SAN FRANCISCO — President Barack Obama set forth new rules on Friday to address the income gap between men and women in the American workforce. Under the president’s proposal, companies with more than 100 employees will have to report the salaries of their workers to the U.S. Equal Employment Opportunity Commission (EEOC), parsing the data by age, gender, race and ethnicity. If adopted, the final rules would take effect in September 2017.
Jones Day partner Fred Alvarez, a former EEOC commissioner, spoke with The Recorder about the potential impact on Silicon Valley technology companies and why a flood of data might obscure more than it reveals.
Is this proposal making some Valley executives sweat? I don’t know about the executives but I think the lawyers will certainly be alarmed by having to fill out this report. It does so many things that are new that, once they focus on it, I think we will see some serious concerns being discussed, certainly among the in-house lawyers.
What are those discussions going to address? I think the real concern will be that the EEOC and the Labor Department will be taking a survey instrument that we’ve been filling out for many years—some general numbers and some general categories—and trying to convert it into an analytical tool to search for pay discrimination. The form isn’t designed for that and they’re trying to change the fundamental purpose of it. We’ve been looking at these EE0-1 reports for a long time, but now the report is purportedly going to become a fine, analytical tool. I just don’t see how it can.
The other major concern is that Silicon Valley has very dynamic companies that are growing and changing and have a lot of new kinds of jobs and a lot of creative pay schemes. They’ll have to fit what they do into a very static, structured description of what jobs are, what the pay bands are, what’s in the pay. They’re just not used to fitting a very innovative, creative organization into fine little government boxes.
The last thing that should get everyone’s attention is whether the data that’s being generated will be meaningful in any way. The categories are so broad and there’s a lot hidden in all of these numbers. We’ll be producing a lot of data that I think will have very limited, real, analytical power. Instead, it might create a lot of false positives and maybe some false negatives. I think all of those things are going to be particularly difficult for the Silicon Valley to digest.
How are your clients reacting to this? This came out on Friday so it’s pretty new. I think people today are trying to figure out what this is about.
What are the concerns that companies might have about how this data is going to be used? That’s probably the biggest issue here because the EEOC hasn’t really articulated how they’re going to use it. The proposed regulation just says ‘Trust us, we’re going to come up with some software that will help us analyze all this data.’ So, we still don’t know, and I imagine they don’t know, either, what they’re going to do with all this information. Yet, I think many of us see that the information is not going to be particularly meaningful.
What steps should companies take today to be compliant in 2017 when that first report becomes mandatory? They’ll have to do a couple of things. One, is, take a hard look at how they have been filling out their surveys so far. As I said, the surveys have been basically aggregated data from across a large number of jobs, but not a lot of very fine distinctions are being made. We have these 10 categories and then hundreds of types of jobs that could fit into one or the other. They’re going to have to look much more critically, much more analytically, on the report and which jobs fit in which EE0-1 category, because that’s a driver of the analysis along the way. Secondly, I think pretty soon somebody’s going to have to have a hard look at how these numbers are going to look and try to make sense out of them—before they actually have to submit them in 2017—just to get a snapshot of how this is going to play out. I think a lot of that will be happening over the next few months. Some time this year, people are going to have to look pretty closely at this, because I’m certain that EEOC will adopt this—with maybe some minor changes—but they’re in a real hurry to get things done before the administration is over.
Are there types of employers that are going to be disproportionately affected by this, like smaller companies that are rapidly hiring? Oh, sure, you’re right. The smaller employers that are hitting 100 are going to have to figure out how to comply with this. But I think you’ll see, particularly in Silicon Valley, it will be hard to comply with this if you have a large number of exempt employees because you’re supposed to report hours. There are a large number of exempt employees in the Valley and you’re going to have data that, not only will it be of questionable meaningfulness, it will be half done because you don’t have the hours. The other thing is you’ll have a lot of bunching of people in the pay bands, so you’ll have many apples and oranges and pumpkins and pears mixed together, because you have pay bands that are so broad. I think the Valley is going to have more trouble than most of the industries in coping with this kind of a structure.
It’s said that whatever gets measured gets improved. Do you think that reporting this data will force self-reflection in Silicon Valley and thus spur some positive change? That could well be an outcome of some of the analysis that goes on. If we have to look hard at how all these numbers play out, I wouldn’t doubt that in-house lawyers will find areas in which they really can’t explain why the disparities exist that they found. The process of going through this could well have a positive internal impact. I don’t know that the form will help, but the process of analyzing it might.
How will this affect large law firms like Jones Day? Law firm employers are going to have to fill out the same form and they’re going to have to struggle with all of the same issues that regular employers do with putting people in the right boxes and the right bands and measuring hours. They’ll have the same issues that everybody else will.