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

As discussed in previous posts, the OFCCP has outlined an analysis method by which contractors may comply with federal affirmative action regulations regarding compensation self-auditing. This analysis method consists of five standards:

1. the self-evaluation must be based on "similarly situated employee groupings" (or 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 units of standard deviation) 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 five standards outlined by the OFCCP serve as a solid foundation around which to construct a compensation self-evaluation system. When designing such a system, legal counsel should be involved in the process from its inception to protect the interests of the employer and the interests of the employee. A well-designed and well-executed compensation self-evaluation system will not only allow federal contractors to satisfy requirements of federal affirmative action regulations; it can provide the employer with a deeper understanding of how and why employees are paid. The information gained from a compensation self-audit can provide valuable insight into the organziation, illuminating the policies and procedures - both formal and de facto - used in the compensation decision-making process.