Statistical Compensation Analysis - The Basics

A breakdown of the compensation analysis standards and voluntary analysis guidelines

Published in the Federal Register on June 16, 2006, the OFCCP's compensation analysis standards and voluntary guidelines seek to codify how both the OFCCP and federal government contractors will analyze compensation. A summary of the key points of the voluntary guidelines are as follows:

1. Companies complying with the OFCCP's voluntary guidelines can request a compliance coordination incentive (CCI) in the event of an audit. If approved, the OFCCP will coordinate its compensation investigation with the contractors own analyses in the event of an audit.
   
   
2. Companies greater than 500 employees must use multiple regression to request a CCI.
   
   
3. While an analysis may begin with Grade, Similarly Situated Employee Groups (SSEGs) are expected to become the grouping used in any final analysis where initial findings indicate potential problem areas. At least 70% of the employees in the AAP or workplace must be classified in SSEGs.
   
   
4. Multiple regression analyses are currently being used in compensation audits. The OFCCP is applying "mini-regression" techniques using the following 12 variables: Employee ID, Salary, Job Title, FT/PT, Exempt/Non-exempt, Employee Location (i.e. work site), Date of Hire, Date in Job, Prior Experience, Grade Level, Race/ethnicity, and Gender. Other potential factors include education and job performance ratings (or any other factor that may legitimately impact pay).
   
   
5. When analyzing a contractor's item 11 submission the OFCCP typically uses a mean salary difference threshold of 2% for flagging groups (grades or SSEGs) for subsequent investigation (i.e., any pay difference between men/women or whites/minorities for any grouping that is >2% will likely be scrutinized by the OFCCP).
   
   
6. The OFCCP is considering using the "30/5" rule that suggests analyzing groups that have at least 30 people in them with at least 5 protected individuals (female/minority). BCG intends to analyze groups with at least 5 women or minorities, regardless of the number of men and non-minorities. While this will likely closely coincide with the 30/5 rule proposed by OFCCP, BCG takes the proactive position that employers should be notified (via attorney-client privilege) of potential pay disparities "trending" toward impact regardless of sample size constraints.
   
   
7. Companies unwilling to submit their internal compensation analyses to the OFCCP in the event of an audit can request an Alternative Compliance Certification (ACC). By requesting an ACC a company can certify their compliance with OFCCP's requirement to analyze their compensation systems on a yearly basis while still maintaining attorney-client privilege protection for their proactive analyses. However, because the analyses will not be provided to the OFCCP, the OFCCP will be unable to coordinate their efforts and will conduct their investigation without regard to the contractor's self-evaluation.
   
   

Want to know more about conducting OFCCP style compensation analysis?

• Levels of Service & Process Involved
• Multiple Regression Compensation Analysis - Step-by-Step
• Similarly Situated Employee Groups (SSEGs)
• Reactive & Proactive Approaches to Compensation Analyses - Risks & Benefits Chart [PDF]
• Compensation Analysis Methodology Flowchart [PDF]

Want to know more about OFCCP style compensation analysis software?

Compensation Analysis Software - COMPARE

For more information about our pay equity and multiple regression analysis services, please contact Biddle Consulting Group, Inc. at (800) 999-0438 or staff@biddle.com