OFCCP's Compensation Analysis Strategy:Have You Heard of the "2% - 30 &3" Test?

William H. Truesdell, SPHR

President, The Management Advantage, Inc.

Strategic Business Partner of Merit Resource Group

For many years, the Office of Federal Contract Compliance Programs (OFCCP) has been struggling to find ways of detecting illegal discrimination against minorities and women through compensation irregularities. During this time their management staffs have designed several approaches, none of which were scientifically sound, and therefore, the agency couldn't prosecute contractors who ran afoul of these detection systems.

So, the OFCCP decided to hire its own scientists -- people who were trained as statisticians -- who understood sampling techniques and could develop analytical models that would produce the kind of results the agency could take into court if necessary. Today, there are six people on the OFCCP staff, either at headquarters in Washington, D.C. or in the regional offices, who have Ph.D. qualification as statisticians. And, over the course of 2005, these folks have been working on contractor data in search of detection methods that their non-statistician-field-enforcement-people can understand and apply.

Some time ago the agency determined that "regression analysis" would be used to obtain the results that can be scientifically supported in court. This method produces results that are statistically significant, which means they could not have "happened by chance." Technically, regression analysis is a statistical forecasting model, concerned with describing and evaluating the relationship between a dependent variable and one or more independent variables. The only sizeable concern is that regression analysis is very time consuming, and therefore, very expensive to use. It requires large amounts of employee data. And while plugging the data into a computerized formula is the simple part, "scrubbing" that data beforehand to ensure it is clean and reliable takes considerable time and is the expensive part of the process.

If the OFCCP could require contractors to prepare their own databases for regression analysis, their scientists could examine these results and pass judgment on their accuracy...

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This article is the third in a series addressing changed or new requirements that HR professionals and company leaders need to be aware of. If you would like to discuss the impact of these new and changed governmental requirements on your business, you may contact Mr. Truesdell at aap@merithr.com, or you may call us at 925-867-4400 / 408-501-8863.