Break the Bias: Celebrating International Women’s Day by examining what drives pay gaps

How workplace bias drives pay gaps and how evolving global legislation aims to challenge this

The International Women’s Day’s theme of #BreakTheBias asks us to imagine a world free of bias, stereotypes, and discrimination. Writing this in 2022, when the gendered impact of the COVID-19 pandemic on the workforce is still evident, it is easy to get disheartened. But we must take heart. Why? Because around the world there are legislative developments and workplace movements that are aimed specifically at breaking down workplace bias at different points in a woman’s career.

In this piece we look at some of the gaps throughout a women’s career, using data from Payscale’s upcoming Gender Pay Gap Report, released March 15, 2022 for Equal Pay Day, alongside widespread legislation aimed at reducing pay gaps.

Is there still a wage gap between men and women?

The Payscale 2022 Gender Pay Gap Report shows that women are paid $0.99 for every dollar earned by men with the same employment characteristics. We refer to this as the controlled gender pay gap, and it can be even more severe for different racial or ethnic groups. For example, the controlled pay gap is wider for Black and African American women ($0.98).

Unlike last year, when the report showed a one percent pay gap, the 2022 report shows that there is now no controlled pay gap between women and men aged 20-29. However, the data shows the controlled pay gap is wider for older women. Women in their thirties receive $0.98 for every dollar that a man earns. The controlled gap is wider still for older women of color. Black or African American women at or above age 45 earn $0.95 for every dollar a white man earns.

Although equal pay laws have been around for over 50 years, reporting requirements are continually being introduced around the world to help finally close the pay gap. Some organizations are voluntarily taking part in pay equity reporting as part of ESG (Environmental, Social and Governance) transparency programs, or due to employee expectations. Equal pay for equal value legislation in 90 countries around the world is also ensuring that, whether or not roles have more incumbents of one gender, if the jobs are of equal value, they need to be paid the same. Most recently, Canadian legislation addresses the issue of gendered roles head on by requiring employers to report pay data for their roles.

Pay gaps grow as women move between organizations and roles

If a woman begins her career with even a small pay gap, as she advances through her career the pay difference builds up. Using the data from Payscale’s 2022 Gender Pay Gap Report, we can show that even with a small gap, if the average woman stays in the same role and all employees receives a standard 3 percent annual pay increase, the difference in lifetime earnings at the end of a 40-year career when data are controlled would be $60,000. This pay disparity increases for women of color, up to $90,000 for Black and African American women. But we know that during a career, individuals move between organizations and roles, where there is potential to lose ground.

The recruitment process is often shrouded in secrecy, with pay information not provided up front. Research from the LES Hub for Equal Representation found that there was an ‘ask gap’ of 3.3 percent between what men and women put as their preferred salary, and that it was this ask gap that fully explained the differences in what companies said that they would be willing to pay the candidate.

But new pay transparency laws, such as those in New York City and Colorado and proposed in the EU, are designed to remove this guessing game. These new laws are ensuring that pay ranges are provided with a job posting, so all prospective employees will start on a level playing field. This is also a requirement for promotions in some proposed legislation, such as the new Californian pay transparency bill. The proposed pay transparency laws in some US states are not as simple as they seem, as the posted pay ranges will be seen by both prospective and current employees. Unless organizations have developed pay structures that they have confidence in and can explain, they will be dealing with a lot of unhappy employees. The proposed EU legislation, and some current reporting requirements in countries such as Iceland, France, and Germany, require companies to develop pay structures to enable comparison of employees of equal value. All this helps ensure that any bias that exists is reduced by the development of formal pay structures and analysing pay equity within them.

Motherhood results in a penalty on earnings

The above legislation is designed to ensure that bias is reduced as employees move jobs within and between organizations. However, we know that women are more likely to have breaks in their careers. This means that the $80,000 gap described above is likely to increase. The motherhood penalty comes in many forms – assumptions regarding commitment to work, loss in promotion opportunities, lack of choice when returning to work if a reduction in hours is needed, etc. – but it is the requirement to provide salary history information to recruiters that is being tackled across the world with salary history bans. Removing this ensures that women re-joining the workforce are less at risk of being penalised by their break from work. Even if employees have remained at the same organization, their pay can fall behind due to lack of increases while on maternity leave. France is trying to rectify this and requires transparency on whether female employees returning from maternity or adoption leave benefited from a pay increase along with employees not on leave.

Glass ceilings, broken rungs, and sticky floors lead to wider gaps

There are many different names for the fact that men are more likely to be promoted than women – glass ceiling, broken rung, sticky floors – but the situation remains. The ‘broken rung’ and ‘sticky floors’ refer to the pattern that women are less likely to “climb the corporate ladder.”

McKinsey & Company also found that, for every 100 men promoted to manager, only 86 women are promoted. This then leads to an unequal pipeline for promotions moving up through the organization. Some countries are tackling this in legislation, with many countries requiring a specific gender quota on corporate boards. Italy and Belgium require 33 percent female directorship, while Spain and some Nordic countries require 40 percent. Another approach is via corporate governance codes and pressure by institutional investor action resulting in voluntary reporting on senior management representation.

Another way to reveal structural inequities is via uncontrolled pay gap reporting. The Payscale 2022 Gender Pay Gap Report calculated this, by comparing the median pay of women with the median pay of men, and found that women are paid $0.82 for every dollar earned by men ($0.79 for Black or African American women). If an organization has more women at lower levels and more men in senior levels, the pay gap will be large. Many countries are requiring reporting of this nature, including the UK, Australia, and many EU counties.

Women make ‘choices’ that impact earnings

So, we see that the pay gap begins small but can become more considerable throughout a woman’s career due to prior salary disclosure, leave requirements, and lack of promotions. The final element that comes into play is the ‘choice’ of work that a woman has when she also has care-giving responsibilities, or the ‘choice’ of not being part of the workforce at all.

The pandemic has highlighted this issue. McKinsey & Company found that the COVID-19 crisis has driven as many as two million women, particularly mothers with young children, to consider leaving the workforce or stepping back from their careers. It may have been thought that, with people working from home, the share of childcare and housework would have become more equal, but this has not been the case. A study by the IFS in the UK found that women did more childcare during the pandemic, even if the woman is the higher earner in the relationship.

As a result, there are women either not in the workforce, or in the workforce but in a lower paid role for which they are over-qualified, thereby only further increasing the gap in total lifetime earnings. Of course, the converse of this is that there could be many brilliant primary care-giver dads, but without adequate legislation and employer policies, women are likely to continue to bear the brunt of childcare. A study by Abdrn Research Institute found that two of the most important measures for increasing the female participation in the workforce, and in particular women of color, were the equal provision of paternity leave and more equal access to quality affordable childcare. The new Californian pay transparency bill asks employers to report their leave policies and ensure companies think about how their policies help or hinder those with caring responsibilities.

Bias extends beyond base pay

All the above relates to base pay, but it is important to note that with higher pay and more senior roles, comes higher incentive pay and greater benefit opportunities. In the US, for example, for every pension dollar a man has, a woman has 66 cents. The gaps are much larger for total compensation figures.

To #BreakTheBias, we need to look at gender pay equity through the various lenses – from the controlled gap, through the uncontrolled gap and from an overall wealth angle. It cannot be untangled from the cultural and structural norms of the societies in which the employees live. Only by understanding the full nature of the gaps and what drives them will we be able to remove them. With time, new legislation and reporting requirements from around the world will hopefully persuade organizations to investigate their own data and make positive changes, even if those requirements don’t apply to them. This proactive stance is increasingly recognized as a key talent strategy with employee expectations of pay equity on the rise. In the context of today’s labor market challenges, breaking biases will differentiate you as an employer.

How much has the gender pay gap closed?

Payscale's annual research on the gender pay gap looks at both uncontrolled and controlled pay gaps for Equal Pay Day

Read the Gender Pay Gap Report