Monday, October 20, 2014

The Proposed NPRM: Providing Incentives to Aspire to an Acceptable Pay Gap



On August 6, 2014, the U.S. Department of Labor issued a proposal to collect summary data on how federal contractors and subcontractors pay their employees. This Notice of Proposed Rulemaking was published in the Federal Register on August 8, and is open for public comment until November 6, 2014.


The NPRM proposes the use of compensation provided by federal contractors to establish an “industry standard” for pay gaps between men and women, and minorities and non-minorities, against which each federal contractor will be compared.  But the establishment of an “industry standard” for pay gaps will send the wrong message about disparities in compensation, and this method could ultimately undermine efforts to eliminate pay differentials.


First, the “industry standard” could be perceived to be an acceptable pay gap, which would provide a disincentive for employers to close pay gaps which are smaller than the industry standard.  Only those contractors whose pay disparities fall below this level will have the incentive to act, as the ones whose pay differential is above the mean have little risk of being audited.  Thus, a contractor could have a discriminatory pay practice, but if the overall differential is higher than the “industry standard,” they are not likely to be concerned about the consequences.


Second, because the established “industry standard” pay gap will reflect approximately half (depending on the level of the disparity) of the contractors falling below par, the level is not one to which we want to be aspiring.  In fact, that will become the new normal, and over time we would find contractors below the line pushing their salaries up, but only to the average of the industry, which is a measure tainted by bad actors.  Granted, over time the pay gap would likely be reduced.  But progressing in this half-life-like manner will never eliminate the paydisparities.


I suggest a different approach.  


One alternative is to collect all of the compensation information (and I will leave it to my colleagues to comment on how that should be done), aggregate the data by industry (but not necessarily by geography), and determine which industry has the most significant pay gaps.  Then compare the federal contractors in that industry to the “industry standard,” and focus on everyone “below the line.”  This approach differs than what is proposed in several respects.


First, the emphasis here is on transforming compensation in an industry – not just individual contractors.  The only reason contractors “below the line” are targeted is to better focus OFCCP’s limited resources.  


Second, the “industry standard” measure itself should be kept confidential.  This encourages all federal contractors in the industry to evaluate their own compensation system, regardless of where they stand in relation to the industry standard.  We don’t want to provide disincentives for correcting pay disparitiesthat are above the line.


Another alternative is to use data from the Bureau of Labor Statistics (BLS) to determine which industry to target.  BLS uses a sophisticated sampling methodology to analyze pay in various industries, and this method has been tested over time to provide results upon which we have come to rely.  Once the industries were identified, OFCCP could request the compensation data for federal contractors in those specific industries.  Then the data could be triaged to determine which companies would be subject to audit.


This method would also lessen the burden on federal contractors, as it would only require summary compensation data from the federal contractors in the targeted industries.  Further, it would use limited OFCCP resources, as there would be no need to compile the data to establish “industry standard” pay gaps.  Finally, because the BLS data is already accessible, the process could begin sooner, putting a reduction in the pay gap between men and women, and minorities and non-minorities, on a faster pace.


By Marilynn Schuyler

Schuyler Affirmative Action Practice

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