Pay Equity Under Heightened EEOC EEOC and OFCCP Scrutiny d OFCCP S i - - PowerPoint PPT Presentation

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Pay Equity Under Heightened EEOC d OFCCP S i EEOC and OFCCP Scrutiny

Minimizing Exposure to Government Enforcement and Employee Lawsuits for Wage Discrimination

T d ’ f l f

1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific TUESDAY, JUNE 18, 2013

Today’s faculty features:

Alison B. Marshall, Partner, Jones Day, Washington, D.C. Katharine Kores, District Director, Equal Employment Opportunity Commission, Memphis, Tenn.

• Dr. Donald R. Deere, S

enior Economist, Welch Consulting, Bryan, Tex.

• Dr. Donald R. Deere, S

enior Economist, Welch Consulting, Bryan, Tex.

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PAY EQUITY UNDER HEIGHTENED EEOC HEIGHTENED EEOC AND OFCCP SCRUTINY

June 18 2013 Alison Marshall 51 Louisiana Ave N W June 18, 2013 51 Louisiana Ave., N.W. Washington, D.C. 20001 202-879-7611 abmarshall@jonesday.com

5

Why do we need this program?

• Pay equity issues are receiving renewed attention

Pay equity issues are receiving renewed attention.

• President Obama has made pay equity a priority.
• Enforcing equal pay laws is listed in the EEOC’s new

g q p y Strategic Enforcement Plan as one of six national priorities.

• On February 28 2013 the OFCCP rescinded its 2006
• On February 28, 2013, the OFCCP rescinded its 2006

compensation standards and issued new enforcement directive. P i t t ti ti

• Private sector actions continue.

6

Overview

• Quick review of key laws

Quick review of key laws

• Recent EEOC activity around pay equity
• New OFCCP directive
• Proactive measures employers can take
• Statistical analyses: data and methodologies

7

Key Laws Key Laws

• Equal Pay Act of 1963, 29 U.S.C. §206(d)(1) provides in pertinent

part:

No employer…shall discriminate, within any establishment. . ., between employees on the basis of sex by paying wages to employees in such establishment at a rate less than the rate at which he pays wages to employees of the opposite sex in such establishment for equal work on jobs employees of the opposite sex in such establishment for equal work on jobs the performance of which requires equal skill, effort, and responsibility, and which are performed under similar working conditions. . .” (emphasis added). – Comparison between employees working at the same “establishment”. – “Wages” encompasses all forms of compensation. – No showing of intent is required. – Key issue in most EPA cases is whether the comparators are performing “equal work”. – Burden shifts to employer to establish affirmative defense: seniority system, merit system, production measure, or reasonable factor other y , y , p , than sex.

8

Key Laws cont’d Key Laws cont d.

• Title VII

– Encompasses race as well as gender pay claims. – For disparate treatment, plaintiff needs to establish intentional discrimination. – For disparate impact, plaintiff needs to identify a specific di i i t ti th t lt i di iti y discriminatory practice that results in wage disparities. – May or may not overlap with EPA.

• Executive Order 11246

– Prohibits gender and race discrimination by government contractors and subcontractors. – Contractors may not discriminate in “rates of pay or other y p y forms of compensation.” 41 C.F.R. §60-1.4(a)(1). – Contractors must review and monitor their compensation systems. – Record-keeping obligations.

9

Pay Equity Under Heightened EEOC & OFCCP Scrutiny EEOC & OFCCP Scrutiny

June 18, 2013

Katharine W. Kores, Director Memphis District Office

President John F. Kennedy signed the Equal Pay Act

• n

June 10, 1963

Source:: www.jfklibrary.org

11

World War I (1914 – 1918)

Source: Library of Congress

12

1938 – Fair Labor Standards Act 1938 Fair Labor Standards Act

Source: www.democrats.org

13

World War II (1939 – 1945)

Source: National Archives

14

In 1945, Senators Claude Pepper and Wayne Morse Introduce an Equal Pay bill.

Source: National Park Service

15

The Equal Pay Act of 1963

Source: National Archives

16

Source: U. S. Women’s Bureau, Dept. of Labor,

17

W G O Ti Wage Gap Over Time 73 3% 73 3% 73 3%

That’s less than

77.4%

60 7% 60 7% 60 7% 59.4% 59.4% 59.4% 60.2% 60.2% 60.2% 71.6% 71.6% 71.6% 73.3% 73.3% 73.3%

half a penny progress per year!

60.7% 60.7% 60.7% 59 % 59 % 59 %

1960 1970 1980 1990 2000 2010 Source: National Committee on Pay Equity, Census Bureau

18

The Equal Pay Act

O Cl i d b d di i i ti One Claim: gender-based wage discrimination

19

Th l i t i l th

Equal Pay Claim

The complainant receives a lower wage than an employee of the opposite sex in the same establishment; and ; The employees perform substantially equal work requiring equal skill effort and responsibility requiring equal skill, effort and responsibility under similar working conditions.

20

Employer Defenses for Wage Differences

Seniority system Merit system Incentive system A f t th th Any factor other than sex

21

Factor Other Than Sex

Education, Experience, Training, and Ability Participation in Training Program Shift Differential Job Classification S stems Job Classification Systems “Red Circle” Rates Temporary Reassignments Temporary Reassignments Revenue Production Market Factors Part‐time/Temporary Job Status

22

• Two years back pay for violation; three years if willful;

Remedies and Relief

Two years back pay for violation; three years if willful;

• Liquidated damages if lacked good faith
• Salary increase

y

• Back pay
• Attorneys fees and costs
• Compensatory and punitive damages recovered for retaliation

under EPA not subject to statutory caps which apply only to claims under Title VII and ADA

• Injunctive relief

23

h k Paycheck Fairness Act

H.R. 377‐ 1/23/2013

• Intended to address persistent M/F wage

gap g p

• Introduced in Congress 18 times in last 16

years years

• Changes “Any Factor Other Than Sex” and

EPA remedies EPA remedies.

24

Si 1992 EEOC h i d l t Since 1992, EEOC has received almost 23,000 Equal Pay Act charges and recovered $124 illi i b fit f i ti f

• ver $124 million in benefits for victims of

wage discrimination under the act.

25

National Equal Pay Enforcement Task Force

• President Obama’s Administration created Task Force
• President Obama s Administration created Task Force

consisting of:

• Equal Employment Opportunity Commission

Equal Employment Opportunity Commission

• Department of Justice
• Department of Labor
• Department of Labor
• Office of Personnel Management

26

National Equal Pay Enforcement Task Force National Equal Pay Enforcement Task Force Five Challenges

• 1. Three different federal agencies have responsibility to enforce laws

prohibiting wage discrimination, and they do not consistently coordinate these responsibilities. 2 The government’s ability to understand full scope of wage gap and to

• 2. The government s ability to understand full scope of wage gap and to

identify and combat wage discrimination can be improved by access to more data than currently available.

• 3. Employees and employers are insufficiently educated on their rights and

bli ti ith t t di i i ti

• bligations with respect to wage discrimination.
• 4. Government Accountability Office has identified an eleven cent wage

gap between men’s and women’s average salaries in federal workforce.

• 5. Existing laws do not always provide federal officials with adequate tools

g y p q to fight wage discrimination.

27

EEOC Strategic Enforcement Plan (SEP) EEOC Strategic Enforcement Plan (SEP) Fiscal Years 2012 Fiscal Years 2012 ‐ ‐ 2016 2016

Strategic Plan contains 6 national priorities: #4 E f i E l P L Th EEOC ill #4: Enforcing Equal Pay Laws: The EEOC will target compensation systems and practices that discriminate based on gender. g

• National outreach focus on EPA
• Directed Investigations

Directed Investigations

• Commissioner’s Charges

28

Equal Pay Act Equal Pay Act – EEOC Litigation EEOC Litigation

• EEOC v National Railroad Passenger Corp (Amtrak)
• EEOC v. National Railroad Passenger Corp. (Amtrak),

settled for $171,483 in 2011. EEOC H d i Id l El i C l d f

• EEOC v. Hyundai Ideal Electric Co., settled for

$188,000 in 2011.

• EEOC v. Texas Dept. of Rural Affairs, a joint action

with the Department of Justice which settled for $175,000 in 2012.

29

For additional information: www.eeoc.gov 1-800-669-4000 1-800-669-6820 (TTY) Katharine Kores@eeoc gov Katharine.Kores@eeoc.gov

30

OFCCP – New Compensation Directive Directive

• Effective February 28, 2013, OFCCP rescinded its 2006

ec e eb ua y 8, 0 3, O CC esc ded s 006 enforcement guidance documents on pay discrimination: the Compensation Standards and Voluntary Guidelines.

• Reason articulated for change is that the 2006 documents

“significantly constrained OFCCP’s ability to investigate pay discrimination to the full extent permitted by law.”

• Issued new directive #307: “Procedures for Reviewing

Contractor Compensation Systems and Practices ” Contractor Compensation Systems and Practices.

• New directive describes OFCCP’s new investigation

procedures.

• Will consider all practices that may lead to pay disparities and

use all available evidence to evaluate compliance.

31

OFCCP – New Compensation p Directive cont’d.

• Summary of Procedure

Summary of Procedure – Conduct preliminary analysis of summary data. – Conduct an analysis of individual employee-level data. D i h h f f i i i – Determine the approach from a range of investigative and analytical tools. – Consider all employment practices that may lead to compensation disparities. co pe sat o d spa t es – Develop pay analysis groups. – Investigate systemic, small group and individual discrimination. – Review and test factors before accepting factors for analysis. – Conduct onsite investigation, offsite analysis, and fi t f th d l refinement of the model.

32

Implications of Directive #307 Implications of Directive #307

• Relaxes comparability.
• Allows for more aggregated analyses.
• Focuses on range of employment practices.
• No longer need anecdotal or individual evidence of pay

discrimination discrimination.

33

Wh t C E l B D i ? What Can Employers Be Doing?

• Review current pay policies and practices

Review current pay policies and practices.

• Review manager training and how well managers understand

the compensation system.

• Review documentation around compensation decisions,

particularly starting salary decisions, and consider whether more structure needs to be imposed on documentation.

• If using market rate data, review how complete the data is.
• Conduct privileged pay equity studies.

– Privileged review of compensation data.

• If disparities exist, consider whether pay structure needs to be

reviewed reviewed.

34

Pay Equity Self-Audits y q y

• Is the organization prepared to make adjustments in

compensation practices or actual pay if differentials are compensation practices or actual pay if differentials are found?

• Consider privilege issues.
• If decide to do an analysis, avoid creating a paper trail

that could be used against the organization in litigation.

• Consider retaining outside labor economist

Consider retaining outside labor economist.

• Review all components of compensation, including base

pay, incentive awards, and bonuses.

• Look at starting salaries.

35

Broad Band Compensation Systems

• Many organizations moved to broad band compensation

systems in the 1990s and early 2000s. systems in the 1990s and early 2000s.

• Combined salary grades into a few “wide” bands.
• Reflected philosophy about performance management.
• Designed to encourage career growth through increased

responsibilities, skill development and job mobility. P t l t l th

• Promote lateral career growth.
• Provided ability to respond to market more quickly.
• Flatter organization
• Flatter organization.
• But, need to be cognizant that broad banding, because
• f its great flexibility, if not managed carefully can lead to

inequities.

36

Starting Salary Differentials as a Defense

• King v. Acosta Sales & Marketing, Inc., 678 F.3d 470 (7th Cir. 2012).

– Gender discrimination pay under Equal Pay Act and Title VII. – 7th Circuit reversed the district court’s dismissal of the pay claims. Emphasized that under the EPA the employer has the burden of – Emphasized that, under the EPA, the employer has the burden of persuasion and proof as to the affirmative defense. – As to Title VII claim, court found there was an issue of fact as to whether the company’s articulated reason for differentials was pretextual. – Differences in education and prior experience may have justified differences in starting salaries, but if men and women are equally good in doing the job, women should have received greater and more frequent increases and the salaries should have converged over time.

37

Pay Equity Under Heightened EEOC Pay Equity Under Heightened EEOC and OFCCP Scrutiny

June 18, 2013 D ld R D Ph D Donald R. Deere, Ph.D. Welch Consulting www.Welchcon.com Ddeere@Welchcon.com (979) 691-0704

Outline

• Background on regression

g g

• Reviewing compensation
• Where to Look
• Five Questions
• Simple Example
• Complications
• Pooling
• Pooling
• Challenges
• Analytical Issues from Directive 307

39

Background on Regression

A pay regression compares the pay of multiple employees controlling for various factors

• Distinguish two types of factors:
• Those that identify “peer groups” of employees who should be compared to

each other (e g in the same job) each other (e.g., in the same job)

• Those that explain differences in pay among employees in the same

comparison peer group (e.g., time in the job)

• The regression makes an adjustment for every factor, so that

g j y pay is measured “as if” all of the factors were the same for each employee in the peer group

• The adjusted pay values are used to estimate the average

j p y g (unexplained) gender pay difference in the peer group

• Note: The estimated gender pay difference assumes all omitted

factors are gender neutral g

40

Background on Regression

What if include, or “pool”, employees from multiple peer groups in the same regression?

• “Develop Pay Analysis Groups” – OFCCP Dir. 307
• Pooling assumes there is a single gender pay difference for all

Pooling assumes there is a single gender pay difference for all peer groups (i.e., peer group-specific gender differences are ignored)

• Pooling assumes that the “effect” of a factor, such as time-in-job,
• n pay is the same within every peer group
• Can assess these issues statistically particularly for class
• Can assess these issues statistically, particularly for class

certification and in light of Dukes and Comcast

41

Reviewing Compensation – Where to Look

• Individual outliers

Are there individuals paid significantly lower than peers for h th i l iti t j b l t d j tifi ti ? whom there is no legitimate, job-related justification?

• Group differences within peer groups

Within a set of peers, are there significant differences between the average pay of two demographic groups (e.g., women and men) after controlling for legitimate factors?

• Aggregates of peer groups, or “Pooling”

Are there appropriate collections of peer groups where, overall, there is a significant difference between the average pay of two demographic groups after controlling for legitimate factors and testing/allowing these factors to have different (“interaction”) effects across peer groups?  What is the underlying pattern of peer group-specific differences—are most adverse or only a relative few?

42

Reviewing Compensation - Five Questions

• Who are peers?

– Similar work, responsibility, skill, effort, qualifications, location

Wh t th l iti t t l f t ?

• What are the legitimate control factors?

– Experience – Education – Performance, etc.

• Are there collections of peer groups that are sensible and defensible

for an aggregated analysis?

– Function – Business Unit

• Can these peer groups be pooled statistically?
• What is the pattern of peer group-specific differences?

43

Reviewing Compensation – Simple Example

• In this simple regression, pay adjusted for time-in-position

yields an unexplained gender difference that is favorable to b t t ti ti ll i i ifi t

$130 000 $140,000

women, but statistically insignificant.

• Est. Avg. Diff w/o Control = ‐$9,491

O i i l SD 4 74

$100,000 $110,000 $120,000 $130,000

Original SD = ‐4.74 Males = 180 Females = 120

• Est. Avg. Diff w/ TIP Control = +$882

SD w/ TIB Control = +0.76

$60,000 $70,000 $80,000 $90,000 $50,000 2 4 6 8 10 12 14 Time in Position (Years) M l F l R i Li Male Female Regression Line

44

Reviewing Compensation – Complications

• The chart below illustrates how time-in-position may not

capture relevant experience resulting in an estimated l i d d diff th t i t ti ti ll i ifi t

$130,000 $140,000

unexplained gender difference that is statistically significant.

Entered position with

$100,000 $110,000 $120,000 $ ,

Entered position with prior experience

$70,000 $80,000 $90,000

• Est. Avg. Diff = ‐$6,654

SD = ‐3 81

$50,000 $60,000 2 4 6 8 10 12 14 Time in Position (Years) M l F l R i Li

SD 3.81 Males = 180 Females = 120

Male Female Regression Line

45

Reviewing Compensation – Pooling or Not

• Pooling of peer groups affects the results, may not be appropriate, and
• bscures the peer group-specific differences

Peer Group 1

• Est. Avg. Diff = +$1,436

SD = +1.25 Males = 180 Females = 120

Pooling Peer Groups

No Interaction

• Est. Avg. Diff = ‐$4,151

SD = ‐3.16

$ $80,000 $110,000 $140,000

Males = 180 Females = 120 Peer Group 2 $

Peer Group Interaction

• Est. Avg. Diff = ‐$1,221

SD = ‐2.01

$50,000 2 4 6 8 10 12 14 16 18 $90,000 $120,000

• Est. Avg. Diff = ‐$1,696

SD = ‐1.65 Males = 180 Females = 120

Full Interaction

• Est. Avg. Diff = ‐$1,065

SD = ‐1.78 Statistical test of pooling? NO

$30,000 $60,000 2 4 6 8 10 12 14 16 18 $110,000

Peer Group 3

• Est. Avg. Diff = ‐$2,857

SD = ‐3.16 Males = 180 Females = 120

NO Statistical test of common gender difference? NO Males = 540 Females = 360

$20,000 $50,000 $80,000 2 4 6 8 10 12 14 16 18 Time in Position (Years) Male Female Regression Line

46

Reviewing Compensation - Challenges

What to make of a statistically significant gender difference in pay? F i l d d i h i l l i diff i

• Factors included in the regression poorly explain differences in

the pay of women and men

• Something “wrong” with factors/model, or

Something “wrong” with pay

• Something “wrong” with pay
• Examine pairs of individuals with similar predicted pay, but quite

different actual pay P t d i t hi l th l ti f ll t

• Pay today is pay at hire plus the accumulation of all past

changes in pay

• Separately compare starting pay and pay growth

Pay decisions are made one at a time but now must explain the

• Pay decisions are made one at a time, but now must explain the

cumulative results of all past decisions affecting pay

• If make adjustments, use regression to re-assess

47

Reviewing Compensation - Challenges

How can control factors be improved? Skill d P i E i Skill and Prior Experience

• Prior experience (and pay?), particularly with previous employers, is likely

crucial to explaining current pay

• Above entry level will compare employees who were hired-in and who were

Above entry level, will compare employees who were hired in and who were promoted-up

• Also will be comparing employees who held a variety of positions and those

who “came straight through” M ll th t t j b ill h l l i t

• More generally, pathway to current job will help explain current pay, e.g.,

demoted and red-circled

Effort and Performance History

• Prior individual performance is clearly important to explaining current pay
• Prior “unit” performance may be important because of past differences in

raise pools

48

Reviewing Compensation - Challenges

How can control factors be improved? R ibili i d R i S Responsibilities and Reporting Structure

• The number and type of individuals reporting to an employee may capture

responsibility that is reflected in pay

• Direct and indirect reports; “level” of the reports

Direct and indirect reports; level of the reports

• Also non-HR data, such as budgets, may capture responsibility that is

reflected in pay

Acq isitions Acquisitions

• The pay structure of acquired units may be quite different
• Integration will take time and may initially distort pay comparisons, e.g., may

compare employees before they are really comparable p p y y y p

49

Additional Analytical Issues Raised by Directive 307

• “Develop Pay Analysis Groups”
• Pooling, testing for pooling, and peer group-specific differences
• “Consider All Employment Practices that May Lead to

Compensation Disparities”

Initial assignment and position preferences

• Initial assignment and position preferences
• Competitive promotions/posting; in-place/career promotions
• Assignment of sales territories, customers, etc.
• “Review and Test Factors before Accepting”
• Does factor explain pay differences within demographic groups?
• “Investigate Systemic Small Group and Individual
• Investigate Systemic, Small Group and Individual

Discrimination”

• Make sure statistics are done correctly (what is probability of a finding

difference if look in enough places?) g p )

• Are the small group/individual differences consistent with “systemic”?

50