Why Are Women Entrepreneurs Paying Themselves Less Than They Deserve?

In an age where many tout a closing of the gender gap in the workplace, we still see a significant salary gap among female entrepreneurs. Why?

Women have long fought for gender equality in the workplace, so one would imagine female entrepreneurs would naturally narrow the salary gap. Yet, a recent study by Babson College showed women are paid less, even when they write their own paycheck.

The study surveyed graduates of Goldman Sachs's Small Business Program and found the gender gap that exists in the workforce also exists amongst entrepreneurs. Women in the United States earn an average of 77 cents for every dollar paid to men.

US gender pay gap, by stateMap via Wikimedia Commons

Surprisingly, female entrepreneurs who graduated from the Goldman program gave themselves salaries equivalent to 80% of those of the male entrepreneurs who had graduated from the same program—close to the national average. More than half of the 1,500 entrepreneurs that have graduated from the Goldman program since 2010 are women.

The study's author, Patricia Greene, could not explain the disparity, but an article in the New York Times, says it warrants further study.

“I’m not sure if it’s benchmarking against salaried women, I’m not sure if it’s a lack of confidence, I’m not sure if it’s negotiating themselves down first,” she says in the article.

Possible causes

The gap could be explained by the type of businesses women are more likely to operate. According to Ariane Hegewisch, a study director at the Institute for Women's Policy Research, who is also quoted in the Times article, women are more likely to start businesses in sectors with lower average revenue than men.

The study results may indicate a crisis of confidence in female entrepreneurs, proof that men place a higher value on their work than women.

But the leading hypothesis is that female entrepreneurs tend to put themselves last, preferring to put extra revenue back into the business, pay employees, or bring on new hires rather than pay themselves.

Six months after the initial survey, Greene followed up with the Goldman grads and found the female entrepreneurs had narrowed the salary gap from 20% to only 8%. While both the male and female entrepreneurs had given themselves raises during the six month period, the women's raises were on average larger than those of their male counterparts.

Hat tip: New York Times

[Image: Flickr user MrVJTod]

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6 Comments

  • Women tend to be (big generalisation) more cautious. We think - let's take a small amount in salary and if things go well that's the time to pay ourselves properly. No wonder statistically we offer investors a better ROI. But we must also note that sometimes investors see us as unlikely to scale because we don't believe in our idea enough to pay ourselves well right from day one.

  • This is interesting and more so because after the survey Women seemingly took notice and increased their salaries dramatically. Is the answer here that women just didn't know it was occurring I wonder! It seems strange in this day and age their would or should be any type of salary disparity between the sexes.

  • Thanks, Lisa for an interesting read. My comment concerns the discrepancy or disparity in pay (Goldman graduates). I have done a lot of (academic) research into the hubris-humility effect, addressing the causes of this gender-specific phenomenon. My studies focused on the (causes of gender) differences in perceived ability/intelligence. Whilst males significantly overestimated their abilities, especially in maths and spatial abilities, women significantly underestimated their abilities in these 'male-normative' areas of intelligence. When both genders were exposed to real IQ tests, their (self) perception of ability changed - non-significantly for males but there was a reduction in hubris, for females there was a significant increase of confidence/belief in ability. It should be mentioned that the differences in real IQ were negligible and non-significant. Confidence and stereotypical beliefs were the main triggers of the hubris-humility effect.

  • Thanks, Lisa for an interesting read. My comment concerns the discrepancy or disparity in pay (Goldman graduates). I have done a lot of (academic) research into the hubris-humility effect, addressing the causes of this gender-specific phenomenon. My studies focused on the (causes of gender) differences in perceived ability/intelligence. Whilst males significantly overestimated their abilities, especially in maths and spatial abilities, women significantly underestimated their abilities in these 'male-normative' areas of intelligence. When both genders were exposed to real IQ tests, their (self) perception of ability changed - non-significantly for males but there was a reduction in hubris, for females there was a significant increase of confidence/belief in ability. It should be mentioned that the differences in real IQ were negligible and non-significant. Confidence and stereotypical beliefs were the main triggers of the hubris-humility effect.

  • Pam Dehmer Munson

    As a real world entrepreneur, I always found the advise to pay yourself first the most ignorant and unreal thing ever. When starting and/or growing a business you do what it takes to keep the doors open and put money where it can grow your business better in the long run. Putting yourself as the top priority on a fledgling business is suicide for the business. Kill the gold goose there are no eggs to collect. Nurture the goose, get more eggs. Simple. Regarding this article in particular, quit painting women as victims. They are in control of their pay so they are doing what they feel is best for their own company.

  • Speaking as a non-entrepreneurial male, interestingly the first thing that struck me when I saw this article is why do we think that male entrepreneurs are paying themselves "correctly"? The unstated assumption that male entrepreneurs somehow have it right, which necessarily requires that the females are wrong, is a much more interesting an pressing issue than actual pay cheques / pay checks.