Advancing Pay Equity Through Compensation Analysis
Equity is one of America’s core principles, which is why it’s essential that the federal government conduct business with contractors that promote pay equity.
Pay equity is at the heart of a recent action from our Office of Federal Contract Compliance Programs (OFCCP), which will provide greater clarity on federal contractors' responsibility to analyze their compensation systems each year.
On August 18, 2022, OFCCP issued “Advancing Pay Equity Through Compensation Analysis,” a revision to Directive 2022-01, “Pay Equity Audits,” which promotes greater contractor attention to federal contractors’ longstanding obligation to analyze compensation systems and document compliance. The revised Directive clarifies its guidance and explains that in order to determine that a contractor has satisfied its obligation to conduct a compensation analysis, OFCCP requires certain documentation to demonstrate compliance.
Why it matters
OFCCP is charged with protecting America's workers by ensuring that those who do business with the federal government fulfill the promise of equal opportunity. We have jurisdiction over approximately 120,000 contractor establishments and 25,000 firms, which employ approximately 20% of the American workforce. Our dedicated staff across the country works to advance equal opportunity, promote diversity, and enforce the law.
Combatting pay discrimination is a top priority for OFCCP. Nearly 60 years after the passage of federal anti-discrimination protections, our country has made important progress in advancing equal opportunity; yet race, ethnicity, and gender-based pay disparities remain across industries.
For over 20 years, covered contractors have had an obligation to prevent, identify, and remedy unlawful pay disparities based on race, gender, and ethnicity through an annual analysis of compensation. To proactively remove barriers to equal opportunity, a contractor “must perform in-depth analyses of its total employment process,” including “compensation system(s)” under 41 CFR 60-2.17(b)(3). A contractor must also “develop and execute action-oriented programs designed to correct any problem areas identified,” 41 CFR 60-2.17(c).
Leading employers know that one of the most effective strategies for promoting pay equity is to perform an analysis of their pay systems to identify and correct problems. Yet, often where OFCCP identifies pay-related concerns during compliance evaluations, we discover that contractors have not performed any analysis of pay or have not adequately analyzed their compensation system.
Three things to know about the revised Directive:
- It explicitly reaffirms the agency’s position that it does not require the production of attorney-client privileged communications or attorney work product.
- It identifies the documentation that OFCCP requires from a contractor to determine that the contractor has satisfied its obligation to perform a compensation analysis.
- It explains the documentation required from a contractor when its compensation analysis identifies problem areas to demonstrate that it has implemented action-oriented programs.
In addition, although the original Directive used the phrase “pay equity audit” to refer to contractors’ obligations under 41 CFR 60-2.17(b)(3), this revised Directive instead uses the term “compensation analysis” to avoid any confusion regarding the nature of a contractor’s obligations.
A fair pay system benefits all workers and employers. OFCCP’s compliance evaluations play an important role in rooting out pay inequities. Our agency reviews contractors’ pay data and practices to identify problems that would not otherwise come to light because workers are often unaware of their colleagues’ pay. Conducting an annual self-analysis of compensation helps contractors prevent pay discrimination by identifying problems early so that contractors can correct them.
OFCCP is committed to facilitating a transparent and efficient process to identify and remove barriers to opportunity for all workers. OFCCP welcomes feedback and identification of areas across the agency’s work where additional guidance or clarification would be valuable.
We invite you to visit the Department of Labor’s website and subscribe to email updates to know more about workers’ rights and employers’ obligations.
Jenny R. Yang is the Director of the Office of Federal Contract Compliance Programs.