Does Pay
Transparency
Close the
Gender Wage Gap?

Does Pay Transparency Close the Gender Wage Gap?

Pay transparency has been touted as a solution to pay inequity and a way to close the gender wage gap, but does it work? We looked at the data to find out.

Pay transparency has been touted as a solution to pay inequity and a way to close the gender wage gap, but does it work? We looked at the data to find out.

Pay transparency has been touted as a solution to pay inequity and a way to close the gender wage gap, but does it work? We looked at the data to find out.

Pay transparency has been touted as a solution to pay inequity and a way to close the gender wage gap, but does it work? We looked at the data to find out.

A Brief Guide to
Pay Transparency

People never used to talk about salary, especially in the United States, but this is changing. With the advent of the internet, advances in technology, and the sharing of all kinds of personal information via social media, compensation is no longer the mystery that it once was. People today are sharing salary information openly and anonymously, both online and off, with the result that employees are finding out what they are being paid compared to others in similar positions — and quitting their jobs because of it.

As the war for talent becomes more fierce and salary information increasingly easier to obtain, business executives, HR leaders and compensation professionals have to prepare for a future where pay transparency and pay equity are an expected part of progressive work cultures.

Pay transparency is a philosophy about compensation intended to improve talent acquisition and retention. One of the benefits of pay transparency is that it forces organizations to develop a thought-out and data-driven approach to compensation that is fair to employees and proactive rather than reactive. As part of a broader compensation plan, pay transparency has been shown to have a positive effect on job satisfaction, employee engagement, and productivity.

It is important to understand that 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.

What matters is that forward-thinking organizations will have a compensation plan that is based on a philosophy that aligns with the values of the company and is backed by relevant, up-to-date market data. Pay transparency will be a part of any modern compensation plan, as the future is trending in this direction, but there is a spectrum for pay transparency that ranges from undeveloped to extreme and different organizations will target different levels according their strategy.

Impact of Pay Transparency
Impact of Pay Transparency

The Impact of Pay Transparency on the Gender Wage Gap

“Do transparent pay practices cut into the gender wage gap?”

The Gender Pay Gap Vanishes When Respondents Believe the Way They Are Paid Is a Transparent Process

Woman currently earn $0.80 cents for every $1 earned by a man before adjustments are made to control for non-discriminatory differences that impact compensation. When compensable factors are controlled, women are still earning only $0.98 cents to $1 earned by men when doing the same job (equal pay for equal work). This constitutes a $0.02 cent gap on average when all compensable factors are controlled.

A $0.02 difference may seem small, but it is statistically significant, especially when you consider that pay discrimination has been illegal since 1964. Compounded over a lifetime of work, small differences add up. A study by the National Women’s Law Center showed that women stand to lose $406,760 over the course of a 40-year career at the uncontrolled wage gap of $0.80. This estimate more than doubles for women of color. In October of 2019, Melinda Gates made waves with her $1 billion pledge to gender equality based on research from The World Economic Forum’s Gender Gap Index, which found that at the current rate of change, the gender inequality gap won’t close in the U.S. for another 208 years.

Fortunately, when analyzed against pay transparency, the gender wage gap completely disappears. Women who agreed that pay was transparent at their organization earn between $1 and $1.01 on average for every $1 a man earns. Participants who strongly agree that their organization is transparent are estimated to have slightly less pay equity than participants who merely agree. This may be explained by highly transparent organizations paying a little less overall than non-transparent organizations where the comparative factor (men’s pay) is a constant regardless of transparency.

Pay Transparency Closes the Gender Wage Gap Completely

Women who feel they are paid in a transparent way do as well or better than men for every $1 earned.

The Impact of Pay Transparency on the Gender Wage Gap

Pay Transparency Impact On Gender Wage

Pay Transparency Also Closes the Gender Wage Gap at the Job Level

At the job level, the gender wage gap closes at all levels when women agree that their organization engages in transparent pay practices. The jump in pay equity is strongest for women in Director level roles, moving from $0.91 pay equity for women who strongly disagree that their organization is transparent to $1.00 for women who agree that their organization is transparent (9 percent).

The Impact of Pay Transparency on the Gender Wage Gap Across Job Levels

Pay Equity is Achieved with Pay Transparency for Most Occupations.

The gender wage gap closes for most occupations where participants agree that their organization engages in pay transparency. Those that did not fully close the gender wage gap were largely occupations beholden to strong gender norms. However, there were many male-dominated occupations that did achieve pay equity with pay transparency.

The Impact of Pay Transparency on the Gender Wage Gap Across Occupations

Pay Transparency Impact Occupations

The Case for Pay Transparency

Women represent 47 percent of the total labor force. Closing the gender wage gap is important not only in the pursuit of equity and fairness, but because women represent a significant portion of the available talent in the marketplace. In addition to being highly educated, women also have a positive impact on profits. According to a 2016 study by the Peterson Institute for International Economics, women in leadership yielded a 15 percent increase in profitability for companies that went from having no women in leadership to a 30 percent representation. Unfortunately, women make up only 21 percent of board seats and only 5 percent of CEOs in the S&P 500.

If pay transparency can help to attract and retain this workforce, why wouldn’t you enact it?

Of course, there are additional benefits to enacting pay transparency. The future is data-driven. The workforce of tomorrow is going to expect more from employers in terms of inclusion and fairness. Pay transparency is a critical component of a fair and data-driven compensation plan that will be good for business beyond equity and regulatory compliance. With pay transparency and a well-communicated compensation plan, employees know how they are valued and why. Organizations who take the time now to develop standards and philosophy around compensation and pay transparency will thus be well positioned to attract top talent and be leaders in the future.

Case For Pay Transparency

Research Methodology

For this report, PayScale analyzed 1.6 million survey responses on compensation collected over the last two years (September 2017 to September 2019) and compared it to previous two-year data sets going back three years to analyze historical relevance. People who took PayScale’s online salary survey provided information about their industry, occupation and other compensable factors. They also reported demographic information.

To calculate the gender wage gap, PayScale measures how much women make compared to men as a percentage of the dollar. Data were controlled for this research, meaning that we accounted for factors that result in non-discriminatory differences in compensation such as position, education, location, company size, etc. to ensure we are drawing conclusions about men and women doing similar jobs with similar compensable factors (i.e. equal pay for equal work). Data was further cut by generation, industry, occupation and job level for additional insights.

To answer the question as to whether pay transparency impacts the gender wage gap, PayScale analyzed around 400,000 responses from women on the following Likert scale question:

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

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

We compared responses from the questionnaire to the gender wage gap to determine if the gap changed for each answer group. Essentially, this methodology measures whether participants who work in organizations with transparent pay experience a wider or smaller gender wage gap than participants who answered to the contrary.

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