Pay equity has been making headlines recently. There was a class-action lawsuit against Nike for example. Yet research from the Global Gender Gap Report that the gender wage gap won’t close for another 100 years.
If it’s not on employers’ minds, it should be.
The state of the gender pay gap
The Equal Pay Act was passed in 1963 when women made $0.59 for every $1.00 a man made. In 2019, research from PayScale shows that women make $0.80 for every $1.00 a man earns when data are not controlled. The Pew Center for Research found that the reason for the gender wage gap includes the fact that women are more likely than men to take time off in their careers, work part-time, or work in jobs with more flexibility in order to have children and care for families. However, this only explains part of the gap. The concern is that the part of the gap that is unaccounted for can only be explained by pay practices that favor men over women, whether as a result of unconscious bias or active discrimination.
PayScale then looked at the gender wage gap when all compensable factors are controlled, such as experience, location, and job level, and found that there is still a wage gap where women make $0.98 to every $1.00 that a man makes. This gap is more pronounced in certain industries, occupations, and age groups, particularly among older women and women in leadership roles. It also tends to be more pronounced in organizations that are more secretive about pay practices.
Part of the reason for the gap is the unwillingness of many organizations to modernize their compensation practices. Many organizations today are still operating under a traditional compensation model where pay is determined in the shadows, and the power to set pay lies with managers who want to reward employees at their discretion.
The problem with a closed approach is that it statistically favors men. Even managers with the best intentions are still susceptible to unconscious bias. This leaves organizations open to lawsuits.
Although the gender pay gap has been well-reported, many companies struggle with how to address the issue. With employees spread across various departments and geographies, ensuring fair pay for men and women in every job is a daunting task.
Fortunately, there is a solution.
The impact of pay transparency on the gender wage gap
The research from PayScale discovered that the gender wage gap closes completely with increased pay transparency. Pay transparency does not mean that a company must publicly disclose employee salaries; it does mean that employers foster open and honest discussions with their employees about how their pay is determined.
The gender wage gap was nonexistent for women who agreed that their organization’s pay practices are transparent. These women earn between $1.00 and $1.01 for every $1.00 that a man makes. This was true across age groups and job levels. The research team also looked at the impact of pay transparency across occupation and industry and found that the gender wage gap closed completely for 73% of industries and organizations. Those that didn’t close completely still narrowed.
While the research doesn’t show exactly “how” transparency neutralizes the gender pay gap, the theory is that open and honest conversations about pay tend to force organizations to approach pay fairly using salary market data to inform compensation policies. It also tends to force companies to price the job, not the person, which helps to eliminate unconscious bias.
Additional reasons for pay transparency
That any gender wage gap still exists should worry organizations concerned about pay equity. The way that the Equal Pay Act is worded doesn’t require a statistical difference between what men make and what women make collectively in a company. An organization may be at risk for a lawsuit if one woman makes less than one man in a similar role that can’t be justified by differences in the job description or documented compensable factors.
But legal compliance shouldn’t be the only reason that organizations seek to modernize compensation practices and adopt a higher degree of pay transparency and better pay communications.
Companies invest a lot in making their organization a great place to work. And yet many don’t explain their total rewards package and why it is competitive. Some are concerned that being transparent will only lead to trouble, but this is only a concern at organizations with pay equity problems. Ignoring the problem is only going to perpetuate it.
Of course, talking about pay is a big cultural shift for many organizations, but with digital transformation, transparency is becoming increasingly common at all levels of business. Research shows that when pay for each position is determined using data and shared with employees, employees are more likely to believe they are being paid fairly and feel satisfied and engaged with their job. Organizations that want to compete effectively to attract and retain top talent must embrace more open communication. Talking about pay with employees fosters trust and commitment.
Scott Torrey is the CEO of PayScale, a provider of compensation data and software.