What Does OFCCP’s UPDATED Pay Directive 2022-01 Mean to You?

The Office of Federal Contract Compliance Programs (OFCCP) “revised and revisited” Directive 2022-01 five months after issuing it. 

The update helps address concerns about the privacy of pay analyses performed under attorney-client privilege (the privilege). (See Circa’s article on the original directive.) Issues still outstanding include what constitutes a compliant review of contractors’ pay systems under 41 CFR 60-2.17(b)(3), and what documentation contractors must provide in relation to 41 CFR 60-2.10(c) to demonstrate that the required review took place.

 

Flies in the Updated Ointment

Under the original Directive, OFCCP maintained that it was entitled to a contractors’ review of compensation systems produced under the privilege if federal contractors did not provide “an acceptable pay equity audit demonstrating compliance with 2.17(b)(3)”. The updated Directive clarifies that contractors can show compliance with 2.17(b(3) and keep privileged reviews private by providing either:
 

• * A version of the privileged report redacting sensitive information
• * The results of a separate, non-privileged analysis (one completed without any assertion of privacy), or
• * A detailed affidavit stating that a privileged review was completed

Under each alternative, the contractor is to provide documentation, including the number of employees reviewed, forms of compensation analyzed (base pay, etc.), and method of analysis employed.

The updated directive is worded in such a way that that one might think it requires a statistical review of pay systems. It provides a list of sophisticated forms of review (“multiple regression analysis, decomposition regression analysis, meta-analytic tests of z-scores, compa-ratio regression analysis…”). 

It fails to mention that 2.17(b)(3) leaves the method of review to a contractor’s discretion. Contractors are free to use simple analyses, and need not even use numbers. The updated directive’s documentation requirement relies on 41 CFR 60-2.10(c). This regulation, however, does not specify specific data or documents to keep.

Directives are ‘sub-regulatory’ guidance that explains how an agency will implement existing law. To change the law to require specific forms of compensation system review and documentation, OFCCP must update 41 CFR 60 through the Administrative Procedures Act’s “notice and comment” process (5 U.S.C. §§ 551–559).

What Should Contractors Consider Doing?

Why beard the lion? Rather than trying to convince the agency that it asks for too much, consider readying a simple analysis of your employer’s compensation system. Consider doing this whether your employer performs a privileged compensation review or not. 

Cover your bases. Non-statistical review commonly involves a comparison of ‘raw’ percent differences in average pay to identify race/gender patterns and trends for further analysis. Create pay groupings that align employees who do similar work. 

Your company may already have them in place to set pay. Focus on groups with wider pay disparities. Defer to more sophisticated reviews performed by your employer, if available, and review employee history to justify or remedy differences.

Wouldn’t it Be Nice to Share?

The updated Directive “recommends” that contractors, who perform sophisticated statistical analyses provide detail that will help OFCCP understand methods and results. The requested (not required) information includes:
 

1. all employee pay groupings evaluated;
2. an explanation of how and why employees were grouped for the analysis;
3. which, if any, variables, factors, measures, or controls (e.g., tenure, education, structural groupings, performance ratings, prior experience, etc.) were considered and how they were incorporated in the analysis; and
4. the model statistics for any regressions or global analyses conducted (e.g., b-coefficients, significance tests, F-tests, etc. for race, ethnicity, and gender-based variables.

OFCCP does not regularly provide this type of information to contractors. It could be useful, however, if both contractors and OFCCP share this detail. Such an information exchange could lead to a quick resolution and fair results.

Conclusion

The updated directive will help contractors maintain the privacy of compensation analyses performed under attorney-client privilege, especially for those who create separate, non-privileged reviews. The agency states that by March 2023 it will seek changes to Supply and Service regulations. 

Fingers crossed that it does not press for sophisticated pay equity analyses from all contractors. For one thing, there are differences of opinion between OFCCP and many contractors on how to perform pay analyses. For another, it will likely be difficult for many smaller contractors to meet sophisticated review requirements. 

In the meantime, the updated directive serves its stated purpose of ensuring contractors’ focus on pay analysis. The update asks that contractors review pay differences, take pro-active steps to address issues identified, and decide how to measure success. This is a good to-do list for addressing pay equity.

This article first appeared here.

Paul McGovern is Managing Partner of Praxis Compliance. Visit https://circaworks.com/  Follow Paul McGovern   Connect Paul McGovern