Internal Compliance Programs Good
for Employee Relations and the Bottom Line
The new year was barely underway when the Department of Labor entered into a $3.1 million settlement agreement with Texaco over gender-based pay disparities. The agreement was the Labor Department's largest glass ceiling settlement ever and the largest agreement resulting from an audit performed by the Office of Federal Contract Compliance Programs (OFCCP). In addition to providing approximately 186 Texaco female employees with back pay and salary increases, the agreement requires Texaco to analyze its pay scale annually, and to provide additional opportunities for its female employees.
The Texaco settlement follows several significant settlement agreements reached by the Labor Department in 1998. Last April, CoreStates Financial Institution agreed to settle with the OFCCP for $1.5 million to remedy its pay discrimination against women and minority bank employees. Additionally, December 1998 saw U.S. Airways Corporation agree to pay nearly $400,000 in back pay and salary adjustments to 30 women in management and professional jobs, while Highmark, Inc., formerly Blue Cross/Blue Shield of Western Pennsylvania, agreed to pay $200,000 to settle allegations that it paid its female employees less than their male counterparts. These instances of alleged violations are not isolated occurrences. According to the Secretary of the Department of Labor, Alexis Herman, OFCCP auditors have revealed compliance problems in about half of the companies audited since 1993.
These settlements should prompt employers - particularly federal contractors - to regularly conduct self-audits on compliance with equal pay laws, if they have not already begun such a program. Such audits can reveal problems before a compliance officer comes knocking at the door, and can be an effective employee relations tool.
All employers, regardless of federal contractor status, should also note the Clinton Administration's stepped-up rhetoric and budget commitment regarding enforcement of equal pay laws. President Clinton devoted a recent weekly radio address to tough talk on gender-based pay disparity, announcing that his fiscal 2000 budget will include a $14 million increase to toughen enforcement efforts, including tripling the number of enforcement workers at the Equal Employment Opportunity Commission. Clinton also urged Congress to pass the so-called "Paycheck Fairness Act," which in part would allow women alleging wage discrimination to sue their employers for unlimited compensatory and punitive damages. The fate of the budget and other legislation is uncertain in the Republican-controlled Congress, but it seems clear that increased enforcement efforts will continue.
OFCCP's Responsibilities
The OFCCP is responsible for enforcing Executive Order 11246, which prohibits federal contractors and federally-assisted contractors and subcontractors that conduct more than $10,000 in government contracts business per year from discrimination in hiring and employment decisions on the basis of gender, race, color, religion and national origin. The Order also requires all government contractors with 50 or more employees and $50,000 or more in government contracts to develop written affirmative action programs. In addition to the Executive Order, OFCCP is responsible for enforcing Section 503 of the Rehabilitation Act of 1973, the Vietnam Era Veterans' Readjustment Assistance Act of 1974, the Immigration Reform and Control Act of 1986 and Title I of the Americans with Disabilities Act of 1990.
OFCCP uses various enforcement tools to investigate and remedy violations of government contractors' affirmative action obligations, including compliance reviews, complaint investigations and conciliation agreements. A compliance review, or audit, generally involves an OFCCP compliance officer's examination of a government contractor's affirmative action program, its payroll and personnel records and interview of company employees and officials. If the compliance officer discovers problems, he or she will recommend ways to correct any non-compliance and encourage the contractor to enter into a conciliation agreement to remedy the violations. OFCCP can also seek sanctions for non-compliance, the most severe of which is debarment - the loss of government contracts.
Contractors, however, should not wait for the OFCCP compliance officer to discover their problems. The time period between notice of an OFCCP audit and the commencement of the audit is generally brief, and does not provide sufficient time to develop an effective affirmative action program or to find and correct any failures to meet affirmative action goals. To be prepared for an OFCCP audit, contractors should routinely audit themselves. Done properly, a self-audit will disclose areas of concern before they become too troublesome or costly. In fact, OFCCP strongly recommends contractors audit themselves.
Given the OFCCP's recent attention to pay audits, an important aspect of the self-audit process is a compensation analysis. A compensation analysis examines the pay structure to determine whether unlawful pay discrimination is occurring, and, if so, how it should be resolved. The first step in any compensation analysis is to determine what considerations affect a contractor's compensation for each job within its organization. Such considerations may include:
Once those considerations are identified, OFCCP recommends three separate methods of compensation analysis to determine if the pay considerations are uniformly applied and to determine their effect on minorities and women.
Median Compensation Analysis
The first method is the median compensation analysis. A relatively easy and unsophisticated analysis, the median approach measures the salary level that is larger than or equal to half of the salaries analyzed and equal to or smaller than half of the remaining salaries analyzed. In essence, the median provides a salary figure that is in the middle of a group of salary distribution figures. Once the median is identified, it should then be identified for men and for women (or another protected class). Those figures should then be analyzed by the previously identified salary considerations, such as length of service, salary grade and educational background.
Average Compensation Analysis
The second method is to analyze the average compensation of a group of salaries. Simple arithmetic will allow contractors to compute the average by adding the salaries and dividing by the number of salaries analyzed. Again, the average numbers should be calculated for men and for women. This number may be telling in itself. Nevertheless, average salaries should be further analyzed in comparison to such things as length of service and salary grade.
Detailed Compensation Analysis
The third method involves the use of spreadsheet table software that adjusts and sorts various compensation factors. OFCCP suggests that this method can provide useful, and potentially more meaningful, information by sorting salary information to identify its effect on specific minority groups, or its relation to hire dates, previous jobs, and among different departments.
The purpose of an initial compensation analysis using any of the foregoing methods is simply to identify problems that may be resolved before an OFCCP audit or complaint. In addition to a compensation analysis, a self-audit should identify problem areas, such as whether the contractor is not meeting recruitment goals for women and minorities, or whether the contractor is having difficulty retaining qualified women and minorities. If problems like these are discovered, the contractor should evaluate how to address them, and devise a plan to remedy those problems areas.
A proactive approach to OFCCP compliance review not only maximizes the probability of a successful audit, but also is a sound approach to employee relations. And as the recent OFCCP settlement figures demonstrate, a self-audit may be financially beneficial as well.
for Employee Relations and the Bottom Line
The new year was barely underway when the Department of Labor entered into a $3.1 million settlement agreement with Texaco over gender-based pay disparities. The agreement was the Labor Department's largest glass ceiling settlement ever and the largest agreement resulting from an audit performed by the Office of Federal Contract Compliance Programs (OFCCP). In addition to providing approximately 186 Texaco female employees with back pay and salary increases, the agreement requires Texaco to analyze its pay scale annually, and to provide additional opportunities for its female employees.
The Texaco settlement follows several significant settlement agreements reached by the Labor Department in 1998. Last April, CoreStates Financial Institution agreed to settle with the OFCCP for $1.5 million to remedy its pay discrimination against women and minority bank employees. Additionally, December 1998 saw U.S. Airways Corporation agree to pay nearly $400,000 in back pay and salary adjustments to 30 women in management and professional jobs, while Highmark, Inc., formerly Blue Cross/Blue Shield of Western Pennsylvania, agreed to pay $200,000 to settle allegations that it paid its female employees less than their male counterparts. These instances of alleged violations are not isolated occurrences. According to the Secretary of the Department of Labor, Alexis Herman, OFCCP auditors have revealed compliance problems in about half of the companies audited since 1993.
These settlements should prompt employers - particularly federal contractors - to regularly conduct self-audits on compliance with equal pay laws, if they have not already begun such a program. Such audits can reveal problems before a compliance officer comes knocking at the door, and can be an effective employee relations tool.
All employers, regardless of federal contractor status, should also note the Clinton Administration's stepped-up rhetoric and budget commitment regarding enforcement of equal pay laws. President Clinton devoted a recent weekly radio address to tough talk on gender-based pay disparity, announcing that his fiscal 2000 budget will include a $14 million increase to toughen enforcement efforts, including tripling the number of enforcement workers at the Equal Employment Opportunity Commission. Clinton also urged Congress to pass the so-called "Paycheck Fairness Act," which in part would allow women alleging wage discrimination to sue their employers for unlimited compensatory and punitive damages. The fate of the budget and other legislation is uncertain in the Republican-controlled Congress, but it seems clear that increased enforcement efforts will continue.
OFCCP's Responsibilities
The OFCCP is responsible for enforcing Executive Order 11246, which prohibits federal contractors and federally-assisted contractors and subcontractors that conduct more than $10,000 in government contracts business per year from discrimination in hiring and employment decisions on the basis of gender, race, color, religion and national origin. The Order also requires all government contractors with 50 or more employees and $50,000 or more in government contracts to develop written affirmative action programs. In addition to the Executive Order, OFCCP is responsible for enforcing Section 503 of the Rehabilitation Act of 1973, the Vietnam Era Veterans' Readjustment Assistance Act of 1974, the Immigration Reform and Control Act of 1986 and Title I of the Americans with Disabilities Act of 1990.
OFCCP uses various enforcement tools to investigate and remedy violations of government contractors' affirmative action obligations, including compliance reviews, complaint investigations and conciliation agreements. A compliance review, or audit, generally involves an OFCCP compliance officer's examination of a government contractor's affirmative action program, its payroll and personnel records and interview of company employees and officials. If the compliance officer discovers problems, he or she will recommend ways to correct any non-compliance and encourage the contractor to enter into a conciliation agreement to remedy the violations. OFCCP can also seek sanctions for non-compliance, the most severe of which is debarment - the loss of government contracts.
Contractors, however, should not wait for the OFCCP compliance officer to discover their problems. The time period between notice of an OFCCP audit and the commencement of the audit is generally brief, and does not provide sufficient time to develop an effective affirmative action program or to find and correct any failures to meet affirmative action goals. To be prepared for an OFCCP audit, contractors should routinely audit themselves. Done properly, a self-audit will disclose areas of concern before they become too troublesome or costly. In fact, OFCCP strongly recommends contractors audit themselves.
Given the OFCCP's recent attention to pay audits, an important aspect of the self-audit process is a compensation analysis. A compensation analysis examines the pay structure to determine whether unlawful pay discrimination is occurring, and, if so, how it should be resolved. The first step in any compensation analysis is to determine what considerations affect a contractor's compensation for each job within its organization. Such considerations may include:
- grade levels
- length of time in position
- position requirements
- educational background
- performance evaluations.
Once those considerations are identified, OFCCP recommends three separate methods of compensation analysis to determine if the pay considerations are uniformly applied and to determine their effect on minorities and women.
Median Compensation Analysis
The first method is the median compensation analysis. A relatively easy and unsophisticated analysis, the median approach measures the salary level that is larger than or equal to half of the salaries analyzed and equal to or smaller than half of the remaining salaries analyzed. In essence, the median provides a salary figure that is in the middle of a group of salary distribution figures. Once the median is identified, it should then be identified for men and for women (or another protected class). Those figures should then be analyzed by the previously identified salary considerations, such as length of service, salary grade and educational background.
Average Compensation Analysis
The second method is to analyze the average compensation of a group of salaries. Simple arithmetic will allow contractors to compute the average by adding the salaries and dividing by the number of salaries analyzed. Again, the average numbers should be calculated for men and for women. This number may be telling in itself. Nevertheless, average salaries should be further analyzed in comparison to such things as length of service and salary grade.
Detailed Compensation Analysis
The third method involves the use of spreadsheet table software that adjusts and sorts various compensation factors. OFCCP suggests that this method can provide useful, and potentially more meaningful, information by sorting salary information to identify its effect on specific minority groups, or its relation to hire dates, previous jobs, and among different departments.
The purpose of an initial compensation analysis using any of the foregoing methods is simply to identify problems that may be resolved before an OFCCP audit or complaint. In addition to a compensation analysis, a self-audit should identify problem areas, such as whether the contractor is not meeting recruitment goals for women and minorities, or whether the contractor is having difficulty retaining qualified women and minorities. If problems like these are discovered, the contractor should evaluate how to address them, and devise a plan to remedy those problems areas.
A proactive approach to OFCCP compliance review not only maximizes the probability of a successful audit, but also is a sound approach to employee relations. And as the recent OFCCP settlement figures demonstrate, a self-audit may be financially beneficial as well.