Total Rewards and

Regulatory Compliance Getting Ahead of the Tide

Chris Gokturk, Employment Advisory Services Inc.

Jude Sotherlund, Sotherlund Consulting

Advance Text

Industry Liaison Groups

• ILG’s are an excellent source of networking on EEO/AA matters and foster communications/sharing of information between the Federal government and covered contractors and subcontractors.

• Our Goal:To assist you in preparing for an EEO compensation complaint, a DOL/OFCCP compliance review, State Law Changes, and the New! Proposed EEO-1 Compensation filing (09/2017).

Since 2014

• Employee-Level Compensation Data for All During Reviews – Full-Time, Part-Time, Contract, Per Diem, Day Labor, Temporary Staff

– Employed on the Same Date as Workforce Analysis

• Data to Include Gender, Race, DOH, Job Title, EEO-1 Category, AAP Job Group and Hours Worked in a Typical Work Week

• Compensation Data to Include: – Base Salary or Wage Rate

– Other wages or adjustment to salary e.g. Bonuses, Incentives, Commissions, Merit Increases, Locality Pay, and Overtime

• Electronic Submission of Data

Rapidly Moving Toward Total Rewards

Base salary

Short-term incentives

• Cash bonuses

• Annual bonus

• Sign-on bonus

• Referral bonus

• Retention bonus

• Holiday bonus

• “Other cash”

Long-term incentives

• Stock Options

• Stock Grants

• Stock Appreciation Rights

• Other

Employee benefits

Perquisites (“perks”)

• Varies from company to company

• Individual packages – product of negotiations

• Use of Corporate Vacation Homes, Jet, etc.

• Tax Advice and Preparation

• Housing and Student Loans

• Additional perks

• Luxury offices

• Executive dining rooms

• Special parking and cars

Current Case Studies

1. Mergers and Acquisitions

2. Sophisticated Doesn’t Mean Compliant

3. Career Ladder and Overlapping Roles

4. The Hodge Podge

Two Recent OFCCP Cases

• G&K Services, Los Angeles, CA – Laundry Workers – Differing Wage Rates Back of the

House vs. Front of the House

– $290K to Settle Wage Discrimination Allegation

– GREW to a $1.8M settlement across 9 establishments in 7 states

• Lahey Clinic, Burlington MA – Female Housekeepers paid $0.70 less than Male

Housekeepers…a $1500/year differential

– $190K to Settle Wage Discrimination Allegation

What Works?

1. Create a Strategic Internal Team

2. Develop a Complete Understanding of HR

Systems

3. Consult with External Sources/Allies

4. Perform Forward Leaning Reporting and

Analyses

5. Develop or Refine Practices as Required

1. Create a Strategic Internal Team

Staffing, Talent Acquisition

Compensation

General Counsel

Other HR Functions EEO/AA

Compliance

2. Develop Critical HR Competencies

• Critical HR Competencies: – Working Knowledge of Your Job Evaluation and Job

Hierarchy.

– Working Knowledge of Your Performance Management System(s).

– Working Knowledge of Your Compensation Philosophy.

– Working Knowledge of Your Total Rewards Structure.

– Working Knowledge of Interaction of Performance Management and all forms of Compensation.

3. Consult External Sources/Alliances

Don’t Go It Alone!

• National ILG for Overall Trends

• Local ILG for Local DOL/OFCCP Focus

• SHRM Chapter

• WorldatWork

• Trade Associations

• EEO/AA Contacts

• Local Employers

4. Perform Forward Leaning Analyses

Five Keys to Minimizing Risk of Analyses

1. Privilege and Confidentiality

2. Alignment of Policy and Practice

3. Data integrity

4. Transparency

5. Monitoring and analysis

Forward Leaning: Proactive Analysis

Review Base Pay According to YOUR SYSTEM 1. Is it operating the same for all?

2. Is there integrity?

3. Are there lawful factors which influence pay decisions?

4. Are there variations/deviations from policy?

5. What does base pay look like overall?

6. What does it look like by department? By division? By contract?

7. Monitoring and Analysis

Forward Leaning: Analytic Analyses

What Accounts for Variances:

• Job Descriptions/Statement of Duties Vary

• Time in Job/Position

• Skill Set/Competencies

• Experience (external)

• Experience (internal-possibly captured in seniority)

• Education

Other

Forward Leaning: Emerging Issue of Contract

• Firm Fixed-Price Contracts

• Fixed-Price Contracts with Economic Price Adjustments

• Fixed-Price Contracts with Prospective Price Redetermination

• Fixed-Ceiling Price Contracts with Retroactive Price Redetermination

• Firm Fixed Price, Level of Effort Term Contracts

• Cost Reimbursement Contracts (Several Types)

• Incentive Contracts (Several Types)

• Indefinite Delivery Contracts (Several Types)

• Time and Materials, Labor Hour, and Letter Contracts

Forward Leaning: Analytic Analyses

• By EEO Categories

• By AAP Job Groupings or Other OFCCP Construct

• By Position: Exact same position/title doing the exact same job under the exact same circumstances.

• By Position: Exact same position/title not necessarily doing the exact same job under the exact same circumstances.

• By Position + 1 Level Up if Structured System

• By Salary/Wage Grade

Forward Leaning: Analytic Analyses

Common Types of Analyses:

• Traditional Cohort Model

• Traditional Regression Model

• Regression Analyses: Predictive Pay Modeling

Review all Data PRIOR to Submission to an

Enforcement Agency.

Traditional Cohort Analyses

Traditional Model • Offers a cohort (peer) analysis feature to assist

in identifying individuals whose pay is low or high compared to others similarly situated.

• Ideal for small federal contractors and groups with a small number of cohorts (peers).

Traditional Cohort Model

• Key Benefits – Does not require specialized software

• Baseline is easily performed in Excel or Access

– Once the employees are sorted by grouping, a comparison can be performed

– Helpful in identifying additional factors for a refined regression analysis

• Disadvantage – For groups with high counts it can be time consuming

Proactive Analyses: Regression Analyses

• Regression is a statistical tool used to understand the relationship between a dependent variable and one or more explanatory variables – simply a mathematical model of your pay system.

• Measures disparities in light of (“controlling for”) other factors.

• Simple regression – one explanatory variable

• Multiple regression – multiple explanatory variables

Regression Analyses

• In the case of base pay/salary, to what extent can the current salaries of

employees sharing a common job title be predicted by other factors.

• ONLY factor DOL/OFCCP requests with AAP in Compensation Listing is

Date of Hire.

• Virtually anything can be coded as a factor.

– Some best practice companies check each factor independently to determine its influence in the absence of other factors.

• Typical factors include:

– Time factors (seniority, time in job, years of external experience, years of management experience, etc.).

– Educational factors to the extent they are different within the selected grouping.

21

6 “hot” regression

results in BLZi

Illinois must be

investigated

Notice cohort groupings now by

title within broader analytical unit

Look for cohorts whose

compensation appears to

be driving statistical

results

Start with highest correlation

Proactive Analysis: Predictive Pay Modeling

Predicted Pay Values Model • Use Predicted Pay Values from a regression

analysis to identify employees whose pay is less than expected based on the factors included in the regression.

Predictive Pay Model

• Key Benefits – Provides a reference standard from which to make employee-to-

employee comparisons: • Sally and Jim are both predicted to make $60,200 (or thereabouts),

but Jim makes $61,500 and Sally makes $57,880 – Why?

– Provides a sorting and ranking measure

– Whose pay differs most from predicted?

– Whose pay is much lower/ much higher than expected?

• Disadvantage

– Does require special skill and software to prepare a

Predicted pay model.

Limitations of Models

• Models are only as good as the factors readily available and how well they explain compensation differentials.

• Few systems, if any, contain all the necessary information to explain all differentials or to prepare a strong regression model.

• No matter what model is utilized, personnel files and salary histories are almost always required when compensation is questioned.

Proactive Analysis

• Review Each Component Both individually and Collectively (Total Cash Compensation) – Base Pay

– Merit Increases

– Bonus Plans

– Overtime

– Incentive Compensation

– Commission-Based Pay

– Locality Pay (if any)

5. Develop or Refine Practices as Needed

As a direct result of your analyses, you may need to:

• Develop a methodology for monitoring performance ratings/rankings before their finalization;

• Institutionalize a policy for offering overtime;

• Place greater controls on discretionary bonuses and monetary adjustments, perhaps requiring a 2nd level of approval for internal consistency; and/or

• Educate talent management/staffing on EEO compliance issues at time of hire, perhaps instituting a Hiring Cohort Matrix.

BEST PRACTICE: Hiring Cohort Matrix Title/Role Names Salary

External

Experience

External Yrs.

Mgmt Seniority

Educational

Attainment

Comments

SYSTEMS MGR II

APPLICANT: JDoe $97,500 15 yrs. 8 yrs.

BS Biochemistry/

Minor in Medical

Devices

Prior Salary

of $99,000

MSmith $77,500 8 yrs. 2.0 yrs. BS Biochemistry

TJames $106,400 2 yrs. 20 yrs. BS Chemistry

PPiper $65,900 1.5 yrs. 5 yrs. BS Mathematics

AThomas $110,000 10 yrs. 2 yrs. 15 yrs.

BS Scientific

Studies/Chem

From

Competitor

BDHunt

RJones $89,000 4 yrs. 6 yrs.

BS in Medical

Technology

KDavis $95,000 4 yrs. 3 yrs. 8 yrs.

BS Physics/Minor in

Chemistry

HIRING MANAGER:

JDPierson, Unit 29175

CURRENT MARKET

RATE: $70,000-130,000

HR Approval________ DATE______________

State Law EPA Changes

• Moving to Similar Jobs

• Scope Becoming Greater than a Single

Establishment

– “No Larger than a County” (NY)

– Undefined (CA)

State Level Equal Pay Expansion

California Equal Pay Act • Effective January 1, 2016

• Adopts “substantially similar work” standard

• Focuses on Gender, no mention of race.

• A wage equity act of 2016 was introduced on 2/16/16 addressing race but no action on it yet

• Eliminates “same establishment” requirement

• Places greater burdens on employers to justify wage disparity

• Pay secrecy protection does not exclude those that handle sensitive pay information

New York Pay Equity Law • Effective January 19, 2016

• Retains the “same work” standard

• Focuses on Gender as well, no mention of race

• Expands the “same establishment requirement”

• Places greater burdens on employers to justify wage disparity

• Adds pay secrecy language but provides affirmative defense for employers

• Allows for Title VII style disparate impact claims

• Increases liquidated damages to 300%

EEO-1 Pay Data Collection Report

• EEOC effectively took lead from DOL/OFCCP.

• Effective date: September 2017.

• W-2 wages from a Pay Period between July 1

and September 30th for prior12 months.

• Employers with >100 employees regardless of

Federal contractor status.

SECTION C - EMPLOYERS WHO ARE REQUIRED TO FILE

(To be answered by all employees)

1. Does the entire company have at least 100 employees in the payroll period for which you are reporting?

Yes No

2. Is your company affiliated through common ownership and/or centralized management with other entities in an enterprise with a

total employment of 100 or more?

Yes No

3. Does the company or any of its establishments (a) have 50 or more employees AND (b) is not exempt as provided by 41 CFR 60-

1.5, AND either (1) is a prime government contractor or first-tier subcontactor, and has a contract, subcontract, or purchase order

amounting to $50,000 or more, or (2) serves as a depository of Government funds in any amount or is a financial institution which is

an issuing and paying agent for U.S. Savings Bonds and Savings Notes?

Yes No

4. If the response to the above question (C - 3) is Yes, please enter your Dun and Bradstreet identification number (if you have one):

NOTE: If an answer to questions 1, 2 or 3 of Section C is "Yes", complete the entire form, otherwise skip to Section G.

38

Averages by EEO Category: W-2 Reporting

39

Averages by W-2 Adjusted Pay Band/EEOC

What to do to Get Ahead of the Tide?

• Employers should: – Conduct compensation analyses on all forms of compensation

regularly/routinely as part of a proactive, ongoing monitoring process.

– Add rigor to monitoring how systems operate if required.

– Make appropriate pay adjustments where required — regardless of the race or gender of the individuals affected.

– Prepare for the December 1, FLSA changes.

• While there is no requirement to create a “system,” employers must be able to explain how compensation is distributed in a nondiscriminatory fashion.

What to do to Get Ahead of the Tide?

• If anticipating a HR system conversion/change, employers should back-up the old HR data as it may be needed in future compliance reviews or EEO complaints.

• Employers may wish to consider the implementation of the suggested Hiring Matrix.

• Employers should determine the feasibility of an EEO-1 Compensation Report using their current system(s).

• A sophisticated system does not necessarily yield a compliant system. Employers are encouraged to review the complexity of their system and its results.

WANT TO CONNECT?

• Chris Gokturk

Vice President, Employment Advisory Services Inc. (EASI)

Senior Advisor, Compliance Policy, Equal Employment Advisory Council (EEAC)

cgokturk@easiconsultants.com, 703.941.5541

• Jude Sotherlund, Principal

• Sotherlund Consulting jude.sotherlund@gmail.com 321.704.0469