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Gender Wage Gap? Not at Companies That Reveal This Secret

Topics: Data & Research
close the gender wage gap
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The gender wage gap persists, even when we control for factors like job title, education and experience. In 2019, according to PayScale data, women earned 79 cents for every dollar earned by men and 98 cents for every dollar earned by men with similar employment characteristics.

However, the newest PayScale report suggests that one factor can make a difference, even close the gender wage gap in some industries and occupations. That factor: pay transparency.

For the report, Does Pay Transparency Close the Gender Pay Gap?, PayScale analyzed 1.6 million responses to its online salary survey. Respondents provided information about their industry, occupation and other factors, including demographic information. PayScale then analyzed around 400,000 responses from women to this statement:

“How pay is determined at my company is a transparent process.”

  • Strongly Agree
  • Agree
  • Somewhat Agree
  • Disagree
  • Strongly Disagree

The goal: to determine whether respondents who work for employers with transparent pay practices experience a larger or smaller gender wage gap.

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What Pay Transparency Is — and What It Isn’t

First, it’s important to know what we’re talking about when we discuss “pay transparency” as a philosophy. Per the report:

…pay transparency does not necessarily mean publishing all salary data for everyone to see (although some organizations do so). Pay equity also does not mean that all individuals will receive exactly the same pay, even for workers who occupy similar roles. Pay equity is about fairness, and fairness takes into account differences between people that are non-discriminatory, such as years of experience, education, special skills, and location.

Pay transparency doesn’t necessarily mean that every employee with the same job title will receive the same compensation. But it does mean the differences in their compensation should be based on fair and nondiscriminatory reasons. For example, one employee may have more experience or a highly valued certification, and therefore earn more than an employee without those qualifications.

Further, pay transparency is a spectrum. On one end of the range, there are companies that simply tell employees what they get paid. If you get a paycheck with a number on it, but that’s all you know about pay at your organization, your employer is at this end.

In the middle of the pay transparency spectrum: employers that have a compensation plan and provide some information to employees about that plan — at least the employee’s pay range and perhaps something about the company’s compensation philosophy.

At the far end of the pay transparency spectrum, there are companies that reveal everything — how much everyone earns and why. These organizations are rare — examples include the government, the NFL and a few private employers like Buffer. According to PayScale’s Compensation Best Practices Report, only 5.4% of employers currently practice pay transparency at this level.

Does Pay Transparency Close the Gender Wage Gap?

close the gender wage gap
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In short, yes, PayScale’s report shows that pay transparency closes the gender wage gap across most industries, occupations and job levels. The exceptions included industries that were strongly male dominated or that had a larger wage gap, for example Retail, Food Service and Transportation & Warehousing.

Interestingly, whether an industry was male dominated wasn’t always a defining factor. From the report:

Whether or not the industry was male dominated or not had no definitive impact. Although Transportation & Warehousing and Arts, Entertainment & Recreation are more male dominated and didn’t reach full pay equity with pay transparency, other industries like Construction, Energy & Utilities and Technology, which are also male dominated, did reach pay equity with pay transparency. Although not true for absolutely every industry, the degree of pay inequity overall — the higher the climb — was the greater differentiator for the success an industry will experience with pay transparency. This is somewhat different for occupation.

Across occupations, pay transparency closed the gap across 16 of 22 occupations analyzed. Here, gender norms did appear to matter — five of the six occupations that retained a gap were male dominated.

The data also show that pay transparency improves pay equity across generations of workers. Millennial women who reported working for organizations with transparent pay practices did better than men, earning $1.02 cents to the dollar.

Why Companies Should Want Equity

Beyond wanting to do the right thing, employers should want provide fair pay and opportunity to workers because it’s in the employer’s best financial interests.

“A 2014 study found that moving from a single-gender to blended workplace increases productivity by 41%,” writes Sue Weston at CIO’s IDG Contributor Network. “In 2016 the Peterson Institute identified a significant under-representation of women on corporate boards and leadership positions. They projected that changing board composition to include 30% female representation could add up to six percentage points to a company’s net margin. …There is financial benefit for gender balance.”

Other research shows similar results. A 2015 McKinsey report, Diversity Matters, showed that diverse companies posted stronger financial results. Companies in the top quartile for gender diversity were 15% more likely to show returns above their industry’s median, and those in the top quartile for racial and ethnic diversity were 35% more likely to show the same.

“Companies in the bottom quartile both for gender and for ethnicity and race are statistically less likely to achieve above-average financial returns than the average companies in the data set (that is, bottom-quartile companies are lagging rather than merely not leading),” the researchers wrote. [Emphasis ours.]

And that’s not all. Per PayScale’s report:

To achieve pay transparency, organizations must first develop a philosophy around compensation and commit to a compensation strategy. This forces organizations to think about how they value employees and what they offer as part of a total rewards package to attract top talent. The result is employees feeling more secure, valued and invested in an organization that has mutually invested in them.

And it works. Past studies on pay transparency have shown that pay transparency when combined with a well-communicated compensation plan has a positive effect on job satisfaction, employee engagement, and productivity. This translates to higher employee retention and increased profits.

The Opportunity Gap and Pay Equity

tech job
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When we talk about the gender wage gap in any context, we’re talking about two gaps: the controlled gap of 98 cents on the dollar and the uncontrolled one of 79 cents on the dollar.

Both gaps are important. An analysis of the controlled gap often involves bias, conscious or unconscious. The uncontrolled gap is due in part to the different opportunities available to men and women.

One reason for that larger, uncontrolled gender pay gap of 21 cents is that women are less likely to hold higher-level and higher-paying jobs than men. Although men and women both typically start their careers in an individual contributor role, men are much more likely to reach management by late career (57% of men vs. 41% of women).

This opportunity gap is partly because women are more likely to take time out from their careers to care for children and/or opt for flexible jobs that pay less for the same reason. However, it would be a mistake to characterize that decision solely as one of choice.

In a New York Times article entitled, Why Mothers’ Choices About Work and Family Often Feel Like No Choice at All, Claire Cain Miller writes:

“Choice” has become the favorite term in family policy. Yet many parents — particularly women — feel their decisions about work and family are made within such constraints that they have little choice at all.

The United States offers neither paid family leave for all workers, nor public preschool. Child care is often unaffordable, inadequate or unavailable. Many Americans face work hours that are long and unpredictable, as well as rising health and housing costs. Women’s earnings stall after having children, and mothers spend significantly more time taking care of children than fathers do.

In that context, it’s no wonder that women are less likely to be promoted to management positions or to hold high-paying jobs. After assuming caregiving roles, women may find themselves behind their male peers, perhaps permanently.

Pay transparency is another tool that can help companies close the gap and provide more and fairer opportunities to women. The result benefits employee and employer alike.

Download the full report, Does Pay Transparency Close the Gender Wage Gap?

Tell Us What You Think

Where does your employer stand on pay transparency — and do you think their stance helps close the gender wage gap? We want to hear from you. Share your story in the comments or join the conversation on Twitter.

Legal Disclaimer: The information provided is for informational purposes only. Although every reasonable effort is made to present current and accurate information, PayScale makes no guarantees of any kind and cannot be held liable for any outdated or incorrect information. If you have any concerns, consult an employment lawyer.

Jen Hubley Luckwaldt
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