Back in April 2014, the President issued an Executive Order entitled "Non-Retaliation for Disclosure of Compensation Information" which prohibits Government contractors from discharging or discriminating in any way against employees or applicants who inquire about, discuss, or disclose their own compensation or the compensation of another employee or applicant. Read our posting back when the EO was issued by clicking here.
Last week, the Office of Federal Contract Compliance Programs (OFCCP) issued final regulations implementing the Executive Order. The prohibition against discriminating because of race, color, religion, sex, sexual orientation, disability, etc has been on the books for awhile. The EO adds a provision that prohibits Government contractors from discriminating against employees who disclose, inquire, or discuss their own compensation or that of others.
The purpose of this EO is to try and close the compensation gap between men and women. According to the Government, a pay gap between men and women persists today. When stratified by racial group, the statistics are the same, men earn more than women. According to a BLS (Bureau of Labor Statistics) survey from 2013, women make 82 percent of what men make. Among the possible contributing factors to the enduring pay gap is the prevalence of workplace prohibitions on discussing compensation.
Whether communicated through a written employment policy or through informal means, restrictions on revealing compensation can conceal compensation disparities that exist among employees. One recent survey found that 51 percent of female respondents and 47 percent of male respondents reported that the discussion of wage and salary information is either discouraged or prohibited and could lead to punishment.
The Government believes that prohibitions on discussing pay prevent employees from knowing whether they are underpaid in comparison to their peers. Underpaid employees will remain unaware of the disparity if compensation remains hidden.
Now how does this affect Government procurement?
First, Government contractors with pay secrecy practices are subject to enforcement actions and, as a result, may face a higher risk of disruption, delay and expense associated with contract performance. Allowing discussions of pay by employees of these contractors will contribute to minimizing these risks.
Second, Government contractors with pay secrecy policies may also experience a decrease in worker productivity. Workers, due to a lack of compensation information, may experience a reduction in performance motivation and are likely to perceive their employer as unfair or untrustworthy. Both reduce work productivity.
The Government even admits that these potential impacts are only theories that have not been investigated but nevertheless, are serving as the basis for the new policy. The OFCCP notes that in addition to these benefits, this final rule is expected to result in increased wage payments to employees and recognizes that it could very well result in increase costs to Government contracts.
Tomorrow we will discuss the specific requirements that Government contractors must adhere to under these new rules.