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ADVANCED COMPENSATION ANALYSIS

In order to stay in line with industry trends and economic ups and downs, salary ranges should be compared to market each year.  Adjustments to salary ranges may not be needed every year.  Depending upon how fast or slow the market is moving, adjustments normally are needed every 2 – 3 years.  During your annual salary range to the market analysis process, make notes and keep a record of any changes or movement that you see with any jobs and departments from year to year.  It is prudent to avoid making changes to your salary ranges for temporary fluctuations or anomalies.  Look for trends that are long-lasting.

In addition to an external compensation analysis to market, an analysis should be performed to identify internal pay inequities that could potentially become the focus of an OFCCP audit.  Pay inequities should include women statistically paid less than men and/or minorities statistically paid less than non-minorities. Records should consistently be kept regarding all pay decisions to determine whether there are legitimate business reasons to support the pay patterns that exist in those areas.  The results of this analysis will not necessarily be used to adjust individual employee compensation.  Rather, the analysis results should be used to target areas where suspicious statistical pay patterns exist.

Since the purpose of the analysis is to anticipate areas potentially of concern to OFCCP, start the analysis with the salary grades or levels as these are most often used as the units of analysis by the OFCCP.   You will need to determine which unit or units of analysis most appropriately reflect how compensation is administered.  The objective is to find potential problem areas by targeting employees who would reasonably be expected to be paid on the same basis due to factors such as job grade, market location, and business unit.

Though the OFCCP will typically use median to perform analysis and determine pay inequities within pay grades or other units.  A thorough compensation analysis should include:

  1. Median and mean analyses (to identify areas of OFCCP concern):  In each pay grade compare the median and mean of women and men and of minorities and non-minorities.
  2. t-Test analysis:  This test will determine whether the observed differences in pay within the grade levels are statistically significant.  Results of the t-statistic (t-Stat) in the t-Test are considered to be statistically significant if they are 2.00 or greater representing differences of two or more standard deviations.
  3. Regression analysis:  Any unit where the differences in pay are statistically significant a regression analysis should be performed.  Factors that influence grade levels such as time in service, time in a level, time in the job, department, education, and performance can be incorporated into the regression.
  4. Cohort analysis:  Perform this analysis where it has been determined that the differentials are statistically significant, and where the regression analysis has not accounted for the differentials.  A primary cohort analysis would normally be completed on job titles within grades, across department designations and within departmental designations. Each of the various job titles within the database would be sorted by grade, job title, and then base salary from highest to lowest.
  5. Outlier report:  The average salary of protected class of employees is compared to the average salary of the non-protected group within a salary grade and/or job title.  When a protected employees’ average salary falls below a set percentage of the non-protected, this should be flagged for further review.  This analysis identifies protected employees who are at the lower extremes of the salary range.

At WageWatch our experienced compensation consultants can assist with your organization’s compensation needs.  We can help you ensure internal equity and compliance with regulations as well as help you structure your compensation programs to support your company’s business strategy and objectives.  WageWatch also offers accurate, up-to-date benefit survey data, market compensation data and salary reports that will allow you to stay current with the times.  This information is highly beneficial in creating the best salary and benefits packages that meet or rival the industry standards.  For more information on our services, including consulting, salary survey data, benefit survey data and market compensation reports, please call WageWatch at 888-330-9243 or contact us online .