Preparing for a Pay Equity

Audit

Neil Dickinson, SPHRManaging PartnerHudsonMann&Mystery Guest Star ???

OFCCP Pay Equity Compliance in 2019

OFCCP Sets Records for Financial Penalties based on

Pay Discrimination

OFCCP requested detailed Compensation data

Assumptions were made

OFCCP statisticians spend months analyzing

Contractor is told they have discriminatory pay

Director Shiu Era of Pay Equity Reviews

Lack of Transparency

The Battle

OFCCP’s pay groupings

Disputing the Model

• Judge strongly criticized OFCCP’s compensation audit approach

• OFCCP “failed to identify the employment practice causing the alleged pay disparity”

• “OFCCP’s statistical analysis, without any persuasive anecdotal evidence, was insufficient to establishment intentional discrimination.”

• OFCCP did not appeal decision

• Obama era guidance on compensation audits rescinded

• New Directive provides detailed transparency on how OFCCP will conduct compensation analyses

• Less reliance on multiple regression on front end

• Use of descriptive analytics to “tell story” of pay inequities

Director Leen Era of Pay Equity Reviews

“ In determining which cases to pursue, OFCCP will be less likely to pursue a matter where the statistical data are not corroborated by non-statistical evidence of discrimination….”

Director Leen Era of Pay Equity Reviews

Goal: eliminate discrimination -intentional or implicit-affecting pay

• Understand the source(s), drivers, and THE STORYof the gap

• Unlocking the story allows for effective intervention

OFCCP’s New Approach

“There is a statistically significant gap in pay between x group and y group”

Old OFCCP Response:

OFCCP’s New Approach

Ask for additional data, interview personnel, run more regressions

Improved OFCCP Response:Utilize available data to its fullest and begin using non-advanced methods to understand the story of what is driving the paygap.

OFCCP’s New Approach

OFCCP receives and reviews contractorcompensation submission:

Women Engineers make 36% less than males

OFCCP 3 part Approach:

1. Why is this happening?

Are women in lower paying jobs?

Are women in lower levels of the same job?

Are women less productive (Performance)?

Do women have less education?

Do women have less experience?

OFCCP 3 part Approach continued

3. If the explanatory factors are within employer’s control, are they the outcome of a neutral process?

2. Are the explanatory factors within the employer’s control?

OFCCP Pay Gap Classification• Segregation Across Job Field• Hierarchical Disparity• Same Job, Different Pay (Pure Disparity)

These initial classifications will focus inquiry

They will rely on basic descriptive statistics not multiple regression

Segregation Across Job Field• Higher paying job titles in the Pay Analysis Grouping are dominated

by one demographic group

Physicians PAG

Job Title Avg Pay Males Females Brain Surgeon $350,000 28 2 Trauma Surgeon $300,000 14 14 Orthopedic Surgeon $275,000 17 12

Hierarchical Disparity• Higher ranking jobs in the Pay Analysis Grouping are dominated by

one demographic group

Analyst PAG

Job Title Avg Pay Males Females Sr. Analyst $80,000 28 2 Analyst $70,000 4 14

Hires and Promotions

“OFCCP considers a variety of employment practices that can lead to compensation disparities among similarly-situated employees, including…. opportunities; and or differential access to earnings opportunities such as assignment to preferred contracts or territories”

Demonstrating promotion discrimination is a separate and entirely different analysis

Hires and Promotions

• Ensure hires and promotions are well documented and consistent• Applicants/promotion candidates must apply to specific open

position• Avoid general expressions of interest• Review adverse impact reporting for hires and promotions

Same Job, Different Pay• A demographic group is paid less (statistically significant) within a job

title

Civil Engineer PAG

Job Title Avg Pay Male Avg Pay FemaleCivil Engineer $ 80,000 $ 65,000

Be prepared to tell YOUR organization’s storyfor compensation and pay equity!

How do you prepare for this?

Contractor pay systems should be:

ü Consistentü Well organizedü Driven by documented business factorsü Capture job structures and compensation hierarchies

(pay grades, job families, business units, departments)ü OFCCP may consider market surveysü Be prepared to provide narrative and supporting documentation with

audit submission

Engage Compensation Stakeholders• Can we defend differences in pay based on

race and gender?• What compensation policies and

documentation do we have to help tell the story?• Do we have appropriate job groupings (PAGs)

for analysis?• Are we performing/reviewing pay equity

analyses and can we defend gaps?• Larger AAPs/ employee populations = greater

liability

Pay Analysis Groups

“OFCCP’s objective is to use PAGs that mirror a contractor’s compensation system. If a contractor provides its compensation hierarchy and job structure in the submission to the Itemized Listing, OFCCP will attempt to design its analysis based on that structure.”

Equal vs. SimilarEqual Pay Act (1963)Equal pay for work on jobs the performance of which requires equal skill, effort, andresponsibility, and which are performed under similar working conditions.

Enforced by EEOC

Title VII of the Civil Rights Act (1964)Employees are similarly situated if they are similar with respect to the work theyperform, their responsibility level, and the skills and qualifications involved in theirpositions.

OFCCP uses Title VII to enforce Executive Order 11246

Pay Analysis Groups

Combine job titles based on:

Job similarity: tasks performed, skills required,effort, responsibility, working conditions and complexity

Other objective factors such as minimum qualifications or certifications

• Duties performed• Level of responsibility• Work conditions• Skills and abilities required• Minimum qualifications• Number of direct reports• Budget responsibility• Education and training

Pay Analysis Groups

• EEO Job Category- too broad; OFCCP may use this if no PAGs are provided

• AAP Job Groups- designed for affirmative action goals; normally does not factor in pay

• Job Grades - considers pay but may not address work performed

• Custom PAGs- designed specifically for pay equity analysis.

Types of Pay Analysis Groups

A. For each PAG, compare average pay by Gender and Race

B. Flag PAGs where pay differences are statistically significant

HudsonMann can help you with this!

STEP 1.

A. Review flagged PAGs and ensure you can identify the valid business factors that cause the gap

B. If you can not identify business factors or you are unsure these differences can be explained as part of your compensation program….

STEP 2.

Perform multiple regression analyses on flagged PAGs

STEP 3.

• Education• Experience• Location• Performance ratings• Department/function• Merit increases• Pay band/level/grade• Others not listed by OFCCP: Job Status, Shift Differential, Time in Position,

Work Contract, People Managed, Certifications

• PAGs that are flagged using multiple regression are a potential liability

STEP 4.

• Conduct employee level research within PAG to determine if pay adjustments are warranted

ü Pay inequities normally begin at time of hireüDo you document business factors that influence pay at

time of hire?ü Do you have a “bargaining culture”?ü Document pay exceptionsüUsing prior pay is frowned upon by OFCCP and illegal in

many states

Mystery Guest…….

Momolu Cooper, PHRDirector, Major Accounts

Compensation InterviewsOffsite• Broad questions on company’s pay practices• Does a compensation system exist?• What pay factors are used?• Promotion practices• Who has oversight?

Onsite• Directed questions to employees and managers based on potential findings of

discrimination• Are pay practices equitable?• Are promotion opportunities available?• Is there sharing of work/responsibilities?

On the Horizon• No expectation that EEO1 Pay 2 component will influence OFCCP

audits• Proposed compensation submissions for Veterans and IWDs• Analysis for Veterans and IWDs?

We’re here to help!Neil Dickinson

ndickinson@hudsonmann.com 843.884.5557