Compensation Becoming Everybody's Business

The federal government is insinuating itself into employers’ compensation matters. Employment compensation is the latest target in the federal government’s cross-hairs. Washington has issued a gaggle of employment compensation reporting requirements and recommendations, including:

  • Interim rules for federal contractors,
  • Recommendations of the White House's National Equal Pay Enforcement Task Force,
  • The Dodd-Frank Wall Street Reform and Consumer Protection Act,
  • Final guidance for financial organizations regulated by the Federal Reserve Bank Board, Office of the Comptroller of the Currency, Office of Thrift Supervision and Federal Deposit Insurance Corporation, and
  • Senator Reid’s re-introduction of and cloture petition for the Paycheck Fairness Act.

Interim Rule for Federal Contractors

The Federal Funding Accountability and Transparency Act of 2006 (Pub. L. No. 109-282) requires full disclosure on the website of all entities receiving federal funds. The Government Funding Transparency Act of 2008 (Pub. L. No. 110-252) added requirements that contractors report executive compensation at The interim rule implementing the compensation disclosure requirement is now in effect and will be fully phased in on March 1, 2011. The rule will apply to all solicitations and contracts with a value of at least $25,000 (including all options), except classified contracts and contracts with individuals.

Contracting officers must notify subcontractors and include a Federal Acquisition Regulation (FAR) clause in solicitations and the resultant contracts. Furthermore, contracting officers must modify existing indefinite-delivery indefinite-quantity (IDIQ) contracts to include the FAR clause for future orders.

Extensive reporting of approximately 20 separate items must occur rapidly — by the end of the month following the month of award of a contract, and annually thereafter. Data quality requirements apply.

The rule, with important exemptions, applies to all businesses — an estimated 625,000 — regardless of size or ownership.

Recommendations of the White House's National Equal Pay Enforcement Task Force

The White House's National Equal Pay Enforcement Task Force has called for the Department of Labor's Office of Federal Contract Compliance Programs (OFCCP) to reinstate a Clinton-era requirement for non-construction-company federal-contractor locations to file annual Equal Opportunity Surveys (EO Surveys) on affirmative action, jobs, and compensation now that the prospect of the survey’s return through the stalled Paycheck Fairness Act looks bleak.

The Task Force recommended OFCCP rescind the 2006 Compensation Standards (and, likely, the accompanying Compensation Guidelines) that focused resources on investigating systemic cases. OFCCP may indeed return to evaluating contractors' compensation more freely, in ways employers have criticized.

The Task Force recommended rescission of OFCCP's Active Case Management ("ACM"), which sought to increase reviews of systemic discrimination with larger penalties. This Administration has moved to “full compliance,” addressing placement and other goals.

Dodd-Frank Wall Street Reform and Consumer Protection Act

“Compensation” appears 166 times in the Dodd-Frank Wall Street Reform and Consumer Protection Act, including:

  1. Section 913 gives the Securities and Exchange Commission authority to regulate sales practices, conflicts of interest, and compensation “schemes” for brokers, dealers, and investment advisers;
  2. Section 951 mandates a non-binding “shareholder vote on executive compensation disclosures;”
  3. Section 952 directs that compensation committees comprise only “independent” board members and retain only “independent” consultants;
  4. Section 953 orders disclosure of median-employee versus CEO compensation and how executive payment relates to corporate financial performance;
  5. Section 954 requires “clawback” policies to recover “erroneous” executive compensation;
  6. Section 955 charges companies with disclosing employee and director hedging;
  7. Section 956 prohibits risky compensation and dictates incentive compensation system disclosure;
  8. Section 957 restricts proxy voting by brokers.

Final Guidance for Financial Organizations

Incentive compensation at financial organizations is the target of final guidance by the Federal Reserve System (Board), Office of the Comptroller of the Currency (OCC), the Office of Thrift Supervision (OTS), and the Federal Deposit Insurance Corporation (FDIC).

Seemingly placing a certain measure of blame on employers’ incentive compensation arrangements for the current financial downturn, regulators jointly issued the guidance to require financial organizations examine risk when approving incentive compensation agreements.

Regulators want risk-appropriate, safe and sound practices supported by strong corporate governance. The guidance applies to the full gamut of financial institutions and their employees. The level of compliance will vary with size, complexity, and other characteristics of the banking organizations.

Approximately 100-200 specific action items, entailing an estimated 480 hours for initial compliance and 40 hours annually thereafter, must be addressed to satisfy the regulators.

Contact your Jackson Lewis attorney to review a checklist of what the regulators will want to see.

Paycheck Fairness Act

The Paycheck Fairness Act has been re-introduced and a cloture petition filed for a vote.

Under the Act, the following data collection would be operative:

  • An Equal Employment Opportunity Commission survey of what pay information is available and ensuing EEOC regulation to “enhance” collection of pay information (dictating frequency, format, and filers)
  • A Bureau of Labor Statistics collection of data on women workers in the Current Employment Statistics Survey
  • A reinstated Office of Federal Contract Compliance Programs’ annual Equal
  • Opportunity Survey on personnel activity and compensation data

Jackson Lewis attorneys are available to answer inquiries regarding this and other workplace developments.