Your Compensation Systems Under the Microscope: EEOC & OFCCP Launch Aggressive Pay Investigations

1. Presented April 4, 2013 by Mickey Silberman, Esq.silbermanm@jacksonlewis.com | 303.225.2400 Your Compensation Systems Under the Microscope: EEOC & OFCCP Launch Aggressive Pay Investigations

2. INTRODUCTORY STATEMENT THE MATERIALS CONTAINED IN THIS PRESENTATION WERE PREPARED BY THE LAW FIRM OF JACKSON LEWIS LLP FOR THE PARTICIPANTS’ OWN REFERENCE IN CONNECTION WITH EDUCATION SEMINARS PRESENTED BY JACKSON LEWIS LLP. ATTENDEES SHOULD CONSULT WITH COUNSEL BEFORE TAKING ANY ACTIONS AND SHOULD NOT CONSIDER THESE MATERIALS OR DISCUSSIONS THEREABOUT TO BE LEGAL OR OTHER ADVICE.

3. ABOUT JACKSON LEWIS LLP Jackson Lewis LLP is dedicated to representing management exclusively in workplace law and related litigation. With 52 offices and more than 750 attorneys nationwide, the firm has a national perspective and sensitivity to the nuances of regional business environments. Guided by the principle that a positive work environment results in enhanced morale and increased productivity, the firm devotes a significant portion of its practice to management education and preventative programs. This approach helps limit exposure to grievances, charges and lawsuits.

4. About Mickey Silberman, Esq. Mickey is Managing Partner of the Denver office and Chair of the firm’s Statistical Analysis Practice Group. He represents management in all areas of employment law and specializes in EEO compliance and systemic discrimination. He is recognized as a national expert on claims of pay discrimination. During the past few years, Mickey has directed the defense of hundreds of EEOC and OFCCP systemic pay discrimination investigations throughout the country. He also spends much of his time conducting preventive self-audits of clients’ pay systems as well as other employment processes, such as pre-employment tests, background checks to uncover potential discrimination.

5. The First Law Signed . . . not Environmental . . . not Healthcare . . . • In January, 2009, President Obama signed into law the Lilly Ledbetter Fair Pay Act • Law overturns U.S. Supreme Court’s decision in Ledbetter v. Goodyear Tire and Rubber Co. Inc.

6. PAY ENFORCEMENT – TOP AGENCY PRIORITY • During his first administration President Obama made pay discrimination among his top civil rights enforcement priorities • During his second term we can expect more vigorous enforcement • WHY? The persistent “Pay Gap” • Since early 1980s, pay gap for women plateaued around 80¢ on the dollar for men • In 2011, women earned approximately 77¢ for every $1 earned by men

7. National Equal Pay Enforcement Task Force • To implement President Obama’s pledge to “crack down” on equal pay violations, the Administration formed the Task Force made up of the EEOC, DOJ, DOL, OPM, and OFCCP • Recommendations of the Task Force included: • Improve interagency coordination and enforcement efforts • Collect detailed annual pay data on the private workforce to identify employers for targeted enforcement • Develop new “tools” to uncover pay discrimination • Greatly increased audits and investigations of employers’ pay practices

8. The Agencies’ Response • Equal Employment Opportunity Commission • EEOC commissioned a panel of experts to explore feasibility of developing annual pay data collection tool • All private employers under EEOC’s purview required to annually report on compensation for all employees • EEOC’s Strategic Plan for years 2012-2016 • “attacking” systemic pay discrimination a top priority • Equal Pay Act Directed Investigation Pilot Program • “flips” the traditional model – EEOC initiates the actions

9. EQUAL PAY ACT DIRECTED INVESTIGATION PILOT PROJECT • 3 EEOC District Offices “test driving” the project • Chicago • New York • Phoenix • Selection criteria unclear • Investigations start with meeting to get background info on employer’s pay systems and administration • Followed by EEOC “discovery” and data requests • Then EEOC performs “deep dive” investigation • Employer must defend all significant pay disparities

10. The Agencies’ Response • Office of Federal Contract Compliance Programs • OFCCP developing its own a pay data collection tool for federal contractors: • August 2011 Agency issued ANPRM to solicit feedback • Agency received 7,800 comments, mostly in favor • Agency wants to use pay tool to target contractors for the thousands of annual audits it conducts • Potential for individual employer as well as “industry wide” pay analyses • Recent OFCCP Regulatory Agenda listed June 2013 as desired release date

11. Big Numbers Equal Big $$ • Settlements for alleged discriminatory pay are on the rise. . . • FY 2009 • 2 OFCCP compensation settlements • $4.8 million in EEOC Equal Pay Act settlements • FY 2010 • 10 OFCCP compensation settlements • $12.6 million in EEOC Equal Pay Act settlements • FY 2011 • 27 OFCCP compensation settlements • $23 million in EEOC Equal Pay Act settlements

12. AND THERE’S MORE COMING . . . • EEOC recently finalized its four year Strategic Plan which emphasizes systemic pay discrimination as top priority • Systemic, company-wide investigations into employer pay practices • EEOC intends to expand its pilot program on directed investigations without Charges • OFCCP hired National Director of Equal Pay with Plaintiff’s pay class action litigation expertise • Already has started piloting controversial new methods for identifying company-wide alleged pay discrimination • Rescission of 2006 Systemic Compensation Standards and Issuance of New Pay Directive 307

13. WHAT ARE THEY LOOKING AT? • EEOC is issuing requests for Nationwide data based on allegations raised in individual charges of discrimination. • Across locations. • Across affiliated entities. • Company-wide, detailed pay data easy to obtain and analyze from HRIS Systems. • Both agencies doing “deep dive” analyses using Statisticians and complex computer models.

14. WHAT ARE THEY LOOKING AT? • OFCCP is going after your “TOTAL COMP” • Base Pay – Premium • Performance – Equity • OFCCP scrutinizing pay data in large groupings • New compensation directive • Looking for broad company-wide patterns of pay discrimination • Pay Analysis Groupings (PAGs) go beyond traditional “similarly situated” employees to compare pay • Looking for steering or channeling issues

15. WHY IS THIS HAPPENING? • Easy to get data. . . Easy to analyze . . . Easy to find systemic pay trends across the organization. • HRIS systems increasingly allow ready access to huge amounts of electronic data. • These electronic reports of data easily allow for “deep dive” analyses of pay trends. • Systemic pay trends discovered “at the touch of a button.” • Employers “Job Re-engineering” or “Job Leveling” initiatives over past years create much larger groups for comparison

16. WHAT DOES THE LAW SAY? • The law requires Plaintiffs to establish “presumption of discrimination” before burden shifts to the employer. • In systemic pay cases, Plaintiff’s burden is satisfied by showing big “red flags” (2 standard deviations). • Employer’s data allows for easy to run, deep dive analysis which frequently produces these red flags. • “Big Numbers are Bad Numbers” • Burden then shifts to employer to explain the systemic pay disparities. • Often difficult and expensive

17. Ok, So the Rules Have Changed… What Can You Do NOW? • Always conduct statistical analyses on data before submitting to EEOC and OFCCP • Know what the data will show before Agency does • Conduct the same analyses Agency will and determine if there is a statistical basis for claim • If the data generates statistical “red flags,” refine data before submission or seek to negotiate reduced scope of submission (by geography, time, decision-maker, etc.)

18. Ok, What Can I Do before the EEOC or OFCCP investigation? • Conduct periodic self-audits of your pay practices under privilege • Formal Self-Audits • Statisticians, 3rd Party Vendor • Internal Self-Audit • Review compensation between individuals treated the same under your comp system • Investigate underlying pay disparities to ensure you can defend it as being job-related and consistent with business necessity

19. PROACTIVE PAY REVIEW • Review your compensation on an Annual Basis BEFORE agency investigation • Do review a month before annual review cycle • Analyze proposed salary • Reserve some of your payroll budget for equity adjustments • This is a subtle way to make adjustments unlikely to raise red flags with employees • Avoid lump sum, off-cycle adjustments • No Good Deed Goes Unpunished . . .

20. A SAMPLE PAY ANALYSIS

21. How to Be Proactive Amidst the Uncertainty. . . • First Step: Who should be compared? • Employer has 100 employees in the job title • “Diagnostic Technician” • But not all 100 do the same thing – in fact, they do very different things and require very different education, experience, and skills.

22. DIAGNOSTIC TECHNICIANS Diagnostic Technician Title

23. Are They Really Comparators? • Turns out they’re not really doing the same thing: • Design Diagnostic Technician III • Communications Diagnostic Technician II • Lead Communications Diagnostic Technician • Engineering Diagnostic Technician I • Engineering Diagnostic Technician III • Lead Engineering Diagnostic Technician

24. Look At The Results Now

25. Sample Cohort Review Engineering Diagnostic Technician I

26. Protect Your Self-Audits • If in your proactive self-audit you find an issue you cannot explain, consider making pay adjustments • But only after getting advice of counsel • To protect about unwanted disclosure and obligation to produce during litigation, you should take every precaution to ensure the highest degree of protection and confidentiality possible when conducting self-audits • Conduct a self-audit under attorney-client privilege

27. Thanks for attending! Please contact us with any questions: Mickey Silberman, Esq. silbermanm@jacksonlewis.com P: (303) 225-2400 Jackson Lewis LLP www.jacksonlewis.com

28. Thank You! Workplace law. In four time zones and 52 major locations coast to coast.