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A New Black Eye For Boeing?


When Patti Anderson joined Boeing Co. (BA) as a manufacturing engineer in 1990, she was following in a proud tradition. The aerospace giant employed her father, brother, and husband in the same job. Even her grandparents worked at the company. But when Anderson compared her paycheck with the bigger ones received by the men in her family, she felt cheated. What's more, Anderson claimed in a sworn declaration, her male co-workers slapped her bottom, said she had "nice breasts," and asked crude questions about her sex life.

After the Seattle area native and 37 other women filed a sex-discrimination class action against Boeing in 2000, the company denied the charges. But its own internal documents may tell a different story. Among more than 12,000 pages of material obtained by BusinessWeek through an unsealing motion, several costly studies undertaken by Boeing itself show that men at the company made more than women. In 1997, for example, Boeing created a Diversity Salary Assessment team to examine its compensation and promotion practices. In a PowerPoint presentation summarizing the group's conclusions, the team wrote that "females...are paid less" and "gender differences in starting salaries generally continue and often increase as a result of salary planning decisions."

A LITANY OF ETHICS WOES

For Boeing, which is embroiled in several ethics scandals, from possessing 35,000 pages of stolen Lockheed Martin Corp. (LMT) documents involving a rocket-launch contract to continued criminal probes into its controversial $23.5 billion Pentagon air tanker deal, the discrimination case could be another black eye. The previously sealed documents obtained by BusinessWeek seem to tell the story of a company that underpaid women, knew it, and yet bitterly contested both the sex-discrimination case and a 1998 Labor Dept. audit into the same issues. If the 28,000 potential class-action plaintiffs prevail in their lawsuit, set to begin in Seattle on May 17, Boeing could be forced to pay punitive damages and back pay exceeding $1 billion, according to both plaintiffs' attorneys and outside experts who have reviewed the case. Above and beyond the financial cost, this type of publicity is the last thing the company needs as it tries to clean up its recent allegations of ethical misconduct.

Boeing spokesman Kenneth B. Mercer says the company is committed to equal rights. He says Boeing statistical studies cited by plaintiffs' attorneys were originally intended to help identify and eliminate pay disparities and that they "can't capture all of the critical factors that go into pay or promotion decisions." Noting that similar class actions have been tossed out in three other states, he says: "When the jury has the full story, they will find that the company did not practice discrimination of any kind."

"BEYOND THE BOUNDARIES"

So far, the case has not gone well for Boeing. U.S. District Judge Marsha Pechman and a special master whom she has appointed have rejected the company's pleas to dismiss the case, withhold confidential pay data, and keep discovery documents under seal. On Mar. 11, Pechman issued a discovery ruling chiding Boeing for stretching the attorney-client privilege "beyond the boundaries" of what it was intended to protect. Because lawyers appear to have attended nearly all meetings involving discussions of salary disparities, Boeing had withheld stacks of critical paperwork from plaintiffs' attorneys.

Based on the documents BusinessWeek has received, Boeing has been aware of the pay disparities since at least 1994. Starting that year, attorneys and human resources managers -- working for groups variously called the Diversity Salary Assessment team, the Process Assessment team, or the Demographic Salary Analysis project -- started conducting annual compensation studies. In 1999, an analysis included in the unsealed filings showed that Boeing needed to allocate about $30 million annually in salary adjustments to partially eliminate gender-based pay disparities. The company allocated only $10 million. Longtime Boeing human resources veteran Erika Lochow testified that while HR execs knew Boeing paid women less than men for the same work, when Boeing's own studies revealed the magnitude of the gender-based pay differences, she and her colleagues were shocked at how big the disparity was.

Boeing treated the salary studies with extreme care. It kept them in a "secured office location" equipped with a special electronic "cipher lock" with a frequently changed combination, according to testimony by Laura Yamashita, a former Boeing labor law attorney involved in the salary studies. Boeing acquired special e-mail encryption software and demanded that outside counsel and experts get the same software so data could be sent in a "secure and safe" manner. Neither janitors nor security people had access to the room, and the salary studies were kept in locked cabinets. Yamashita said meetings were held in a "secure, limited-access conference room." Attorneys advised execs not to take notes in meetings, and if they did, to turn them over before they left the room. Boeing says "it is company practice to keep confidential information secure, particularly when it comes to salary information."

The Labor Dept.'s Office of Federal Contract Compliance Programs (OFCCP), which is required to conduct routine audits of federal contractors, launched a probe in 1998 after finding potential "systemic discrimination concerning compensation of females and minorities." Boeing acted aggressively to put down the threat, refusing to reveal its internal studies, which might have corroborated the government's findings. Instead, Boeing enlisted Washington law firm Shaw Pittman LLP to apply pressure on the Labor Dept.

The OFCCP settled for $4.5 million. On Dec. 1, 1999, apparently relieved Boeing HR officials and those who had negotiated the OFCCP deal gathered in a room to discuss their victory over the government, according to a meeting transcription included in the newly released filings. The center of attention was Marcella Fleming, then Boeing's director of employee relations, who had been one of the key dealmakers. Fleming seemed to believe the company had dodged a bullet. After all, Boeing not only settled for a pittance but also got the OFCCP to agree to no on-site audits for four years. She told her colleagues that Boeing's potential liability could have been upwards of $120 million. In the same meeting, Fleming went on to say: "The fact that our compensation comes up...negative, negative, negative would suggest that there's something generally not right about the way we're doing it." Referring to how Boeing monitors its promotion and hiring practices, she added: "In litigation, no matter what, we lose."

While under pressure from the OFCCP in 1999, Boeing was considering how to reduce pay disparities without attracting attention. Frank Marshall, former senior compensation manager for Boeing, testified that he created a "stealth" compensation plan in an effort to "minimize our legal risks." Any "fixes would be embedded" in the salary planning process so even "senior managers were not aware of them." The company went ahead with the plan. Ten months later, Patti Anderson and her colleagues filed their suit. By Stanley Holmes in Seattle


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