hours worked – generally would not influence, say, an employee’s commissions.
The big problem OFCCP has faced is that contractors’ compensation systems are unique, nuanced, and complicated. There is no “one size fits all” when it comes to effective compensation investigations. Not only does OFCCP need more information about compensation than Item 19 provides, it needs more personalized information to help the Agency understand each contractor’s unique practices. To offset Item 19’s shortcomings, the Agency is turning to compensation manager interviews – and they are asking for them early in audits.
Why Compensation Manager Interviews Can Make or Break an Audit
In a compensation manager interview, the Agency speaks directly with a representative of the company to discuss topics such as how pay decisions are made and what factors are considered. The answers to these questions can help OFCCP’s statisticians customize the data analyzed and refine their advanced statistical models to produce more accurate and defensible conclusions about pay gaps.
And, OFCCP is employing this powerful tool early in audits. The Agency has learned the information obtained during the interviews can shed light on how to analyze the contractor’s workforce and which variables impact pay for which job groups, job titles, pay grades, etc. OFCCP’s notes from early compensation manager interviews provide a roadmap for the Agency to determine what “pay analysis groups” to analyze (as Directive 307 contemplates) and what variables to include in its analyses. In fact, contractors often receive a request immediately following an early compensation manager interview that seeks detailed data regarding the items the interview suggested influence compensation.
These requests from some OFCCP offices are narrowly tailored to focus their requests on specific data points for the specific groups that the compensation manager identified as potentially relevant to pay. Others, however, require all data for all employees, without exception. In some reviews, OFCCP has required the contractor provide education and prior experience data for entry-level laborer positions even though all employees in the job titles at issue earn exactly the same wage rate, regardless of education or prior experience. When pressed, OFCCP has explained that because the requested data points were identified during the compensation manager interview, they were therefore relevant.
Thus, early compensation manager interviews now provide an inflection point in the review. If the interview goes well, contractors are more likely to avoid a “deep dive” compensation-based fishing expedition and streamline the remainder of the review – just as a “clean” original submission did in “the good old days.” If it goes poorly, however, contractors should expect voluminous, burdensome data requests and a protracted review that may last for years. In a recent review, for example, OFCCP issued a 96-item data request following an interview that required every data point be completed for every employee regardless of the company’s actual pay practices.
What Can Contractors Do to Prepare for Compensation Manager Interviews?
With this backdrop, contractors are wise to thoroughly prepare for an early request for a compensation manager interview. In interviews, contractors should avoid statements that lack focus, or unartful statements that suggest compensation is simple, positions may be similar to one another, or similar factors may influence pay across several jobs and/or job groups. And, beware of questions or answers that suggest things “always” or “never” occur. Compensation administration is rarely so “black and white” (sorry for the diversity pun). Rather, most compensation systems are nuanced and complex, and contractors need to make sure OFCCP understands that compensation decisions may be based on many different factors, depending on the situation.
More importantly, before discussing any pay practices with OFCCP, contractors should prepare (under attorney-client privilege) the same advanced statistical analyses OFCCP will ultimately conduct. Contractors are wise to use the results of those analyses to confirm their understanding of their own compensation systems and inform their strategy for the interview.
The reality is that the “good old days” of predictable OFCCP audits are gone. OFCCP continues to believe pay discrimination exists in America’s workforces and the Agency will squint through a jeweler’s lens to find the evidence it needs to close pay gaps. The best practice is to assume the early request for a compensation manager interview is coming, and prepare accordingly.
To discuss best practices related to OFCCP compliance, audit defense, compensation manager interviews, and pay equity analyses, contact Scott Pechaitis at 303-876-2201 or firstname.lastname@example.org or Chris Patrick at 303-876-2202 or email@example.com.
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Copyright © 2016 Jackson Lewis P.C.