As the persistent “wage gap” continues to make headlines, the Obama Administration has its sights set on eradicating pay discrimination. The directive from the White House to EEOC and OFCCP is, “We know pay discrimination exists – go find it.” As a result, OFCCP has sharpened the tools in its compensation investigation toolbox, including the following:
- Rescission of the Compensation Standards and Voluntary Guidelines. “These documents significantly constrained OFCCP’s ability to investigate pay discrimination,” so the Agency rescinded them to allow more flexibility in making findings.1
- Directive 307. This Directive provides internal guidance on how to investigate pay, directing compliance officers to look at larger groupings beyond job title, such as job groups, pay grades, levels, or even Agency-designed “pay analysis groupings.” OFCCP knows that “big numbers are bad numbers” – the more employees in an analysis, the more likely it is to tip over into statistical significance.
- Strategic Additions to Headcount. OFCCP has increased its pay expertise by adding two Regional Directors with compensation class-action experience (Janette Wipper and Diana Sen) and two Labor Economists to help with damages calculations. The Agency also retooled and rebranded its statistical arm, now known as the Division of Statistical Analysis. This group has been trained to conduct rigorous statistical analyses of pay data.
- Updated Audit Letter/Itemized Listing. Item 19 of the Itemized Listing now requires submission of employee-by-employee data for base pay, bonus, commission, overtime, merit, hire date, etc. The old Item 11 of the prior Itemized Listing required only summaries of employee base pay.
- Presidential Executive Orders.
- Pay Transparency so employees can freely discuss individual pay without fear of retaliation.
- Equal Pay Report will require employers to submit total W-2 wages every year to the government by EEO-1 category, race, and gender. This will be used, at the very least, in selecting employers/locations to audit.
- Fair Pay and Safe Workplaces will preclude employers with federal contracts of $1M or more from requiring employees to sign pre-dispute arbitration agreements for certain claims, including claims under the equal pay provisions of Title VII of the Civil Act.
Indeed, over the last two years, OFCCP has systematically overhauled its approach to investigating pay discrimination. And now, the Agency has developed yet another investigatory tool – compensation manager interviews.
In the past, OFCCP would run preliminary analyses on the summary Item 11 data and then ask questions only if and where the results revealed concerns. Now, as a matter of course in many offices, before sending pay data to the statisticians, the Agency is conducting compensation manager interviews to (1) learn how pay is administered (i.e., what larger pay analysis groups are appropriate for analysis), (2) determine what additional components of compensation comprise total compensation (even beyond that requested in Item 19), (3) ascertain what policies, documents, and analyses are available to be requested, and (4) identify any and all variables affecting pay for future data requests (which often includes requests for 20-30 variables for every employee).
This makes the compensation manager interview critically important to the success of an OFCCP compensation investigation. The Agency will use the information learned during the interview to “test” your pay data. And yet, many employers are not treating the situation seriously or are otherwise failing to properly prepare for these important interviews.
So how should you prepare for a compensation manager interview? Below are four important tips to help you prepare for and successfully conduct an OFCCP compensation manager interview.
1. Review Your Pay Policies
Item 19 of the new audit scheduling letter requests compensation policies. However, employers are not required to submit compensation policies with the initial submission.2 If you have submitted a policy, OFCCP will want to discuss it during the interview. If you have not yet submitted one, OFCCP will likely ask the manager whether policies exist and if so, what they say.
Closely scrutinize your pay policies – if the policy is no longer in use, then it probably shouldn’t be given to OFCCP. Few things trigger alarm bells with OFCCP like hearing, “that is the policy, but we don’t follow it.” If you’re not using the policy as a guide to shape your practices, it’s unwise to submit it to OFCCP.
OFCCP will review your data to see if they are aligned with the policies. For example, many employers have pay for performance policies, but an analysis often reveals performance scores are not correlated with merit increase percentages. If this is the case, you may want to dig deeper so the interviewee can speak to variables that are more predictive of pay and explain why.
If you do have a current, written policy to discuss with OFCCP, ensure the manager can speak to how that policy is implemented at the ground level.
2. Communicating the Theme: How to Analyze Your Pay Data to Develop “Talking Points”
The employer’s goal in the compensation manager interview should be to convey themes, such as the following:
- We have a non-discretionary, established pay system that:
- Does not allow managers discretion, and
- Has layers of oversight from Compensation and over managers to prevent manager discretion.
- We know how our system works and we consistently follow the system.
The compensation manager should know the themes well and use them to guide responses to interview questions. But keep in mind, OFCCP will want to talk details – how do these themes impact the administration of pay? This is where it pays to do early pay analyses.
Federal contractors are required to analyze their compensation systems for EEO issues at least annually. 41 CFR § 60-2.17(b)(3). You should use your pay analyses to help shape the compensation manager’s talking points. For instance, the results could tell you:
- What Variables Affect Pay? Use regression analyses to determine what variables affect pay. For smaller groups, dig into the data and figure out why employees were paid differently.
- How Should the Agency Analyze the Data in Larger Groups? The interview should be viewed as an opportunity to speak strategically about what groupings are closely aligned with how pay is administered. If the interviewee cannot speak to the groupings, the Agency may analyze several options until it finds “hidden” pay discrimination.
- Where Are There Issues? Get in front of this. Know who the outliers/employees are causing the differences and research what is causing the differences for those specific employees.
The answers to these questions should become the compensation manager’s “talking points” in how pay is administered. Then, when OFCCP goes to analyze pay, it becomes a self-fulfilling prophecy – what we tell OFCCP about how pay is administered is confirmed by their analysis.
3. Identify and Prepare the Interviewee
The interviewee should be someone who has first-hand knowledge of actual pay practices at the ground level. OFCCP compliance officers usually are not attorneys, and the compensation interview will be relatively informal. However, prepare for the interview as if it is a formal deposition by a seasoned litigator.
Consider conducting a mock interview to get the interviewee used to the format, tone, and types of questions that will be asked. Like a formal deposition, prepare the interviewee with the following tips:
- Answer the question asked
- Do not volunteer additional information
- Clarify if unsure what is being asked
- “I don’t know” is an appropriate answer; do not guess
- Timing of questions: If anything has changed, assume the question is asked in present unless otherwise specified
- Scope: Assume question refers to base pay unless otherwise specified
Substantively, be prepared to discuss all types of pay, including what groups of employees are eligible for each type of pay. For each grouping and each type of pay, be prepared to discuss how and when pay decisions are made.
After the compensation manager interview, OFCCP may ask the interviewee to review and sign a statement that OFCCP will type up based on interview notes. However, employers are not required to sign the statement and it is fine to decline to sign as a matter of company policy.
4. OFCCP Requests for Pay Analyses
And one final word of caution – OFCCP will likely request copies of your pay analyses. The Agency knows we must conduct annual pay analyses as part of our affirmative action plans and will often ask for these analyses during the compensation manager interview or in subsequent data requests. So it is more important than ever to make sure these analyses are protected by the attorney-client privilege.
And, the Agency will make us “prove” the privilege, which means much more than just having a lawyer involved in the process. There are certain precautions an attorney must take to establish the privilege and protocols the employer’s team must follow to maintain it.
Chipotle Mexican Grill Inc. recently learned this lesson the hard way. In an Order filed on May 7, 2015, the burrito giant was directed to produce a consultant’s report even though it was directed to outside counsel, because the consultant was hired by Chipotle, not the attorney. Scott v. Chipotle Mexican Grill, Inc. (1:12-cv-08333).
The lesson here is, while it is important to proactively analyze your pay data, it is equally important to take great care in establishing and protecting the privilege when doing so. Otherwise you risk handing OFCCP the best evidence against you.
To learn more about OFCCP compensation manager interviews or EEO pay analyses, contact Scott Pechaitis at 303-876-2201 or firstname.lastname@example.org.
1. See OFCCP Frequently Asked Question – http://www.dol.gov/ofccp/regs/compliance/faqs/CompGuidance_faq.htm#Q2. ?
2. See OFCCP FAQ, available at http://www.dol.gov/ofccp/regs/compliance/faqs/SchedulingLetter_FAQs.html#Q4, stating, “Although not required, documentation and policies related to compensation practices…” ?