In a recent settlement with the Office of Federal Contract Compliance Programs (OFCCP), State Street Corporation, a financial services firm with federal contracts, agreed to pay $5 million to settle claims of gender and racial pay discrimination.

The OFCCP issued a March 31, 2017 Notice of Violations against State Street alleging it had discriminated against female and black executives since at least December 1, 2010, contrary to Executive Order 11246 (E.O. 11246) and its implementing regulations. In particular, the OFCCP maintained its regression analysis showed a significant disparity in all forms of compensation State Street paid to 305 women employed as senior vice presidents, managing directors and vice presidents when compared to similarly situated men. Likewise, the government claimed State Street had discriminated against 15 black vice presidents by paying them less than similarly situated white employees. 

While State Street denied the allegations, it ultimately decided to enter into a September 29, 2017 conciliation agreement. As part of the agreement, State Street agreed to send class members notices (including releases of claims), and establish a settlement fund totaling $5 million, representing back pay and interest, from which State Street will pay responsive class members a representative share. The company also agreed to conduct a yearly compensation analysis for employees at its subject facility for three years, provide OFCCP with all details of its analysis and take remedial action (salary adjustments) to address any significant disparities based on gender, ethnicity and/or race identified by State Street or OFCCP that lack an explanation using legitimate factors. Finally, State Street agreed to implement non-monetary remedies including policy revisions, training and self-monitoring, as well as to perform an in-depth analysis of its total employment process to identify systemic compensation disparities.

E.O. 11246 and Directive 2013-03 (also known as Directive 307), which established OFCCP’s procedures for reviewing contractor compensation systems and practices, demonstrate OFCCP’s focused approach to investigation of compensation disparities. Although it is unclear how OFCCP’s emphasis on such investigations will be continued under the Trump administration, contractors should continue to be vigilant in reviewing their compensation practices to ensure they are not discriminating against individuals based on their race, ethnicity or gender. Importantly, contractors should be performing compensation analyses on at least an annual basis as part of their affirmative action plan obligations to ensure their compensation practices are not having a discriminatory impact on a protected class. This should include asking: 1) whether a difference in compensation exists on the basis of sex, race or ethnicity that is measurable; 2) whether the compensation difference is between employees similarly situated or comparable with regard to the contractor’s wage or salary system; and 3) whether a legitimate, nondiscriminatory explanation for the difference exists. Because OFCCP’s Directive leaves room for substantial flexibility in the investigation and analysis – such as grouping employees based on job bands or pay grades, measuring compensation by statistical analysis or comparison to cohorts, factoring in all forms of compensation and considering qualitative factors like compliance history – contractors’ analyses should take a similarly dynamic approach.

Where a contractor determines that a compensation practice/policy is having a discriminatory impact, they should take affirmative steps to correct it. Upon identifying the problem area(s), the contractor should make appropriate modifications and re-analyze the data to see if the results improve. By taking these measures ahead of time, contractors may be able to correct potential costly issues before an OFCCP audit. When contractors have questions on conducting a compensation analysis or how to correct a statistically significant adverse result, they should contact experienced counsel for guidance.