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As outlined in Circa’s prior blog, ‘EEOC Pay Data Collection – Part 1: How Did We Get Here’, the National Academy of Sciences (NAS) has formed a Panel to review what to do with the 2017 and 2018 pay data reported in the EEO-1 Component 2 filings that employers submitted in 2019 and 2020.

On November 3, 2021 four ‘HRIS stakeholders’ spoke to the Panel.  The speakers were from Berkshire Associates, the National Industry Liaison Group (NILG) and Deloitte Consulting LLP, and included an HRIS contractor formerly with Workday.

The points they raised included the following:

The ‘traditional’ EEO-1 Component 1 report is a snapshot of ‘point in time’ demographic data.  Component 2’s wage and ‘hours worked’ detail is ‘continuous’ data, information on activity occurring over, in this case, the course of a year.  Collecting and working with a year’s worth of information is difficult.  For smaller companies without HRIS systems, of which there are many, the compilation is a manual process.  Larger companies keep demographic detail, pay, and hours worked in different HRIS systems.  Aligning this data has proven to be difficult and time consuming.  It is not a ‘one and done’ programming effort given, among other things, HRIS systems changes and upgrades.   In addition, personnel movement occurring during the reporting period compromises the utility of the data.  For example, for an employee promoted into a new EEO-1 job category, pay that accrued when in the old job classification will be misreported in that it is logged in the new category.

Given that employers do not base their compensation systems on EEO-1 job classifications, no employer is known to be using Component 2 pay data for internal pay equity analysis.  Thus, the report is not furthering the EEOC’s stated goal of encouraging company self-assessment.  The Component 2 filing takes up time that employers could otherwise use to perform other analyses – analyses more likely to lead to the identification of meaningful pay differences.

According to the speakers, meaningful compensation analysis is company-specific.  This is because the factors that companies review when setting pay vary widely, even between employers in the same industry.  Companies rely on elements such as job group, pay band, experience and education to determine pay – but given the different needs of different companies, the factors are defined very differently.  These elements are rightly omitted from Component 2 reporting because, being so employer-specific, comparing multiple employers’ data would be comparing ‘apples to oranges’.  Because the Component 2 report includes none of these important factors, however, in the opinion on the speakers, the data collected is likely ineffective for predicting whether individual employers’ pay practices are discriminatory.

To address these issues, the speakers asked that the Panel closely review the Component 2 data received to determine how, if at all, it could be used to accurately reflect employer pay practices.  The speakers stated that they would be happy to comment more specifically on methodology once they knew how the Panel intended to use the data.

They cautioned that although the Component 2 data could likely indicate differences in pay based on race and gender, the limitations of the collection method made false indicators likely.  They also stated that simply identifying a difference in pay is not enough to confirm a pay equity problem.  The differences could relate to legitimate and neutral factors affecting pay, discernable only after a thorough review of employer- specific pay practices.

The speakers pointed out that using the hourly rate detail recommended in the 2012 NAS study (see , ‘EEOC Pay Data Collection – Part 1), in lieu of the current combination of W-2 compensation and hours worked, would simplify the report process and decrease the burden on employers.

Should the EEOC require additional collection, the speakers recommended that care be taken to align Component 2’s definition of hours worked with California’s pay data report; use W-2 Box 5 data in lieu of Box 1 for technical reasons; and consider requiring pay data reporting every few years instead of annually.

The speakers most insistent recommendation was, as noted above, that before the Panel recommends any further pay data collection it analyze the 2017 and 2018 data already received to determine whether it can be used meaningfully.  In this, they referenced another recommendation of the 2012 NAS report, which advised that the EEOC determine how to review compensation before requiring employers to report any pay at all.

Conclusion

When the EEOC sought public comment on Component 2 in 2016, employers focused on the failure to pilot the program with real data, failure to address in advance how pay data received would be analyzed, the difficulty of creating the proposed report from multiple systems, and concerns that the data would not be useful in predicting pay discrimination.

The presentations of the ‘HRIS stakeholders’ before the NAS panel outlined that these problems still exist today – and really should be addressed before the EEOC requires further pay data collection.

 

Author

Paul McGovern
Managing Partner
Praxis Compliance

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