The OFCCP, the agency responsible for enforcing Executive Order 11246, the anti-discrimination law applicable to federal contractors, has issued new standards that address systemic compensation discrimination. The OFCCP will be applying these standards when it conducts compliance reviews to determine whether contractors’ pay practices are discriminatory.
The new interpretive standards represent a departure from OFCCP’s prior use of the controversial “pay grade theory” of analyzing compensation practices. Under the pay grade theory, OFCCP compared the compensation of employees who were in the same pay grade or range based on the assumption that by creating the pay grade, the employer either “recognized that certain jobs are essentially similar in terms of skill, effort and responsibility” or “already identified certain jobs as having similar value to the organization.” The new standards codify the adoption of the “similarly situated” standard from Title VII. Employees are deemed similarly situated if they perform similar work and occupy positions involving similar responsibility levels, skills, and qualifications.
The interpretive standards have three components, the first of which is the adoption of the similarly situated standard. The second component is the adoption of a statistical technique called “multiple regression analysis” to assess the combined effects of the multiple, legitimate factors that influence employers’ compensation decisions. OFCCP will compare the compensation of similarly situated employees, while controlling for legitimate factors that influenced employers’ pay decisions, such as education, experience, performance, productivity, etc. The third component is an emphasis on the importance of anecdotal evidence of discrimination for a determination of whether systemic compensation discrimination exists.
OFCCP intends to continue using analysis of pay grade information, supplemented by the cluster regression, as indicators of potential compensation discrimination. However, the pay grade analysis, the cluster regression analysis, and other generalized approaches are only indicators of potential compensation discrimination. These techniques fall far short of the type of fact-intensive investigation and tailored analysis required to make and sustain an allegation of systemic compensation discrimination under Executive Order 11246 and OFCCP regulations.
The OFCCP publication of the final interpretive standards includes a discussion of comments that the OFCCP received in response to proposed interpretative standards published in the Federal Register on November 16, 2004.
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