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How California’s Fair Pay Law Could Narrow The Gender Pay Gap Worldwide

Set to take effect on January 1, 2016, the law could establish a new norm among tech companies all over the globe.

How California’s Fair Pay Law Could Narrow The Gender Pay Gap Worldwide

Following former Reddit CEO Ellen Pao’s unsuccessful suit against her former VC firm Kleiner Perkins, more women have come forward to press similar claims against the likes of Twitter, Facebook, and Microsoft.

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That gender discrimination persists in the tech industry is no surprise. With major companies under pressure lately to share their diversity stats, we now have a better sense of the issue’s scope; solutions have been harder to reach. But with a new California law set to take effect in just a few weeks, things could finally begin to change.

The legislation is designed to encourage women to report discriminatory practices, which should impel companies to be more proactive than they’ve so far proved. The questions now are how well the law will work, and what its impact might be beyond Silicon Valley.

A “Wild West” For Women

Lawless & Lawless is among the leading law firms in the U.S. for gender discrimination cases, having represented Ellen Pao, and it is gearing up now to take on Facebook and Microsoft.

As Therese Lawless, partner and lead attorney on the Pao case, explains, “Most of these companies are not interested in putting time and money into HR, especially in a startup culture. We call it the ‘Wild West.’” There’s an irony to those imbalanced priorities, of course: As these companies build cutting-edge technologies, they stick to the outdated performance management models that perpetuate male-dominated workforces.

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Feedback That’s Wrong, Scarce, Or Nonexistent

One major problem, according to some female tech workers, is an absence of reliable–or any–feedback.
In the class action complaint she filed against her former employer, computer security expert Katie Moussouris describes the stack ranking system Microsoft used until late 2013 as a set of “uniform, unvalidated, and unreliable procedures for evaluating employee performance that systematically undervalue female technical employees relative to their similarly situated male peers.” Moussouris says she often received a lower ranking than the level at which her managers told her she was performing.

Likewise, in her lawsuit against Facebook, former employee Chia Hong claims she “received no significant criticism of her work” while she worked for the company, or when she was fired. “At all times,” the suit continues, Hong was led to believe that she had “performed her job in a satisfactory manner and received satisfactory performance evaluations.”

Like Pao, Hong later dropped her suit, too. But as both cases argued, managers who don’t offer relevant, concrete advice to certain employees deny them equal opportunities to develop relative to their peers.

Unconscious Bias

These cases may not be based on outright sexism, but they do point up the consequences of implicit, or “unconscious” bias. Sometimes it’s just that managers aren’t trained to give performance reviews objectively.

Natalie Johnson, a partner at Paradigm, which advises tech companies like Pinterest on diversity issues, explains that “implicit attitudes and stereotypes impact who we believe will be successful in certain roles.” So they often become self-fulfilling prophecies:

Based on these stereotypes, we have a preconceived idea of what a successful software engineer, for example, looks like. When we see someone who fits that stereotype, we may be biased in favor of them. Defining success or determining potential based on individuals who have been successful in the past can perpetuate existing stereotypes, and in turn negatively impact those who don’t fit that stereotype, or who are historically underrepresented in the industry, including women in tech companies.

Indeed, some recent studies have uncovered subtle differences in the language used, not just to review female employees’ work, but also to recruit them: Women are more likely to receive negative feedback about their personalities, rather than their technical skills. And they’re more likely to be described as abrasive, bossy, or emotional than men are.

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While Moussouris’s managers, according to her lawsuit, “told her that although the impact, quality, and scope of her work had been ‘principal-level’ for years, certain managers did not like her manner or style, and so Microsoft did not promote her.” Hong says her managers at Facebook “regularly ignor[ed] or belittl[ed]” her contributions “at group meetings in which she was the only woman or one of very few.”

“Many tech companies reject formal processes and structure,” Johnson explains, “and people processes are no exception. When performance and promotion decisions are made without structure to mitigate potential bias, employers will very likely end up with inequitable outcomes.”

Lawless agrees: “Unless companies put in strong HR managers or have a strong mechanism in place, when unfairness rears its ugly head this situation can be perpetuated.”

Change In The Valley . . .

Effective January 1, 2016, the newly adopted California Equal Pay Act greatly shifts the burden toward companies to prove they haven’t been discriminatory. Unlike much existing legislation, the new act’s framework doesn’t rely on comparing the pay that men and women earn for specific job titles. Instead, roles will be considered comparable as long as the work they entail is “substantially similar.”

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Donna Rutter, a trial attorney and counsel for companies specializing in employment issues, says that the law turns up the pressure on tech companies “to reassess their compensation policies [and] practices, which will necessarily include their performance review practices,” especially if they use merit-based pay. Managers will now need to justify their reasons for withholding promotions, raises, and other opportunities from certain employees.

. . . And Beyond

It goes without saying that Silicon Valley has serious global reach–something that wasn’t lost on California legislators. As Rutter points out, under the new law, “an employee in California can look to employees within the company, including outside of the state and abroad as ‘comparators’ in claiming potential inequitable pay.”

That means that a Googler in Mountain View can file a lawsuit alleging unequal pay relative to another Google employee at any of its 70-plus locations around the world. Companies won’t just have to overhaul their review practices in California. They’ll have to do that companywide. In short, the California Equal Pay Act could set a new global norm.

Steps To Take Right Now

There are a few steps companies can take right now in advance of the law, rather than be taken to court by it.

1. Root Out Bias

Managers and employees must be trained to give feedback objectively and be aware of the potential for unconscious biases. “Unfortunately,” Johnson says, “we all have implicit attitudes and stereotypes that influence things like who we think will be successful in certain roles and how we evaluate people.” There are now more strategies than ever for adding structure and objectivity to recruiters’ and managers’ decision-making.

2. Rethink Performance Measures

The annual performance review is in decline, leading companies to test a range of alternative approaches. But any changes to performance management also have to include cultural and structural adjustments.

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For instance, studies show that professional women are still up against stereotypes–including that they react emotionally and therefore can’t accept constructive feedback. Steffen Maier, cofounder of our company, Impraise, tells me that “what today’s managers need to realize is that the millennial generation actually wants feedback“–irrespective of their gender. For reasons even broader than creating a more gender-diverse workplace, then, the need for managers to adapt has never been greater.

3. Give More Feedback, Period

“Women need to be given equal access to coaching and information about their performance,” Maier adds. “This means that companies should be opening up and encouraging greater communication channels between managers and employees.”

Not only do managers need to be trained in unconscious gender bias, they also need to get used to giving everyone “more of the tough feedback that really helps employees grow.” There’s emerging evidence that more informal, regular input is more effective in boosting performance than a solemn annual ritual and radio silence for the remainder of the year.

With the new California Fair Pay Act, feedback will become more important for companies than ever. Not only does it help employees develop, it also becomes an important tool in the push for transparency around promotions and salaries.

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As the Act itself puts it, employers will now have to “affirmatively demonstrate that a wage differential is based upon one or more specified factors, including a seniority system, a merit system, a system that measures earnings by quantity or quality of production, or a bona fide factor other than sex.”

That can only be a good thing. “Women are fed up,” Lawless adds. “But this might be a turning point.”

Bas Kohnke is the CEO of Impraise, an innovative web-based and mobile solution for actionable, timely feedback at work.

Correction: A previous version of this article misidentified Kleiner Perkins as a law firm. It is a venture capital firm.

Related: Why Can’t We Fix The Gender Wage Gap?