OFCCP Publishes Revised Directive on Compensation Analysis

Revision identifies how OFCCP will evaluate compliance with compensation obligations and clarifies their authority to request and review support documentation

Today, August 18, 2022, OFCCP published a revised and renamed Directive 2022-01, from Pay Equity Audits to “Advancing Pay Equity Through Compensation Analysis.” The revision provides guidance on how OFCCP will evaluate a federal contractor’s compliance with compensation analysis obligations and clarifies the agency’s authority to have access to and review supporting compensation analysis documentation. The change in the name from “pay equity audit” to “compensation analysis” is to “avoid confusion regarding the nature of a contractor’s obligations.”

The Directive reiterates that a contractor’s compliance obligations include performing an in-depth analysis of their total employment processes, as well as their compensation systems, to identify potential impediments to equal employment opportunities. The “analysis of compensation must include, at minimum, an evaluation of the contractor’s compensation systems to determine whether there is gender-, race-, or ethnicity-based disparities.”

The Directive also states that “in order to determine that a contractor has satisfied its obligation to conduct a compensation analysis, OFCCP requires certain documentation to demonstrate compliance.” The agency feels that the revision reaffirms its “position that it does not require the production of attorney-client privileged communications or attorney work product.” The Directive defined the specific types of documentation that OFCCP will require contractors must provide to satisfy its obligations under 41 CRF 60-2.17(b)(3):

1. when the compensation analysis was completed;
2. the number of employees the compensation analysis included and the number and categories of employees the compensation analysis excluded;⁹
3. which forms of compensation were analyzed and, where applicable, how the different forms of compensation were separated or combined for analysis (e.g., base pay alone, base pay combined with bonuses, etc.);¹⁰
4. that compensation was analyzed by gender, race, and ethnicity; and
5. the method of analysis employed by the contractor (e.g., multiple regression analysis, decomposition regression analysis, meta-analytic tests of z-scores, compa-ratio regression analysis, rank-sums tests, career-stall analysis, average pay ratio, cohort analysis, etc.).

Director, Jenny Yang, stated that the Directive “promotes greater contractor attention to federal contractors’ longstanding obligation to analyze compensation systems and document compliance.”

The revision supersedes any conflicting procedures in the Federal Contracts Compliance Manual (FCCM) or other previously issued guidance.  

OutSolve’s Take - Free Webinar

OutSolve will hold a free webinar on August 31, 2022, to further discuss how contractors should approach pay equity analysis given the OFCCP's entitlement to a contractor's pay equity information. Register today and learn more about this new development. 

Annual pay equity analysis and responding to pay inequities have now moved from a best practice for federal contractors to an annual requirement.  The OFCCP’s intent is to ensure AAPs are being updated annually with the new contractor verification portal.  Additionally, it is now clear that an annual pay equity analysis is required as part of that AAP certification.  It will be necessary to document annually that a pay equity review was performed and contractors will have to identify the type of statistical analyses that were used.

OutSolve is prepared to assist contractors in meeting these new requirements. Annual reporting tailored to the new directive will be available that provides a statistical analysis of pay equity along with providing key visibility to pay gaps within the organization.  For further information about the new Directive, please contact info@outsolve.com or by calling 888-414-2410.