[Federal Register Volume 69, Number 220 (Tuesday, November 16, 2004)]
[Notices]
[Pages 67252-67255]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-25402]


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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 
[email protected]. 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]
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