Five Standards for an OFCCP-Compliant Compensation Self Evaluation: Introduction

Under federal affirmative action regulations, federal contractors are required to conduct an annual self-evaluation of compensation with respect to gender, race, and ethnicity. Even though the self-evaluation is required, published affirmative action regulations have been virtually silent regarding the methodology federal contractors should use to perform this annual self-evaluation. This changed in June 2006, when the Office of Federal Contract Compliance Programs (OFCCP) released its final document regarding federal contractors' examination of compensation practices with respect to gender, race, and ethnicity.

In these self-evaluation guidelines, the OFCCP outlines an analysis method by which contractors may comply that centers around five "standards":

  1. the self-evaluation must be based on "similarly situated employee groupings (SSEGs);
  2. the employer must make a reasonable attempt to produce SSEGs that are large enough for meaningful statistical analysis;
  3. on an annual basis, the employer must perform some type of statistical analysis of the compensation system;
  4. the employer must investigate any statistically significant disparities in compensation (defined as two or more standard deviations) and provide appropriate remedies;
  5. the employer must contemporaneously create and retain the required data and make it available to the OFCCP during a compliance review.
The analysis method outlined for contractors is essentially the same analysis method that the OFCCP itself will use to issue findings on allegations of compensation discrimination. The OFCCP will make a finding of compensation discrimination if multiple regression analysis reveals statistically significant disparities in the compensation of similarly situated employees, and that statistical evidence is supported by anecdotal evidence of compenstion discrimination.

Given that the OFCCP itself will follow this analysis method, it makes sense for federal contractors to build their compensation self-evaluation program around these same five standards. In order to design such a program, a deeper understanding of the standards is required.

It should be noted at the outset that a self-evaluation program should be designed and implemented in connection with corporate counsel and outside counsel. There are a variety of confidentiality issues, attorney-clint issues, and other privilege issues that must be conidered. Legal counsel should be involved in the self-evaluation process in its entirety to protect the interests of the employer and the interest of the employees.

In subsequent postings, each of these five standards will be examined in more detail. The first standard will be discussed on October 15th.