orrick webinar: bridging the equal pay gap— strategies...

Orrick Webinar:

Bridging the Equal Pay Gap—Strategies for Responding to New Laws, Aggressive Regulators and Shareholder Proposals

June 22, 2016

Erin Connell, San Francisco

Lauri Damrell, Sacramento

Mike Delikat, New York

Mandy Perry, London

Jill Rosenberg, New York

Gary Siniscalco, San Francisco

Chris Wilkinson, Washington, D.C

André Zimmermann, Düsseldorf

1. Introduction (Gary Siniscalco)

2. New and Pending State Equal Pay Laws (Lauri Damrell)

3. Activist Shareholder Proposals (Erin Connell and Mike Delikat)

4. EEOC's Proposed Rule to Collect Compensation Data Through the EEO-1 Form (Jill Rosenberg)

5. OFCCP's New Aggressive Approach to Compensation (Chris Wilkinson and Gary Siniscalco)

6. Potential Federal Legislation (Chris Wilkinson)

7. Nuts and Bolts of Conducting Pay Audits (Jill Rosenberg)

8. Equal Pay Developments in the UK and Germany (Mandy Perry and Andre Zimmermann)

9. Q&A Session

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Agenda

• Announced on June 14, 2016, companies are encouraged to

sign pledge committing to take steps to narrow the “pay gap”

• Signatories agree to:

– Conduct annual company-wide gender pay analysis

– Review hiring and promotion processes and procedures

– Embed equal pay efforts into broader equity initiatives

– Identify and promote best practices to close pay gap

• 28 companies have signed so far

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The White House “Equal Pay Pledge”

New and Pending State Equal Pay LawsLauri Damrell

• DLSE FAQs

http://www.dir.ca.gov/dlse/California_Equal_Pay_Act.htm

• Coates v. Farmers Group Settlement

• California Pay Equity Task Force

• Pending legislation

– SB 1063: race and ethnicity

– AB 1676: prior salary history

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State Law Developments - California

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State Law Developments – Maryland

• Signed into law on May 19, 2016.

• Effective October 1, 2016.

• Employees who “perform work of comparable character or work in the same operation, in the same business, or of the same type.”

• Expands definition of “same establishment” to include employees working “for the same employer at workplaces located in the same county of the State.”

• Incorporates “gender identity” as protected category.

• Employer relying on “a bona fide factor other than sex or gender identity,” has burden to demonstrate factor:

– is not derived from a gender-based compensation differential;

– is job-related and consistent with business necessity; and

– accounts for the entire differential

• Includes pay secrecy provision prohibiting retaliation for wage-related inquiries.

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States With Pending Equal Pay Legislation

Activist Shareholder ProposalsErin Connell and Mike Delikat

• Activist groups and individual shareholders are filing

proposals that, if passed, require companies to disclose

publicly the percentage “pay gap” between male and female

employees and planned steps to address it.

• Arjuna Capital has issued proposals to at least 9 technology

companies seeking public reports on company efforts to

address gender pay equality.

• Other sustainable investment funds making proposals

include Pax World and Trillium.

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Shareholder Activism

• Companies seeking no-action letters from SEC have been generally unsuccessful.

• Companies are voluntarily claiming 100% equity or near-equity not only in response to shareholder activism but also to demonstrate social corporate responsibility.

• Two main corporate concerns:

– Mitigating litigation risk; and

– Demonstrating social corporate responsibility.

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Trending Now

• Arguments raised in seeking no-action letters to omit a proxy proposal:

– Part of ordinary business operations (14a-8(i)(7))

– Vague and indefinite (14a-8(i)(3))

– Company lacks authority to implement (14a-8(i)(6)

– Substantial Implementation (14a-8(i)(10))

– Failure to meet procedural requirements (14a-8(f))

• SEC generally denies company requests for no-action letters.

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No-Action Letters

All prior proxy submissions to date have recommended “no” votes to release the data, citing other and better sources of information demonstrating commitment to gender diversity.

• “In August 2014, we publicly shared our globalgender diversity and U.S. ethnic diversityworkforce data and we committed to publishingthis data annually as well.”

• “The information . . .published by the Company on an annual basis includes detailed information on our workforce demographics and provides additional information on our comprehensive diversity and inclusion efforts.”

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Submission in Proxy Statements

• Considerations related to disclosure:

– 14a-9 issues: what to say in proxy?

• Exposure arises when company includes a vote recommendation on shareholder proposal in proxy statement.

• Content and reasons cannot contain a material misrepresentation or omission.

– Would reasonable shareholder consider it important in deciding how to vote?

– Standard for 14a-9 is probably negligence, not scienter. That is, plaintiffs do not need to show misstatements were made with an intent to deceive, manipulate or defraud.

13

Potential Exposure Arising Out of Gender Pay Gap Disclosures

• Considerations related to disclosure:

– 10b-5 issues: what to disclose in a pay equity report?

• Exposure arises when company discloses information on its pay equity statistics, policies, future goals/plans.

• Content must comply with 10b-5—any disclosure must be accurate, complete, and not misleading.

• May be duty to disclose when necessary to correct prior statements that were misleading when made.

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Potential Exposure Arising Out of Gender Pay Gap Disclosures

• Develop a strategy:

– How would your company respond if it becomes the target of a shareholder proposal?

– How would your company respond if targeted by coordinated lawsuit under state laws (such as California or New York)?

– Can you justify pay disparities by factors other than sex?

– What changes can/should you make now to minimize risk?

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What Should You Do?

• What do your numbers say?

– Detailed pay audit description later in today’s program

• Preserving privilege—how much disclosure is too much?

• Balancing litigation risk vs. demonstrating social corporate responsibility:

– Potential damages.

– Do you invite litigation if you release numbers?

– Do you invite litigation if you don’t?

– What is the “value” of corporate responsibility?

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Whether to Release Your Results

EEOC's Proposed Rule to Collect Compensation Data Through the EEO-1 FormJill Rosenberg

• Background

– OFCCP’s efforts

• Proposal

– Group and report wages of the 10 EE0-1 job groups into 12 pay bands based on W-2 wages

– Report aggregate hours worked by the employees in each pay band

• Concerns

– Filing date: September (2017)

– Burden: 5 hrs to collect, verify and report massive data?

– How will EEOC, DOL, other government agencies use?

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EEOC Proposal to Change EEO-1 Report

• Additional concerns:

– Reporting by broad job categories, not similarly situated employees

– Data is at best meaningless; at worst misleading

– False positives will cause employers to do unnecessary work responding to EEOC requests

– How to account for stock options, equity, if not on W-2

– How to determine hours worked for exempt employees

– Disclosure of competitive information; personal privacy

• Bottom line: there are better, and more reliable ways to probe for pay inequities

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EEOC Proposal to Change EEO-1 Report

OFCCP's New Aggressive Approach to CompensationChris Wilkinson and Gary Siniscalco

• Administration pressure on the agency for results

– “U.S. Push for Fair Pay Racks Up Few Victories,” Wall Street Journal, March 16, 2016

– Paltry financial settlements this Administration

• 4,000 reviews with no compensation enforcement cases

• Less than $2M in settlements last 9 months

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OFCCP Investigation and Enforcement Efforts

• Procedurally Deficient Investigations

– Guidelines Contemplate that OFCCP will

• conduct meaningful entrance and exit conferences

• Advise contractor of investigation results before issuing formal notices

• Limit requests to documents in native formats

• Conduct appropriate interviews

– Many investigations fail to meet these Guidelines

• Onerous Compensation Audits

– Broad Compensation Data Requests (Item 19)

– Directive 307 (February 28, 2013)

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• Directive 307

Investigators should ask three questions in every audit:

– Is there a measurable difference in compensation on the basis of sex, race or ethnicity?

– Is the difference in compensation between employees who are comparable under the contractor’s wage or salary system?

– Is there a legitimate (i.e., nondiscriminatory) explanation for the difference?

What does “comparable under the contractor's wage or salary system mean?”

– Is it Pay Analysis Groups (PAGs) or similarly situated?

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• “Hair Trigger” Notices of Violations

– Hiring violations with phantom groups and deficient availability analyses

– Broad compensation findings with little evidence

– Groupings not compliant with Title VII

– Little consideration of legitimate reasons for pay differences

– Failure to produce records “violations”

• Weak Conciliation Efforts

– Failure to advise of bases of findings

– Unwillingness to consider all elements of pay factors

– Failure to explain PAGs or who’s comparable

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• Background

– Proposed January 30, 2015

– Finalized June 15, 2016

– Intent is to codify existing law under Title VII and other statutes

• Key Provisions

– Includes gender identity but not sexual orientation explicitly

– Covers pregnancy discrimination

• Status under Pregnancy Discrimination Act

• Accommodations under Young v. UPS

– Expands family leave provisions

• But no contraception requirements

– Compensation

• Directive 307 provisions

• Recognizes similarly situated and legitimate reasons

• No mention of PAGs 25

OFCCP: Sex Discrimination Guidelines

• OFCCP v. Bank of America (April 21, 2016)

– Hiring of two groups at issue:

• 1993 and 2002-2005 bank tellers

• ALJ decision found liability and awarded $1.2 million

– Appeal before DOL Administrative Review Board

• Finding against Bank on 1993 group based on

– statistics

– “grossly” inconsistent use of credit check code

– evidence recruiters knew of applicants’ race

• Finding of no discrimination in 2002-2005 group

– OFCCP did not meet its burden of proof

– Improper use of bottom line statistics

– Rejected use of statistical disparity to permit inference of motivating factor as evidence is proper only “in [v]ery extreme cases.”

– Presently before U.S. District Court 26

OFCCP: Bank of America ARB decision

• Targeting of Financial Services and Technology Firms

– Resource Centers in New York and Silicon Valley for FS and Tech:

• “OFCCP will establish two Skilled Regional Centers. These centers, which would be located in the Pacific (San Francisco) and Northeast (New York) regions, would have highly skilled and specialized compliance officers capable of handling various large, complex compliance evaluations in specific industries, such as financial services or information technology. Compliance evaluations conducted by highly skilled compliance officers greatly increase case evaluation quality and timeliness as well as the more efficient use of limited resources. OFCCP must continually improve its enforcement capability to identify discrimination in those economic sectors that are increasingly complex.” OFCCP 2017 Budget Proposal

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Potential Federal Legislation Chris Wilkinson

• Paycheck Fairness Act (H.R. 1619 and S. 862)

– Amends Equal Pay Act

– Introduced in House and Senate on March 25, 2015 (Sen. Mikulski (D-Md) and Rep. DeLauro (D-Ct)

– “same county or similar political subdivision of a State”

– Includes burdensome employer defenses

– Pay secrecy provision

– Adds compensatory and punitive damages

– Training programs and studies

– Under consideration by congressional committees

29

Federal Congressional Efforts

• Workplace Advancement Act (S. 875 and H.R. 5237)

– Introduced by Sen. Deb Fischer (R-Neb) on March 26, 2015 and Rep. Jenkins (R-KS) on May 13, 2016

– Forbids “discharge” or “retaliation” because employee discussed compensation information

– Includes exception for employees who have access to compensation information as part of job duties.

– Under consideration by congressional committees

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• End Pay Discrimination Through Information Act (S.83)

– Introduced by Sen. Heller (R-NV) on January 7, 2015

– Pay Secrecy prohibition with exception for employees with access to wage information

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• Gender Advancement in Pay Act (“GAP”) (S. 2773)

– Introduced by Sen. Ayotte (R-NH) on April 11, 2016 (6 Co-sponsors)

– Adds to defenses “a business-related factor other than sex, including but not limited to education, training, or experience”

– Pay secrecy provision with exception for employees who’s essential functions include access to wage information

– Tiered civil penalties up to $15,000

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• Resolution Regarding Women’s Soccer Team

– Senate resolution passed on May 26, 2016

– Urges US Soccer Federation to “end gender inequity” and “supports an end to pay discrimination based on gender”

– House resolution introduced May 24, 2016 but no action

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Nuts and Bolts of Conducting Pay AuditsJill Rosenberg

• Best Practices:

– Obtain management buy-in at outset

– Conduct the analysis at the direction of counsel to preserve privilege, and take all appropriate steps to preserve privilege throughout the process.

• Engagement letter/SOW

• Identify core team—HR, legal, comp

– Retain an experienced statistician to conduct the analysis. Ensure all communications flow through counsel to preserve privilege.

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Conducting Pay Equity Audits

• Best Practices:

– Establish the scope of project (gender and/or race)

– Establish time lines and deliverables at the outset, including a range of statistical models, variables, employee population(s) to be analyzed, and form of results (e.g. tables, narrative, red flags, etc.).

• Is audit for internal purposes only, or may results be made public (e.g., in response to shareholder proposal or White House pledge)?

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• Best Practices:

– Ensure the analysis is based on current, accurate data, and includes appropriate data fields consistent with your pay practices, such as job title, department, organization, supervisor, location, education, gender, race (if analyzing for race), job level, date of hire, date of last promotion, last two performance ratings, starting salary, current salary, bonus, equity, and any other forms of pay.

– Conduct at least a sampling of cohort analyses where statistically significant disparities are found.

– If differences cannot be adequately explained, work with counsel to address whether and how to make pay adjustments.

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• Points of caution:

– Involve counsel in analytical process to preserve privilege.

– Limit publication of results to the most narrow audience possible.

– Gear analysis toward all possible relevant and legitimate data.

– Beware of other employment practices that may be viewed as tainted by bias, such as overly subjective performance reviews or policies for setting starting salary

– Consider legitimate factors to explain disparity before making pay equity adjustments

38


Equal Pay Developments in the UK and GermanyMandy Perry and Andre Zimmermann

• The gender pay gap for full-time employees in the UK stands at 13.9%*

– Draft UK Regulations issued in February 2016, requiring employers (both public and private sector) with 250 or more employees to produce statistics and information regarding the gender pay gap of their workforce on an annual basis, starting from April 2017 with first publication by April 2018.

*The Fawcett Society 2016

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Mandatory Gender Pay Gap Reporting

• Publish annually

– the median and mean gender pay gap

– the mean gender bonus pay gap

– the proportion of men and women who received bonus pay

– the number of males and females in four equal quartiles

• Voluntary accompanying narrative

• Sanctions for non compliance

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Mandatory Gender Pay Gap Reporting

• What can we do to prepare?

– Identify if relevant employer and how many different gender pay gap reports will be needed

– Identify which employees are within scope

– Identify which elements of package will be covered

– Bonus audit and identify what is ‘bonus pay’

– Calculate gender pay gap using methodology in draft Regulations

– Identify who will sign the statement accompanying the information

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Gender Pay Gap Reporting

• Gender discrimination is generally prohibited in Germany

• Germany has one of the highest pay discrepancy's in the EU

– Average hourly wage reveals a difference of approx. 22%

– Average difference in the EU is approx. 17.6%

– Gender pay gap for equally qualified employees stands at 7%

• German Federal Ministry for Family Affairs, Senior Citizens, Women and Youth introduced a draft Equal Pay Act in December 2015

• Act expected to be adopted still in 2016

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Proposed German Equal Pay Act

• Information Rights

– Employer must indicate minimum wage for the position in job advertisement

– Employees and works council entitled to information about salary of co-workers, criteria and procedure for determining salary

– Confidentiality clauses in contracts covering salary are void

– Employee may enforce the information claim by filing a lawsuit or complaint with the works council

• Employee entitled to supplementary payments in case of unequal pay

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New Obligations for Employers (1/2)

• Companies with over 500 employees have to:

– Introduce internal company procedures to review pay equity

– Procedures must be certified by Federal Anti-Discrimination Agency

– Publish results of their procedures

– Report about the implementation and their compliance

– In case of discrimination: promptly remove relevant remuneration arrangements

• New co-determination rights of the works council:

– Control the establishment of an equal pay structure

– Can force employer to conduct a company review procedure

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New Obligations for Employers (2/2)

• Potential supplementary payments lead to additional financial burdens

• Additional internal capabilities needed to cope with numerous information requests and new co-determination rights of the works council

• Companies with more than 500 employees face additional severe administrative burdens and bureaucracy

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Practical Impact for Businesses in a Nutshell

Q&A Session

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Thank You

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