The Office of Federal Contract Compliance Programs (OFCCP) recently revamped its approach to investigating potential pay discrimination involving federal contractors. Effective February 28, 2013, OFCCP rescinded the Bush administration-era guidance for compensation discrimination and swapped it for its new Policy Directive 307. This new guidance aligns OFCCP’s investigative procedures with the traditional Title VII principles for addressing individual claims of compensation discrimination.

The new directive provides a complex description of the procedures and protocols OFCCP will now follow when conducting compensation investigations. The stated goal of the directive is to provide clarity and transparency to contractors about OFCCP’s compensation investigation procedures. Importantly, Directive 307 implements a case-by-case approach to compensation discrimination investigations, where OFCCP investigators have a "range of investigative and analytical tools" at their disposal.

Under Directive 307, investigators will initially conduct a preliminary analysis of a contractor’s compensation data, considering a number of quantitative and qualitative factors. The quantitative factors at an investigator’s disposal include the size of the overall average pay difference based on race and gender; the size of the largest average pay difference within affirmative action plan job groups, or the contractor’s existing salary band or pay grade system; the number of job groups or grades where average pay differences based on race or gender exceed a certain threshold; and the number of employees affected by race- or gender-based average pay differences within job groups or grades.

During the preliminary analysis, investigators may also consider a number of qualitative factors, including compliance history, OFCCP or EEOC complaints, anecdotal evidence, potential violations involving other employment practices, and data integrity issues. Importantly, Directive 307 makes it clear that these factors are not exclusive, and that an OFCCP investigator is not required to consider any or all of them during a preliminary analysis.

Once the preliminary analysis is complete, Directive 307 identifies tools that an investigator may use to determine the best course of action. Recognizing that the "best approach for a case depends upon the underlying facts," Directive 307 identifies three key questions for every compensation investigation:

  1. Is there a measurable difference in compensation on the basis of sex, race or ethnicity?
  2. Is there any difference in compensation between comparable employees under the contractor’s wage or salary system?
  3. If so, is there a legitimate, nondiscriminatory reason for the difference?

To answer these questions, investigators can utilize statistical analyses (i.e., regression analyses), nonstatistical studies (i.e., comparative or cohort analyses), anecdotal evidence, and review of workforce data and compensation policies. An investigator is also free to conduct employee interviews and to review a contractor’s policies and practices. However, Directive 307 again makes it clear that an investigator is not limited to any of these tools.

Perhaps the broadest impact of Directive 307 is that it now instructs investigators to examine "all employment practices that have the potential to lead to compensation disparities." These practices include "access to opportunities," "policies and practices," and any observed differences in pay or benefits. In particular, OFCCP provides several examples of potentially troublesome employment practices:

  • Differences in salary or hourly rate. Under a "highly subjective" salary system, Hispanic customer service agents are paid less than Caucasian employees in the same or similar positions.
  • Differences in job assignment or placement. At a grocery store, men are hired into higher-paying meat department positions, while women are disproportionately assigned to lower-paying bakery department jobs.
  • Differences in training or advancement. Management training is only available if an employee is recommended by a
  • manager. Certain managers only refer Caucasian males for the training, so promotions to management are disproportionately given to Caucasian males.
  • Differences in earning opportunities. African-American sales workers are disproportionately assigned to less-lucrative sales territories.
  • Differences in access to increases and add-ons. Female lawyers who receive the same salary as male colleagues earn less in annual bonuses.

In light of Directive 307’s new case-by-case approach for compensation investigations, contractors should expect to see significant variations in how OFCCP will approach issues of compensation discrimination. Importantly, OFCCP is now more likely than ever to make a finding of compensation discrimination during a routine investigative audit. Contractors should expect that OFCCP will utilize a number of different methods to analyze their compensation data, and that no single investigation will be the same.

Using Directive 307 as guidance, contractors should consider performing pre-submission reviews of their data and information under the same standards that OFCCP will use to evaluate it. They should also consider examining their routine employment policies and practices to determine whether there is potential for compensation disparities between different protected classes.