67252 Federal Register / Vol. 69, No. 220 / Tuesday, November 16, 2004 / Notices 

evidence of discrimination (as discussed 

in Paragraph 6, below, which notes that, 

except in unusual cases, OFCCP will not 

issue a Notice of Violation (NOV) 

alleging systemic compensation 

discrimination without providing 

anecdotal evidence to support OFCCP’s 

statistical analysis) and where there 

exists a statistically significant (as 

defined in Paragraph 4, below) 

compensation disparity based on a 

multiple regression analysis that 

compares similarly situated employees 

(as defined in Paragraph 3, below) and 

controls for factors that OFCCP’s 

investigation reveal were used in 

making pay decisions. OFCCP may 

reject inclusion of such a factor upon 

proof that the factor was actually tainted 

by the employer’s discrimination. 

OFCCP will attach the results of the 

regression analysis to, and summarize 

the anecdotal evidence in, the Notice of 

Violations issued to the contractor or 

subcontractor. 

3. Employees are similarly situated 

under these standards if they are similar 

with respect to the work they perform, 

their responsibility level, and the skills 

and qualifications involved in their 

positions. In determining whether 

employees are similarly situated under 

these standards, OFCCP will collect and 

rely on actual facts regarding 

employees’ work activities, 

responsibility, and skills and 

qualifications. In addition, OFCCP will 

investigate whether preexisting 

groupings, such as pay grades or AAP 

job groups, do in fact group employees 

with similar work, skills and 

qualifications and responsibility levels, 

by evaluating and comparing 

information obtained from job 

descriptions and from employee 

interviews. OFCCP will not base its 

determination that employees are 

similarly situated on the fact that the 

contractor or subcontractor has grouped 

employees into a particular grouping, 

such as a pay grade or pay range, or that 

employees’ pay can progress to the top 

of the pay grade or range based on 

performance or without changing jobs. 

Rather, OFCCP will investigate whether 

such preexisting groupings do in fact 

group employees who perform similar 

work, and who occupy positions 

involving similar skills, qualifications, 

and responsibility levels, by looking at 

job descriptions and conducting 

employee interviews. 

4. A compensation disparity is 

statistically significant under these 

standards if it is significant at a level of 

two or more standard deviations, based 

on measures of statistical significance 

that are generally accepted in the 

statistics profession. 

5. OFCCP will determine whether a 

pooled regression model is appropriate 

based on two factors: (a) The objective 

to include at least 80% of the employees 

(in the workforce subject to OFCCP’s 

compliance review) in some regression 

analysis; and (b) whether there are 

enough incumbent employees in a 

particular regression to produce 

statistically meaningful results. If a 

pooled regression is required, OFCCP 

will conduct statistical tests generally 

accepted in the statistics profession 

(e.g., the ‘‘Chow test’’), to determine 

which interaction terms should be 

included in the pooled regression 

model. 

6. In determining whether a violation 

has occurred, OFCCP will consider 

whether there is anecdotal evidence of 

compensation discrimination, in 

addition to statistically significant 

compensation disparities. Except in 

unusual cases, OFCCP will not issue a 

Notice of Violation (NOV) alleging 

systemic compensation discrimination 

without providing anecdotal evidence to 

support OFCCP’s statistical analysis. In 

unusual cases, OFCCP may assert a 

systemic discrimination violation based 

only on anecdotal evidence, if such 

evidence presents a pattern or practice 

of compensation discrimination. 

7. OFCCP will also assert a 

compensation discrimination violation 

if the contractor establishes 

compensation rates for jobs (not for 

particular employees) that are occupied 

predominantly by women or minorities 

that are significantly lower than rates 

established for jobs occupied 

predominantly by men or nonminorities, where the evidence 

establishes that the contractor made the 

job wage-rate decisions based on the 

sex, race or ethnicity of the incumbent 

employees that predominate in each job. 

Such evidence of discriminatory intent 

may consist of the fact that the 

contractor adopted a market survey to 

determine the wage rate for the jobs, but 

established the wage rate for the 

predominantly female or minority job 

lower than what that market survey 

specified for that job, while establishing 

for the predominantly male or nonminority job the full market rate 

specified under the same market survey.

Signed at Washington, DC this 10th day of 

November, 2004. 

Victoria A. Lipnic, 

Assistant Secretary for the Employment 

Standards Administration. 

Charles E. James, Sr., 

Deputy Assistant Secretary for Federal 

Contract Compliance.

[FR Doc. 04–25401 Filed 11–15–04; 8:45 am] 

BILLING CODE 4510–CM–P

DEPARTMENT OF LABOR

Employment Standards Administration 

Office of Federal Contract Compliance 

Programs; Guidelines for SelfEvaluation of Compensation Practices 

for Compliance With 

Nondiscrimination Requirements of 

Executive Order 11246 With Respect to 

Systemic Compensation 

Discrimination, Notice

AGENCY: Office of Federal Contract 

Compliance Programs, Employment 

Standards Administration, Department 

of Labor.

ACTION: Notice of proposed guidelines 

for self-evaluation of compensation 

practices for compliance with Executive 

Order 11246 with respect to systemic 

compensation discrimination; request 

for comments. 

SUMMARY: The Office of Federal Contract 

Compliance Programs requests 

comments on proposed guidelines for 

self-evaluation of compensation 

practices for compliance with Executive 

Order 11246 with respect to systemic 

compensation discrimination.

DATES: Comments must be submitted by 

the following dates: 

Hard Copy: Your comments must be 

postmarked by December 16, 2004. 

Facsimile: Your comments must be 

sent by December 16, 2004.

ADDRESSES: Comments should be 

submitted to Joseph DuBray, Jr., 

Director, Division of Policy, Planning 

and Program Development, OFCCP. 

Electronic mail is the preferred method 

for submittal of comments. Comments 

by electronic mail must be clearly 

identified as pertaining to the notice of 

guidelines for self-evaluation of 

compensation practices for compliance 

with nondiscrimination requirements of 

Executive Order 11246 with respect to 

systemic compensation discrimination, 

and sent to ofccp-public@dol.gov. As a 

convenience to commenters, public 

comments transmitted by facsimile 

(FAX) machine will be accepted. The 

telephone number of the FAX receiver 

is (202) 693–1304. To assure access to 

the FAX equipment, only public 

comments of six or fewer pages will be 

accepted via FAX transmittal. Where 

necessary, hard copies of comments, 

clearly identified as pertaining to the 

notice of proposed standards and 

methodologies for evaluating 

contractors’ and subcontractors’

compensation practices, may also be 

delivered to Joseph DuBray, Jr., Director, 

Division of Policy, Planning and 

Program Development, OFCCP, Room 

C–3325, 200 Constitution Avenue, NW., 

Federal Register / Vol. 69, No. 220 / Tuesday, November 16, 2004 / Notices 67253

Washington, DC 20210. Because of 

delays in mail delivery, OFCCP suggests 

that commenters planning to submit 

comments via U.S. Mail place those 

comments in the mail well before the 

deadline by which comments must be 

received. Receipt of submissions will 

not be acknowledged, except that the 

sender may request confirmation of 

receipt by calling OFCCP at (202) 693–

0102 (voice), or (202) 693–1308 (TTY).

FOR FURTHER INFORMATION CONTACT:

Joseph DuBray, Jr., Director, Division of 

Policy, Planning and Program 

Development, OFCCP, Room C–3325, 

200 Constitution Avenue, NW., 

Washington, DC 20210. Telephone (202) 

693–0102 (voice), or (202) 693–1308 

(TTY). Copies of this notice in 

alternative formats may be obtained by 

calling (202) 693–0102 (voice), or (202) 

693–1308 (TTY). The alternative formats 

available are large print, electronic file 

on computer disk, and audiotape. The 

Notice is available on the Internet at 

http://www.dol.gov/esa.

SUPPLEMENTARY INFORMATION: On May 4, 

2000, OFCCP proposed substantial 

revisions to affirmative action program 

requirements. 65 FR 26089 (May 4, 

2000). As OFCCP explained in the 

preamble to these May 4, 2000 proposed 

revisions:

More recently, an additional objective of 

the proposed revision has been to advance 

the Department of Labor’s goal of pay equity; 

that is, ensuring that employees are 

compensated equally for performing equal 

work. * * * This NPRM encourages 

contractors to analyze their own 

compensation packages to ensure that all 

their employees are being paid fairly.

65 FR 26089 (May 4, 2000). 

On November 13, 2000, OFCCP 

published a Final Rule adopting many 

of the proposed revisions to the 

regulatory requirements for written 

affirmative action programs. 65 FR 

68022 (Nov. 13, 2000). OFCCP adopted 

a requirement that covered contractors 

evaluate their ‘‘[c]ompensation 

system(s) to determine whether there 

are gender-, race- or ethnicity-based 

disparities.’’ 65 FR 68046 (Nov. 13, 

2000) (referencing 41 CFR 60–

2.17(b)(3)). 

OFCCP received many comments in 

response to the Proposed Rule on this 

compensation self-evaluation 

requirement. As explained in the 

Preamble to the November 13, 2000 

Final Rule:

Many of the comments focused on the 

requirement to review compensation 

systems, with several commenters asserting 

that OFCCP does not have authority to 

enforce equal pay concerns, that analysis of 

compensation systems is not required by the 

current regulations, that compensation 

analyses impose an additional burden, or that 

OFCCP did not specify the types of analyses 

it would find acceptable. Commenters also 

expressed confusion about how the 

information gained from [the compensation 

analysis] should be used by contractors, and 

how the contractor’s actions will be 

evaluated by OFCCP.

65 FR 68036 (Nov. 13, 2000). 

OFCCP responded to these 

commenters in the Preamble to the 

November 13, 2000 Final Rule: 

‘‘[C]ontractors have the ability to choose 

a type of compensation analyses that 

will determine whether there are 

gender-, race-, or ethnicity-based 

disparities.’’ 65 FR 68036 (Nov. 13, 

2000).

OFCCP has not, however, provided 

guidance to contractors or to OFCCP 

personnel on suggested techniques for 

compliance with this compensation selfevaluation requirement. This Directive 

is intended to provide suggested 

techniques for complying with the 

compensation self-evaluation 

requirement, although compliance with 

this Directive is not required for 

compliance with Section 60–2.17(b)(3). 

OFCCP has included an incentive for 

contractors to adopt voluntarily the 

general standards outlined in this 

Directive. Specifically, if a contractor, in 

good faith, reasonably implements the 

general standards outlined herein, 

OFCCP will coordinate its compliance 

monitoring activities with the 

contractor’s self-evaluation approach. 

However, compliance with this 

Directive is not the only way to comply 

with Section 6–2.17(b)(3). 

While developing these guidelines for 

conducting compensation selfevaluations, OFCCP recognizes the risk 

of liability that an employer faces when 

making corrective compensation 

adjustments under a self-evaluation 

process. For example, female or 

minority employees may bring claims 

based on the theory that the employer’s 

own self-evaluation study established 

that the employer engaged in 

discrimination or that the employer did 

not make sufficient compensation 

adjustments to remedy the 

discrimination. See, e.g., Cullen v. 

Indiana Univ., 338 F.3d 693, 701–04 

(7th Cir. 2003)(female professor sued 

university alleging compensation 

discrimination and basing her claim, in 

part, on university’s pay equity study). 

Similarly, male or non-minority 

employees may sue the employer 

alleging violation of Title VII because 

the employer gave salary adjustments to 

female or minority employees under the 

compensation self-evaluation. See, e.g., 

Rudenbusch v. Hughes, 313 F.3d 506, 

515–16 (9th Cir. 2002)(employer’s selfaudit, regression analysis was not 

technically sufficient to foreclose male 

professor’s discrimination claim against 

the employer); Maitland v. Univ. of 

Minn., 155 F.3d 1013, 1016–18 (8th Cir. 

1998)(same); Smith v. Virginia 

Commonwealth Univ., 84 F.3d 672, 

676–77 (4th Cir. 1996)(same). OFCCP 

has attempted to provide guidelines that 

are technically sufficient to withstand 

judicial scrutiny, so that contractors do 

not face potential liability for 

implementing a robust and effective 

self-evaluation process. 

Proposed Guidelines: 

Proposed Guidelines for SelfEvaluation of Compensation Practices 

for Compliance With Executive Order 

11246 With Respect to Systemic 

Compensation Discrimination 

I. Guidelines 

OFCCP will continue to permit 

contractors to choose their own form of 

compensation self-evaluation 

techniques to comply with 41 CFR 60–

2.17(b)(3). However, as an incentive for 

contractors to implement a 

compensation self-evaluation system 

that conforms to the general standards 

outlined in this Notice, OFCCP will 

deem a contractor in compliance with 

Section 60–2.17(b)(3) and coordinate its 

compliance monitoring activities as 

explained in Section II of this Notice, if 

the contractor’s compensation selfevaluation system meets the following 

general standards: 

A. The self-evaluation is performed by 

groupings of employees that are 

similarly situated, referenced 

hereinafter as ‘‘Similarly Situated 

Employee Groupings,’’ or ‘‘SSEGs.’’

Employees may be placed into the same 

SSEG if they are ‘‘similarly situated’; 

that is, if the work they perform is 

similar in content, responsibility, and 

requisite skill and qualifications. 

Employees may not be grouped in an 

SSEG for purposes of this Notice unless 

the work performed, responsibility 

level, and requisite skill and 

qualifications involved in their 

positions are actually similar, regardless 

of any employer-created designation, 

such as job title, job classification, pay 

grade or range, etc. The fact that an 

employer has grouped employees into a 

particular pay grade or range does not 

necessarily mean that these employees 

are similarly situated; the determining 

factors are whether the employees are 

performing similar work, have similar 

responsibility level, and occupy 

positions involving similar skills and 

qualifications. 

67254 Federal Register / Vol. 69, No. 220 / Tuesday, November 16, 2004 / Notices 

1This significance level roughly translates to a 

measured absolute disparity that is more than two 

times the standard error of the estimated value. 

Kaye, David H. and Freedman, David A. (2000), 

Reference Manual on Scientific Evidence Second 

Edition, Federal Judicial Center, Washington, DC, p. 

124, note 138. Using a two-tailed test, a statistically 

significant disparity is a disparity with a 

significance level of 0.05 or less (subject to the 

consideration of what is a meaningful difference). 

This criterion means that, e.g., a disparity in the pay 

between males and females being either positive or 

negative, would have a less than a 1-in-20 chance 

of occurrence unrelated to potential discrimination.

B. The contractor must make a 

reasonable attempt to produce SSEGs 

that are large enough for meaningful 

statistical analysis. In general, SSEGs 

should contain at least 30 employees 

overall, and contain five or more 

incumbents who are members of either 

of the following pairs: male/female or 

minority/non-minority. In certain cases, 

small numbers of employees will not be 

sufficiently similarly situated to other 

employees to permit them to be grouped 

in an SSEG. Such employees may be 

eliminated from the statistical 

evaluation process; however, the 

contractor is expected to conduct a selfevaluation of pay decisions related to 

such employees using non-statistical 

methods. Further, the contractor’s 

statistical analyses must encompass a 

significant majority of the employees in 

the particular affirmative action 

program or workplace. Where the 

statistical analyses do not encompass at 

least 80% of the employees in the 

affirmative action program or 

workplace, OFCCP will carefully 

scrutinize the statistical analyses and 

associated non-statistical selfevaluations. 

C. On an annual basis, the contractor 

must perform some type of statistical 

analysis that evaluates SSEGs (as 

defined in Section IA of this Notice) and

accounts for factors that legitimately 

affect the compensation of the members 

of the SSEGs under the contractor’s 

compensation system, such as 

experience, education, performance, 

productivity, location, etc. For 

contractors with 250 or more 

employees, the statistical analysis must 

be multiple regression analyses. The 

contractor must ensure that any factor 

within the contractor’s control that is 

included in the analysis is not itself 

subject to discrimination, although such 

a factor may be included unless there is 

evidence that the factor actually was 

subject to discrimination. Correlation 

between such a factor and a protected 

characteristic does not automatically 

disqualify the factor, if the employer has 

implemented formal standards to 

constrain subjective decisionmaking. 

The analysis must include tests of 

statistical significance that are generally 

recognized as appropriate in the 

statistics profession.

D. The contractor must investigate 

any statistically significant 

compensation disparities produced by 

the self-evaluation analyses that it has 

developed. OFCCP considers an 

identified disparity to be statistically 

significant if the significance level of the 

disparity is two or more standard 

deviations from a zero disparity level.1

The contractor must adequately 

determine whether such statistical 

disparities are explained by legitimate 

factors or otherwise are not the product 

of unlawful discrimination. If the 

statistical disparities cannot be 

explained, the contractor must provide 

appropriate remedies. The remedies that 

are appropriate will depend on the time 

period in which the disparities emerged. 

For the initial implementation of the 

compensation self-evaluation system, 

the contractor may have to make 

adjustments based on both current 

disparities and prior disparities. OFCCP 

uses a two-year window for back pay 

corrections. For periodic iterations of 

the self-evaluation system after the 

initial implementation, the remedy 

would involve correcting current 

disparities. Through the sources of 

information available to OFCCP under 

Section IE of this Notice, OFCCP will 

carefully evaluate whether the 

contractor has properly investigated 

such disparities and has adequately 

corrected any disparities that are not 

explained by legitimate factors.

E. The contractor must 

contemporaneously create and retain 

the following documents and data: 

(1) Documents necessary to explain 

and justify its decisions with respect to 

SSEGs, exclusion of certain employees, 

factors included in the statistical 

analyses, and the form of the statistical 

analyses. Such documents must be 

retained throughout the period in which 

OFCCP would deem the contractor’s 

compensation practices in compliance 

with Executive Order 11246, as 

described in Section IIB of this Notice; 

(2) The data used in the statistical 

analyses and the results of the statistical 

analyses for two years from the date that 

the statistical analyses are performed; 

(3) The data and documents 

explaining the results of the nonstatistical methods that the contractor 

used to evaluate pay decisions of those 

employees who were eliminated from 

the statistical evaluation process, which 

must be retained throughout the period 

in which OFCCP would deem the 

contractor’s compensation practices in 

compliance with Executive Order 

11246, as described in Section IIB of 

this Notice;

(4) Documentation as to any follow-up 

investigation into statistically 

significant disparities, the conclusions 

of such investigation, and any pay 

adjustments made to remedy such 

disparities. These documents must be 

retained for a period of two years from 

the date that the follow-up investigation 

is performed. 

F. The contractor must make all of the 

documents and data referenced in 

Section IE available to OFCCP during a 

compliance review. OFCCP may also 

review any personnel records and 

conduct any employee interviews 

necessary to determine the accuracy of 

any representation made by the 

contractor in such documentation or 

data. 

II. Procedure 

If the contractor’s compensation selfevaluation system meets the standards 

set forth in Section I of this Notice, 

OFCCP will coordinate its compliance 

monitoring activities as follows: 

A. During a compliance review, 

OFCCP will assess whether the 

contractor’s compensation selfevaluation system comports with the 

general standards outlined in Section I 

of this Notice. 

B. If the contractor’s compensation 

self-evaluation system reasonably meets 

the general standards outlined in 

Section I of this Notice, OFCCP will 

consider the contractor’s compensation 

practices to be in compliance with 

Executive Order 11246. However, 

OFCCP may suggest in writing that the 

contractor make prospective 

modifications to improve the selfevaluation system’s conformity with the 

general standards outlined in Section I 

of this Notice, where OFCCP concludes 

that the self-evaluation system is only 

marginally reasonable under these 

guidelines; thereafter, during future 

compliance reviews, OFCCP will assess 

whether the contractor made the 

suggested changes in determining the 

contractor’s prospective compliance 

with E.O. 11246. If, during a future 

compliance review, OFCCP determines 

that the contractor has not made the 

changes that OFCCP suggested during 

the prior compliance review, the 

contractor’s self-evaluation system will 

no longer be deemed to comport with 

the general standards outlined in 

Section I of this Notice. 

C. OFCCP may review the documents 

and data set forth in Section IE to 

determine whether the contractor’s 

compensation self-evaluation system 

reasonably meets the general standards 

Federal Register / Vol. 69, No. 220 / Tuesday, November 16, 2004 / Notices 67255

outlined in this Notice and, if 

applicable, whether the contractor 

reasonably made the changes that 

OFCCP suggested during a prior 

compliance review. 

D. OFCCP personnel will direct 

technical issues about whether a 

contractor’s self-evaluation system 

meets the general standards outlined in 

Section I of this Notice to OFCCP’s 

Director of Statistical Analysis in the 

National Office, or his or her designee. 

E. Alternative Compliance 

Certification: OFCCP understands that 

some contractors may take the position, 

based on advice of counsel, that their 

compensation self-evaluation is subject 

to certain protections from disclosure, 

such as the attorney client privilege or 

attorney work product doctrine, and 

that these protections would be waived 

if the contractor disclosed the selfevaluation. OFCCP does not take any 

position as to the applicability of such 

protections in the context of a 

compensation self-evaluation. However, 

to avoid protracted legal disputes over 

the applicability of such protections, 

OFCCP will permit the contractor to 

certify its compliance with 41 CFR 60–

2.17(b)(3) in lieu of producing the 

methodology or results of its 

compensation self-evaluation analyses 

to OFCCP during a compliance review. 

The certification must be in writing, 

signed by a duly authorized officer of 

the contractor under penalty of perjury, 

and the certification must state that the 

contractor has performed a 

compensation self-evaluation with 

respect to the affirmative action program 

or workplace at issue, at the direction of 

counsel, and that counsel has advised 

the contractor that the compensation 

self-evaluation analyses and results are 

subject to the attorney-client privilege 

and/or the attorney work product 

doctrine. Because in such an instance 

OFCCP cannot evaluate the contractor’s 

compliance with the general standards 

outlined in Section I of this Notice, a 

contractor that opts for this compliance 

certification alternative will not be 

entitled to the coordination outlined in 

Section IIB of this Directive. That is, 

contractors that opt for this alternative 

compliance certification do not receive 

the benefit of OFCCP coordination of 

agency compliance monitoring 

activities. Thus, for contractors that 

elect only to certify compliance with 

Section 60–2.17(b)(3), OFCCP will 

evaluate their compensation practices 

without regard to the analysis or results 

of their compensation self-evaluation 

systems.

Signed at Washington, DC this 10th day of 

November, 2004. 

Victoria A. Lipnic, 

Assistant Secretary for the Employment 

Standards Administration. 

Charles E. James, Sr., 

Deputy Assistant Secretary for Federal 

Contract Compliance.

[FR Doc. 04–25402 Filed 11–15–04; 8:45 am] 

BILLING CODE 4510–CM–P