[Federal Register: November 16, 2004 (Volume 69, Number 220)]
[Notices]
[Page 67252-67255]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr16no04-129]
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DEPARTMENT OF LABOR
Employment Standards Administration
Office of Federal Contract Compliance Programs; Guidelines for
Self-Evaluation of Compensation Practices for Compliance With
Nondiscrimination Requirements of Executive Order 11246 With Respect to
Systemic Compensation Discrimination, Notice
AGENCY: Office of Federal Contract Compliance Programs, Employment
Standards Administration, Department of Labor.
ACTION: Notice of proposed guidelines for self-evaluation of
compensation practices for compliance with Executive Order 11246 with
respect to systemic compensation discrimination; request for comments.
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SUMMARY: The Office of Federal Contract Compliance Programs requests
comments on proposed guidelines for self-evaluation of compensation
practices for compliance with Executive Order 11246 with respect to
systemic compensation discrimination.
DATES: Comments must be submitted by the following dates:
Hard Copy: Your comments must be postmarked by December 16, 2004.
Facsimile: Your comments must be sent by December 16, 2004.
ADDRESSES: Comments should be submitted to Joseph DuBray, Jr.,
Director, Division of Policy, Planning and Program Development, OFCCP.
Electronic mail is the preferred method for submittal of comments.
Comments by electronic mail must be clearly identified as pertaining to
the notice of guidelines for self-evaluation of compensation practices
for compliance with nondiscrimination requirements of Executive Order
11246 with respect to systemic compensation discrimination, and sent to
ofccp-public@dol.gov. As a convenience to commenters, public comments
transmitted by facsimile (FAX) machine will be accepted. The telephone
number of the FAX receiver is (202) 693-1304. To assure access to the
FAX equipment, only public comments of six or fewer pages will be
accepted via FAX transmittal. Where necessary, hard copies of comments,
clearly identified as pertaining to the notice of proposed standards
and methodologies for evaluating contractors' and subcontractors'
compensation practices, may also be delivered to Joseph DuBray, Jr.,
Director, Division of Policy, Planning and Program Development, OFCCP,
Room C-3325, 200 Constitution Avenue, NW.,
[[Page 67253]]
Washington, DC 20210. Because of delays in mail delivery, OFCCP
suggests that commenters planning to submit comments via U.S. Mail
place those comments in the mail well before the deadline by which
comments must be received. Receipt of submissions will not be
acknowledged, except that the sender may request confirmation of
receipt by calling OFCCP at (202) 693-0102 (voice), or (202) 693-1308
(TTY).
FOR FURTHER INFORMATION CONTACT: Joseph DuBray, Jr., Director, Division
of Policy, Planning and Program Development, OFCCP, Room C-3325, 200
Constitution Avenue, NW., Washington, DC 20210. Telephone (202) 693-
0102 (voice), or (202) 693-1308 (TTY). Copies of this notice in
alternative formats may be obtained by calling (202) 693-0102 (voice),
or (202) 693-1308 (TTY). The alternative formats available are large
print, electronic file on computer disk, and audiotape. The Notice is
available on the Internet at http://www.dol.gov/esa.
SUPPLEMENTARY INFORMATION: On May 4, 2000, OFCCP proposed substantial
revisions to affirmative action program requirements. 65 FR 26089 (May
4, 2000). As OFCCP explained in the preamble to these May 4, 2000
proposed revisions:
More recently, an additional objective of the proposed revision
has been to advance the Department of Labor's goal of pay equity;
that is, ensuring that employees are compensated equally for
performing equal work. * * * This NPRM encourages contractors to
analyze their own compensation packages to ensure that all their
employees are being paid fairly.
65 FR 26089 (May 4, 2000).
On November 13, 2000, OFCCP published a Final Rule adopting many of
the proposed revisions to the regulatory requirements for written
affirmative action programs. 65 FR 68022 (Nov. 13, 2000). OFCCP adopted
a requirement that covered contractors evaluate their ``[c]ompensation
system(s) to determine whether there are gender-, race- or ethnicity-
based disparities.'' 65 FR 68046 (Nov. 13, 2000) (referencing 41 CFR
60-2.17(b)(3)).
OFCCP received many comments in response to the Proposed Rule on
this compensation self-evaluation requirement. As explained in the
Preamble to the November 13, 2000 Final Rule:
Many of the comments focused on the requirement to review
compensation systems, with several commenters asserting that OFCCP
does not have authority to enforce equal pay concerns, that analysis
of compensation systems is not required by the current regulations,
that compensation analyses impose an additional burden, or that
OFCCP did not specify the types of analyses it would find
acceptable. Commenters also expressed confusion about how the
information gained from [the compensation analysis] should be used
by contractors, and how the contractor's actions will be evaluated
by OFCCP.
65 FR 68036 (Nov. 13, 2000).
OFCCP responded to these commenters in the Preamble to the November
13, 2000 Final Rule: ``[C]ontractors have the ability to choose a type
of compensation analyses that will determine whether there are gender-,
race-, or ethnicity-based disparities.'' 65 FR 68036 (Nov. 13, 2000).
OFCCP has not, however, provided guidance to contractors or to
OFCCP personnel on suggested techniques for compliance with this
compensation self-evaluation requirement. This Directive is intended to
provide suggested techniques for complying with the compensation self-
evaluation requirement, although compliance with this Directive is not
required for compliance with Section 60-2.17(b)(3). OFCCP has included
an incentive for contractors to adopt voluntarily the general standards
outlined in this Directive. Specifically, if a contractor, in good
faith, reasonably implements the general standards outlined herein,
OFCCP will coordinate its compliance monitoring activities with the
contractor's self-evaluation approach. However, compliance with this
Directive is not the only way to comply with Section 6-2.17(b)(3).
While developing these guidelines for conducting compensation self-
evaluations, OFCCP recognizes the risk of liability that an employer
faces when making corrective compensation adjustments under a self-
evaluation process. For example, female or minority employees may bring
claims based on the theory that the employer's own self-evaluation
study established that the employer engaged in discrimination or that
the employer did not make sufficient compensation adjustments to remedy
the discrimination. See, e.g., Cullen v. Indiana Univ., 338 F.3d 693,
701-04 (7th Cir. 2003)(female professor sued university alleging
compensation discrimination and basing her claim, in part, on
university's pay equity study). Similarly, male or non-minority
employees may sue the employer alleging violation of Title VII because
the employer gave salary adjustments to female or minority employees
under the compensation self-evaluation. See, e.g., Rudenbusch v.
Hughes, 313 F.3d 506, 515-16 (9th Cir. 2002)(employer's self-audit,
regression analysis was not technically sufficient to foreclose male
professor's discrimination claim against the employer); Maitland v.
Univ. of Minn., 155 F.3d 1013, 1016-18 (8th Cir. 1998)(same); Smith v.
Virginia Commonwealth Univ., 84 F.3d 672, 676-77 (4th Cir. 1996)(same).
OFCCP has attempted to provide guidelines that are technically
sufficient to withstand judicial scrutiny, so that contractors do not
face potential liability for implementing a robust and effective self-
evaluation process.
Proposed Guidelines:
Proposed Guidelines for Self-Evaluation of Compensation Practices for
Compliance With Executive Order 11246 With Respect to Systemic
Compensation Discrimination
I. Guidelines
OFCCP will continue to permit contractors to choose their own form
of compensation self-evaluation techniques to comply with 41 CFR 60-
2.17(b)(3). However, as an incentive for contractors to implement a
compensation self-evaluation system that conforms to the general
standards outlined in this Notice, OFCCP will deem a contractor in
compliance with Section 60-2.17(b)(3) and coordinate its compliance
monitoring activities as explained in Section II of this Notice, if the
contractor's compensation self-evaluation system meets the following
general standards:
A. The self-evaluation is performed by groupings of employees that
are similarly situated, referenced hereinafter as ``Similarly Situated
Employee Groupings,'' or ``SSEGs.'' Employees may be placed into the
same SSEG if they are ``similarly situated'; that is, if the work they
perform is similar in content, responsibility, and requisite skill and
qualifications. Employees may not be grouped in an SSEG for purposes of
this Notice unless the work performed, responsibility level, and
requisite skill and qualifications involved in their positions are
actually similar, regardless of any employer-created designation, such
as job title, job classification, pay grade or range, etc. The fact
that an employer has grouped employees into a particular pay grade or
range does not necessarily mean that these employees are similarly
situated; the determining factors are whether the employees are
performing similar work, have similar responsibility level, and occupy
positions involving similar skills and qualifications.
[[Page 67254]]
B. The contractor must make a reasonable attempt to produce SSEGs
that are large enough for meaningful statistical analysis. In general,
SSEGs should contain at least 30 employees overall, and contain five or
more incumbents who are members of either of the following pairs: male/
female or minority/non-minority. In certain cases, small numbers of
employees will not be sufficiently similarly situated to other
employees to permit them to be grouped in an SSEG. Such employees may
be eliminated from the statistical evaluation process; however, the
contractor is expected to conduct a self-evaluation of pay decisions
related to such employees using non-statistical methods. Further, the
contractor's statistical analyses must encompass a significant majority
of the employees in the particular affirmative action program or
workplace. Where the statistical analyses do not encompass at least 80%
of the employees in the affirmative action program or workplace, OFCCP
will carefully scrutinize the statistical analyses and associated non-
statistical self-evaluations.
C. On an annual basis, the contractor must perform some type of
statistical analysis that evaluates SSEGs (as defined in Section IA of
this Notice) and accounts for factors that legitimately affect the
compensation of the members of the SSEGs under the contractor's
compensation system, such as experience, education, performance,
productivity, location, etc. For contractors with 250 or more
employees, the statistical analysis must be multiple regression
analyses. The contractor must ensure that any factor within the
contractor's control that is included in the analysis is not itself
subject to discrimination, although such a factor may be included
unless there is evidence that the factor actually was subject to
discrimination. Correlation between such a factor and a protected
characteristic does not automatically disqualify the factor, if the
employer has implemented formal standards to constrain subjective
decisionmaking. The analysis must include tests of statistical
significance that are generally recognized as appropriate in the
statistics profession.
D. The contractor must investigate any statistically significant
compensation disparities produced by the self-evaluation analyses that
it has developed. OFCCP considers an identified disparity to be
statistically significant if the significance level of the disparity is
two or more standard deviations from a zero disparity level.\1\ The
contractor must adequately determine whether such statistical
disparities are explained by legitimate factors or otherwise are not
the product of unlawful discrimination. If the statistical disparities
cannot be explained, the contractor must provide appropriate remedies.
The remedies that are appropriate will depend on the time period in
which the disparities emerged. For the initial implementation of the
compensation self-evaluation system, the contractor may have to make
adjustments based on both current disparities and prior disparities.
OFCCP uses a two-year window for back pay corrections. For periodic
iterations of the self-evaluation system after the initial
implementation, the remedy would involve correcting current
disparities. Through the sources of information available to OFCCP
under Section IE of this Notice, OFCCP will carefully evaluate whether
the contractor has properly investigated such disparities and has
adequately corrected any disparities that are not explained by
legitimate factors.
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\1\ This significance level roughly translates to a measured
absolute disparity that is more than two times the standard error of
the estimated value. Kaye, David H. and Freedman, David A. (2000),
Reference Manual on Scientific Evidence Second Edition, Federal
Judicial Center, Washington, DC, p. 124, note 138. Using a two-
tailed test, a statistically significant disparity is a disparity
with a significance level of 0.05 or less (subject to the
consideration of what is a meaningful difference). This criterion
means that, e.g., a disparity in the pay between males and females
being either positive or negative, would have a less than a 1-in-20
chance of occurrence unrelated to potential discrimination.
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E. The contractor must contemporaneously create and retain the
following documents and data:
(1) Documents necessary to explain and justify its decisions with
respect to SSEGs, exclusion of certain employees, factors included in
the statistical analyses, and the form of the statistical analyses.
Such documents must be retained throughout the period in which OFCCP
would deem the contractor's compensation practices in compliance with
Executive Order 11246, as described in Section IIB of this Notice;
(2) The data used in the statistical analyses and the results of
the statistical analyses for two years from the date that the
statistical analyses are performed;
(3) The data and documents explaining the results of the non-
statistical methods that the contractor used to evaluate pay decisions
of those employees who were eliminated from the statistical evaluation
process, which must be retained throughout the period in which OFCCP
would deem the contractor's compensation practices in compliance with
Executive Order 11246, as described in Section IIB of this Notice;
(4) Documentation as to any follow-up investigation into
statistically significant disparities, the conclusions of such
investigation, and any pay adjustments made to remedy such disparities.
These documents must be retained for a period of two years from the
date that the follow-up investigation is performed.
F. The contractor must make all of the documents and data
referenced in Section IE available to OFCCP during a compliance review.
OFCCP may also review any personnel records and conduct any employee
interviews necessary to determine the accuracy of any representation
made by the contractor in such documentation or data.
II. Procedure
If the contractor's compensation self-evaluation system meets the
standards set forth in Section I of this Notice, OFCCP will coordinate
its compliance monitoring activities as follows:
A. During a compliance review, OFCCP will assess whether the
contractor's compensation self-evaluation system comports with the
general standards outlined in Section I of this Notice.
B. If the contractor's compensation self-evaluation system
reasonably meets the general standards outlined in Section I of this
Notice, OFCCP will consider the contractor's compensation practices to
be in compliance with Executive Order 11246. However, OFCCP may suggest
in writing that the contractor make prospective modifications to
improve the self-evaluation system's conformity with the general
standards outlined in Section I of this Notice, where OFCCP concludes
that the self-evaluation system is only marginally reasonable under
these guidelines; thereafter, during future compliance reviews, OFCCP
will assess whether the contractor made the suggested changes in
determining the contractor's prospective compliance with E.O. 11246.
If, during a future compliance review, OFCCP determines that the
contractor has not made the changes that OFCCP suggested during the
prior compliance review, the contractor's self-evaluation system will
no longer be deemed to comport with the general standards outlined in
Section I of this Notice.
C. OFCCP may review the documents and data set forth in Section IE
to determine whether the contractor's compensation self-evaluation
system reasonably meets the general standards
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outlined in this Notice and, if applicable, whether the contractor
reasonably made the changes that OFCCP suggested during a prior
compliance review.
D. OFCCP personnel will direct technical issues about whether a
contractor's self-evaluation system meets the general standards
outlined in Section I of this Notice to OFCCP's Director of Statistical
Analysis in the National Office, or his or her designee.
E. Alternative Compliance Certification: OFCCP understands that
some contractors may take the position, based on advice of counsel,
that their compensation self-evaluation is subject to certain
protections from disclosure, such as the attorney client privilege or
attorney work product doctrine, and that these protections would be
waived if the contractor disclosed the self-evaluation. OFCCP does not
take any position as to the applicability of such protections in the
context of a compensation self-evaluation. However, to avoid protracted
legal disputes over the applicability of such protections, OFCCP will
permit the contractor to certify its compliance with 41 CFR 60-
2.17(b)(3) in lieu of producing the methodology or results of its
compensation self-evaluation analyses to OFCCP during a compliance
review. The certification must be in writing, signed by a duly
authorized officer of the contractor under penalty of perjury, and the
certification must state that the contractor has performed a
compensation self-evaluation with respect to the affirmative action
program or workplace at issue, at the direction of counsel, and that
counsel has advised the contractor that the compensation self-
evaluation analyses and results are subject to the attorney-client
privilege and/or the attorney work product doctrine. Because in such an
instance OFCCP cannot evaluate the contractor's compliance with the
general standards outlined in Section I of this Notice, a contractor
that opts for this compliance certification alternative will not be
entitled to the coordination outlined in Section IIB of this Directive.
That is, contractors that opt for this alternative compliance
certification do not receive the benefit of OFCCP coordination of
agency compliance monitoring activities. Thus, for contractors that
elect only to certify compliance with Section 60-2.17(b)(3), OFCCP will
evaluate their compensation practices without regard to the analysis or
results of their compensation self-evaluation systems.
Signed at Washington, DC this 10th day of November, 2004.
Victoria A. Lipnic,
Assistant Secretary for the Employment Standards Administration.
Charles E. James, Sr.,
Deputy Assistant Secretary for Federal Contract Compliance.
[FR Doc. 04-25402 Filed 11-15-04; 8:45 am]