How does OFCCP review your pay data?

How does OFCCP review your pay data?

One of the most important items supply & service contractors submit during an OFCCP compliance review is employee level pay data. Lovingly referred to as the “Item 19” compensation snapshot by practitioners and the agency (after the Scheduling Letter request seeking this information), the big question has always been what will the agency do with this data?

At a panel discussion during the NILG National Conference this year, the OFCCP explained how it currently evaluates contractor pay data. The panel included Bob LaJeunesse, Director of Enforcement; David Garber, Branch Chief of Expert Services; and Bev Dankowitz, Office of the Solicitor (the OFCCP’s legal counsel at the Department of Labor), as well as outside practitioners and attorneys.

First, OFCCP officials reminded contractors that contractors have an affirmative obligation to review their compensation systems as part of their annual AAP. The agency acknowledged that contractors could satisfy this requirement in a variety of ways, including multiple linear regression, average pay ratio, and cohort analysis. However, OFCCP officials also stated they are concerned some contractors are not conducting a “robust compensation review” – which is what the agency believes is required by its regulations.

Second, the OFCCP discussed the need to review both base pay and total compensation, as well as individual pay components, such as bonuses, stock incentives, or other supplemental payments.

Third, the agency explained how it groups employees for pay analysis. The agency talked about looking at job titles and other similarly-situated employee groupings (SSEG), but also explained they look at broader groupings. Perhaps for the first time, the agency more clearly explained what it means by “pay analysis groups” (PAGs). OFCCP officials explained that a PAG is different than an SSEG and is often a larger grouping of pay data than that proposed by the contractor. In other words, the agency often aggregates employee groupings when it reviews contractor’s pay data.

Finally, OFCCP discussed how its team “zooms in and out” when looking at a contractor’s employee pay data. Agency officials explained that these analyses are intended to look for patterns and to identify opportunity concerns. As examples, OFCCP officials shared that they look at a contractor’s Item 19 data to examine opportunities for promotion, differences in tenure and progression rates, and career progression/stall issues.

Keep in mind that the agency also released an updated Scheduling Letter proposal and a Supporting Statement on April 19, 2023, which would require even more compensation data, including two compensation snapshots, copies of compensation policies and pay factor information. In addition, the new scheduling letter would require “documentation that the contractor has satisfied its obligation to evaluate its “compensation system(s) to determine whether there are gender-, race-, or ethnicity-based disparities” consistent with OFCCP’s recent Directive 2022-01 Revision 1.

What to do next?

• Begin preparing now for how your organization will respond to the OFCCP’s request for employee level pay data
• Determine how your organization will satisfy the AAP requirement to review your compensation systems
• Conduct robust analyses of your pay data, typically through multiple linear regression, so that you can evaluate whether pay differences are explained by legitimate, business-related factors
• Look at your data the way OFCCP might, including by “zooming in and out.”

Berkshire can help contractors evaluate their employee pay. Our team of labor economists and industrial/organizational psychologists is uniquely equipped to help contractors navigate this increasingly complex compliance area.