Compensation Disparities Are the Focus of Every OFCCP Compliance Review

In 2011, the Office of Federal Contract Compliance Programs (OFCCP) heralded its focus on federal contractor compensation decisions and policies with two significant initiatives. In May, OFCCP announced proposed revisions to Supply and Service Scheduling Letter and Itemized Listing. The revised Itemized Listing, which details the information federal contractors are required to submit to OFCCP during a compliance review (or audit), contains onerous requests for compensation data and policies. In August, OFCCP followed this proposed revision with an Advance Notice of Proposed Rulemaking (ANPRM), announcing its intention to subject federal contractors—even absent a compliance review—to a mandatory reporting requirement on their compensation decisions and policies. OFCCP stated in the ANPRM that  the purpose of the new compensation tool will be to identify contractors whose compensation data indicates potential problem areas requiring further investigation, to serve as a research tool to identifying compensation trends by industry, and to assist contractors in “evaluat[ing] the effects of their compensation decisions.”

As of this writing, both the widely-anticipated compensation data collection tool and revised Scheduling Letter/Itemized Listing remain just that—anticipated. Yet OFCCP is doggedly continuing its pursuit in compliance reviews of allegedly discriminatory compensation practices and policies, including small differences of even two percent or $2,000 between men and women or minorities and non-minorities. At the Society for Human Resource Management’s 2012 Employment Law & Legislative Conference, OFCCP’s Senior Program Advisor Pamela Coukos announced that OFCCP is “shifting our focus on and allocating our resources toward compensation enforcement.” Pay disparities based on sex and minority status remain a very serious problem that will not go away unless addressed, according to Coukos.

How do contractors survive and defend such scrutiny of their compensation practices? We recommend that contractors periodically (and preferably under privilege) analyze and evaluate any pay disparities between males and females and race/ethnicity sub-groups in the same job group, job title, or Similarly Situated Employee Group (SSEG). Can pay disparities be explained by “time with the company” or “time in position”? Can they be explained by other factors, such as experience, level of responsibility, market factors, acquisition/merger factors, etc.?  If pay disparities cannot be explained, are “equity” adjustments warranted—or even possible, in light of budgetary constraints? Unfortunately, if nothing (or not enough) is done to resolve the disparities, contractors risk pay discrimination litigation with OFCCP, the Equal Employment Opportunity Commission (EEOC), and private plaintiffs.

In every OFCCP compliance evaluation, OFCCP is aggressively looking at various factors that influence a contractor’s pay and bonus decisions and is expecting contractors to offer legitimate reasons (and documentary evidence) for even the smallest differences in pay. Recent attempts through the U.S. Department of Labor’s administrative courts to curb OFCCP’s onerous and burdensome requests for compensation information have been unsuccessful, leading to an empowered agency bent on ferreting out allegedly discriminatory pay differences. Contractors that are unprepared for OFCCP’s scrutiny may find themselves fighting an uphill battle during a compliance review that can become protracted, expensive, and public—even over a $2,000 pay difference.