Well known asset management company State Street Corporation will pay $5 million to settle allegations of pay inequity raised by the Office of Federal Contract Compliance Programs (OFCCP) in an audit. OFFCP alleged that the company paid female executives less than men and black executives less than whites at its Boston headquarters. The landmark settlement agreement is the largest back pay settlement collected by OFCCP since 2015.

By way of background, OFCCP audits federal contractors and subcontractors for compliance with workplace affirmative action and nondiscrimination requirements. OFCCP conducted a compensation analysis of State Street’s downtown Boston office in December 2012. According to OFFCP, that analysis revealed that, since at least December 2010, there were “statistically significant” disparities in compensation between male and female workers and black and white workers even when “legitimate factors affecting pay” such as performance, experience and education were taken into account.

The OFCCP notified State Street of the alleged violations in late March of this year—ironically, just weeks after the company installed the highly publicized “Fearless Girl” statue in the Manhattan, New York Financial District and was internationally recognized for its campaign to increase gender diversity on corporate boards.

The deal, signed on Sept. 29, 2017, and made public on Oct. 4, 2017, will pay 305 female and 15 black executives nearly $4.5 million in back pay and slightly more than $500,000 in interest. The settlement also provides that, within the next 180 days, State Street must analyze how it pays senior vice presidents, vice presidents and managing directors at its Boston headquarters and share its findings with OFCCP annually for the next three years.

Further, the company must evaluate whether its employment practices—including its policies for calculating starting salary and pay increases, promoting workers, evaluating performance, granting leave and transferring workers—have a disproportionately adverse effect on female and black workers. If it finds any policies have such an effect, it must review and revise them.

The agreement grants OFCCP the right to file charges against the company to enforce the agreement if the company violates any of its provisions.

OFCCP has stated for several years now that pay equity is a primary focus of its enforcement efforts related to federal contractors and subcontractors. As a result of the settlement, contractors would be wise to examine pay practices on a regular basis as part of their affirmative action plan. Formal pay equity studies should be carefully conducted, in conjunction with in-house or outside legal counsel, evaluating the appropriate factors affecting compensation and addressing any disparities revealed by the study. As State Street found out the hard way, failure to evaluate pay practices and identify and correct compensation disparities may come with a hefty penalty.