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(New Research) How Pay Transparency Closes the Gender Wage Gap

Topics: Pay Equity

It’s 2020 and women earn $0.80 for every $1 a man earns. The gender wage gap has narrowed in the 57 years since the Equal Pay Act was signed into law in 1963, when women earned $0.59 for every $1 a man earned, but it hasn’t closed completely. In recent years, it has stagnated, narrowing so slowly as to be almost imperceptible. This is even worse internationally. According to the Global Gender Gap Report for 2020, it will take 99.5 years for the economic gender gap to close at the current pace of change (down from 208 years in the widely publicized 2018 report).

This is particularly unfortunate since, according to a 2016 study by Peterson Institute for International Economics, women have a positive impact on profits when represented in the executive suite. In addition, according to data from the National Center for Education Statistics and analysis by Catalyst, women are also more highly educated than men, with more bachelor’s degrees than men since 1982, more master’s degrees than men since 1987, and more doctorate degrees than men since 2006.

So what is holding women back? And what can be done to address it?

The leading theory on why women in the workforce struggle to obtain pay equity with men is that women are more likely than men to choose lower paying jobs with more flexibility or drop out of their careers altogether in order to have and raise children.

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However, even when all data are controlled for factors that result in non-discriminatory differences in compensation such as position, location, company size, etc. a pay gap of $0.02 still exists, meaning that women are making $0.98 for every $1 a man earns, even women who are doing the exact same jobs as men. In other words, equal pay for equal work still isn’t a reality—not quite. The truth is that  unconscious bias, sexism and discrimination (i.e. the Glass Ceiling and the Motherhood Penalty) still exist in the workplace.

But there is a solution.

A new research report by PayScale shows that pay transparency closes the gender wage gap for the controlled group. This research proves to be true across time, age groups and job level, with the biggest difference in pay equity showing for women in Director level roles (jumping from $0.91 in non-transparent organizations to $1 — or equal pay — in transparent organizations).

The recent PayScale research also shows improvement in pay equity across industry and occupation, although not every industry and occupation completely closed the gender wage gap with pay transparency. Industries that started out further behind in parity were the least likely to completely close whereas occupations that did not completely close tended to be more male dominated or beholden to strong gender norms. These occupations include Construction & Extraction; Sales & Related; Food Preparation & Serving Related; Production; Installation, Maintenance & Repair; and Protective Services. However, this wasn’t universal. Many male dominated occupations, including Architecture & Engineering and Computer & Mathematical, did close the gender wage gap completely with pay transparency.

What this research suggests is that women in the workforce are valued but that bias — conscious or unconscious — results in pay inequity. Pay transparency reveals this bias and forces correction.

However, many organizations fear pay transparency because they worry about this very thing. They fear that being transparent about pay will unearth unfairness that will leave the organization exposed and at risk for legal repercussions.

There is some precedent for this fear.

In spring of 2018, Nike came under fire after an anonymous survey conducted by female employees revealed rampant gender discrimination and sexual harassment in the workplace. Nike responded with promises to make changes to its compensation and management training programs. However, after conducting an internal review of pay practices and giving raises to over 7000 employees (about 10 percent of its total workforce), Nike is now embroiled in a class action lawsuit around gender-based pay inequity. Among the allegations are claims that Nike engaged in systemic sex discrimination when allotting salary increases and bonuses, that use of salary histories caused women to receive lower starting salaries, and that performance evaluation processes favored promoting men to top level positions.

The moral of the story here is not that pay equity audits are dangerous and pay transparency not worth doing even if pay transparency closes the gender wage gap. The moral of the story is not to let it get this far. Organizations that stick their head in the sand when it comes to pay practices and gender discrimination in the workplace and ignore complaints made in private are just waiting for a #MeToo movement to expose them. When you have to react to years of bad pay practices in the public eye, it’s difficult to right the ship.

Of course, being proactive about pay equity isn’t necessarily going to be easy. Many organizations are still traditionalist when it comes to pay practices. Many don’t have a pay philosophy or compensation strategy and determine pay through negotiation with job candidates. The problem with the traditionalist approach is that it favors men. Many studies have shown that women are culturally discouraged from self-advocacy and therefore less likely to negotiate a salary offer, less likely to ask for a raise, and less likely to get raises even if they ask for them at the same amount as men. This suggests that organizations relying on traditional approaches to compensation almost certainly have a pay equity problem that can be cut along gender lines, leaving them open to law suits.

It is for this reason that many organizations don’t want to do a pay equity study. Once the data are known, the company becomes liable. Deferring a pay equity study avoids responsibility, but this is a temporary delaying tactic that only skirts the problem. Whatever issues exist are still there whether the company does a study or not. If the issues are there, employees probably know, even if no one talks about it. But as the world moves toward increased expectations of transparency and fairness, the risk of exposure increases. Nike isn’t the only company out there with a gender pay inequity problem. It wasn’t the first to be exposed and it won’t be the last.

Fortunately, there are also examples of companies who are achieving total pay equity — both internally and externally — through pay transparency.  For example, at Compference19, Joe Bast, VP of People at Chewse, led a session on how data-driven compensation strategy, salary transparency and performance-based evaluations has made EEOC and ACA reporting a breeze. In addition, 80 percent of employees are satisfied with their careers, there is low turnover throughout the organization, and the company is experiencing explosive growth. To achieve these kinds of results requires an intentional cultural shift that not every organization is ready or willing to make, but even organizations with a more traditionalist approach to HR practices can take steps toward compensation planning with the intention of improving pay transparency and addressing pay equity.

Pay transparency isn’t a new subject of discussion for PayScale either. In previous PayScale studies, pay transparency has been shown to increase job satisfaction, productivity and employee engagement.  This is particularly true in organizations with strong communication on their pay philosophy and compensation strategy.

Pay transparency is also a spectrum. Most organizations with a more traditional HR function fall somewhere in Level 1 or Level 2 but would like to be in Level 3 or Level 4.  In a Level 1 organization, employees get their compensation information from their paycheck and that’s about it.  At Level 2 transparency, the organization is consulting some salary market data to inform its compensation decisions, at least for select positions, with some kind of pay philosophy. Level 3 and Level 4 are more advanced. Level 3 transparency involves having the basics of a compensation plan in place, with employees having some idea of where they fall within a pay range. Level 4 transparency is more consistent and intentional, with manager training and involvement in pay policies. Level 5 is rare, with pay ranges being publicly available, such as is the case with the U.S. Government and the NFL.

Pay Transparency Spectrum - PayScale

In an effort to protect itself from discrimination lawsuits resulting from gender pay inequity, an organization doesn’t have to be Level 5 in pay transparency but does have to want to move beyond Level 1 and Level 2. Minimally, the organization must be willing to approach compensation strategically rather than reactively, collect data to proactively solve inequity problems, and communicate with employees about its efforts and intentions. Therefore, some level of pay transparency is warranted. Fortunately, as previously indicated, investment in pay transparency is good for more than just avoiding legal trouble. When tied to a well-communicated compensation plan, pay transparency has been shown to increase employee engagement, reduce employee turnover and build trust in HR.

Even if pay transparency didn’t close the gender wage gap (though it totally does!), doesn’t that make it worthy of consideration?

To learn more about how pay transparency closes the gender wage gap, please visit http://payscale.com/data/pay-transparency and download the full whitepaper.

Amy Stewart
Sr. Content Marketing Manager at PayScale
Read more from Amy

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