Five Standards for an OFCCP-Compliant Compensation Self Evaluation: Standard #1

In the last post, I provided an overview of the five standards for an OFCCP-compliant self evaluation. To recap, the five standards are:

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.

In this post, I will examine in more detail the first standard - Similarly Situated Employee Groupings.

There are no definitive rules for constructing similarly situated employee groupings, or SSEGs; the OFCCP proposed the following definition: "Groupings of employees who perform similar work, and occupy positions with similar responsibility levels and involving similar skills and qualifications.

The OFCCP notes that other "pertinent factors" should also be considered in the formation of SSEGs:

...otherwise similarly-situated employees may be paid differently for a variety of reasons: they work in different departments or other functional divisions of the organzation with different budgets or different levels of importance to the business; they fall under different pay plans, such as team-based pay plans or incentive-based pay plans; they are paid on a different basis, such as hourly, salary, or through sales commissions; some are civered by wage scales set through collective bargaining, while others are not; they have different employment statuses, such as full-time or part-time..

In addition to those mentioned above, other "pertinent factors" may include geography (or some other measure of location) and business unit or department. If locality adjustments or cost of living adjustments are given to employees working in certain geographic locations, this information should be incorporated into the SSEG construction. Similarly, payroll budgets may differ by business unit or department. This, in turn, may lead to different compensation between employees seemingly performing the same tasks with similar titles and functional responsibilities.
In order for the self-evaluation to generate meaningful results, it is important that each employee's compensation is assessed against the appropriate peer group. It would be inappropriate, for example, to compare the compensation of the CEO of the organization and the compensation of the CEO's administrative support staff. We would expect large differences in compensation between these two groups because they have different responsibility levels, serve different purposes within the organization, etc.

It should be noted that in the event of an investigation, the OFCCP will examine the manner in which the SSEGs have been constructed. Specifically, the OFCCP will review job descriptions, the actual work performed by employees, responsibility levels associated with each job, along with the skills, abilities, and qualification of the employees. Interviews with employees and managers may also occur. The OFCCP reserves the right to make the final determination as to whether employees in the same SSEG - as constructed by the employer - are in fact "similarly situated".

A discussion of the second standard will be posted on October 19th.