- Due to a variety of structural and societal barriers, women are significantly less likely to hold high-level, high-paying jobs. And even if they manage to get there, they will be paid significantly less than their male counterparts.
- Most figures don’t reflect the true magnitude of the gender wage gap because they fail to consider other types of compensation, such as bonuses, 401k contributions, and Social Security payouts.
- Pay equity makes an incredible impact -- not only on female employees, but on their families, their communities, and the organization itself.
Gender pay equity has been a hotly-discussed topic for decades. Yet, despite political attention and federal regulations—the Equal Pay Act was established in 1963!—there remains significant disparity in terms of how much men and women are paid. For women of color, these figures are even more disheartening, with countless additional barriers significantly undercutting leadership, growth, and salary potential.
In honor of International Women’s Day 2020, we’re dedicating the month of March to highlighting the unique challenges women face in the world of work, particularly when it comes to gender pay equity, as well as opportunities leaders and organizations have to truly move the needle. In this piece, we’ll discuss the scope of gender pay equity as well as the impact it can have on individuals, organizations, and society at large. Next week, we’ll suggest actionable strategies leaders and organizations can employ, from policies to technology and legal assistance.
For a raw and insightful look into how real women got ahead and made a name for themselves in the HR industry, register for our third-annual Women in Leadership panel. This intimate conversation, recorded privately at Connections, touched on everything from pay equity to the emotional, difficult conversations and choices that often go hand-in-hand with being a successful female leader. Trust us – you don’t want to miss this.
What is gender pay equity?
Gender pay equity represents women receiving the same amount of pay as men for providing the same amount of value.
“Pay equity simply means eliminating sex, race and all types of discrimination out of the wage-setting system,” said Andrea Beidl, learning manager at Ultimate Software. “Many women and people of color are still segregated into a pay scale that has been antiquated for decades. I’m a strong believer in Equal Pay for Equal Work – no one should be paid any more or less based on their identity; they should be paid by their contribution and skills.”
Gender pay equity: The numbers
When it comes to pay equity, there are two different types of statistics cited. The “uncontrolled gender pay gap” describes the ratio of median earnings of all women to all men, regardless of job title, industry, or location. The “controlled gender pay gap” controls for a number of these factors as well as years of experience, tenure, and education.
The commonly referenced $0.79 that women earn for every $1.00 that men earn represents the uncontrolled gender pay gap (notably, for white women). When we think of “Equal Pay for Equal Work”, we’re talking about controlled pay, which is $0.98 on the dollar (again, for white women). But while it’s easier to rationalize away the uncontrolled gender pay gap because it’s not “equal work,” what the uncontrolled metric really reveals is that, due to a variety of structural and societal barriers, women are significantly less likely to hold high-level, high-paying jobs. And even if they manage to get there, they will still be paid significantly less. A two percent pay gap may seem somewhat insignificant, until you amplify that from “one dollar” to “thousands of dollars” and consider its lifelong, compounding effects.
“Our culture often equates money with value and power,” said Heather Bussing, employment attorney at Bussing Law and analyst at HRExaminer. “If people are doing the same work but are not making the same pay, it is a strong statement, even if implicit, that some people are more or less valuable. It also tells you about how power is and will be distributed in the organization. When employees see this, it will affect their work, how long they stay, and who wants to work there. Equity and inclusion is not just doing the right thing; it’s good for business.”
Additional pay considerations
It’s worth noting that most studies also don’t reflect the true magnitude of the gender wage gap because they fail to consider other types of compensation, such as bonuses, 401k contributions, and Social Security. Women’s bonuses are statistically smaller on average than men’s, and since companies often match a percentage of pay to retirement accounts, these investment vehicles serve as yet another factor where women are disadvantaged. In the same vein, Social Security benefits are based on lifetime earnings, so as women earn less over the course of their lives, they pay less into Social Security, and will therefore receive smaller Social Security payouts in retirement compared to their male peers. The financial implications here are particularly troublesome considering women generally live six to eight years longer than men.
Why is gender equity important?
“Gender pay inequity leaves nearly 50% of our workforce coming to and leaving from work every day feeling taken advantage of and undervalued,” said Sarah Morgan, CEO of BuzzARooney LLC and senior director of human resources for ProVantage Corporate Solutions. “The long-term impact of this on morale within our workforce as well as the individual health and wellness of the individual cannot be ignored.”
Meanwhile, the American Psychological Association reports that women consistently report higher stress levels than their male counterparts, which the APA attributes to the mental and physical consequences of uneven levels of domestic and emotional labor. I would argue it’s likely that financial implications contribute to this “stress gap” as well.
Additionally, despite the fact that both men and women have children, only women are taxed with the “motherhood penalty.” On average, women’s wages drop from 5% to 10% per child among women in their 20s and 30s. In some cases, this is due to taking temporary breaks from the workforce, but this motherhood penalty is also used to explain why mothers make lower wages than childless women, even after productivity and time-off factors are controlled for. Meanwhile, fathers get a raise—a recent study found that fathers make roughly 20% more than their childless male peers do.
“With respect to women specifically, there are so many single mothers these days and their kids should have access to everything that other kids do,” said Pragya Malhotra, director of products at Ultimate Software. “Pay equity is not only important for the person who is doing the work but also for the next generations to come.”
In fact, pay inequity’s impact can be felt far beyond the nuclear family.
“The money that women and people of color are NOT receiving as a result of pay inequity is lost to our economy,” said Morgan. “We cannot consume or contribute because we don’t have equitable income. In these ways, pay inequity hurts everyone.”
The Bottom Line: The business case for equal pay
First and foremost, equal pay is good for business because it’s the law.
“Pay equity is not optional; it’s a legal compliance issue,” said Bussing. “Pay equity is the law. Not paying people equally for the same work is a form of illegal discrimination. Pretending you don’t have a problem is not a defense.”
Defending an equal pay claim is extremely expensive. Losing one even more so. And even if an employer wins their case, they are often still responsible for their own legal fees. And, regardless of the outcome of the case, equal pay claims are likely to have a negative impact on employer brand and reputation, which can adversely impact recruitment and PR efforts.
But in many cases, the real cost of pay inequity is evident through lost productivity, innovation, attrition, and low staff morale.
“The results of inequitable pay are behaviors that chip away at confidence and trust,” said Katrina Kibben, founder and CEO of recruitment marketing firm Three Ears Media. “These are two things required for people to thrive at work, but if a person is constantly questioning their pay and if they are valued? No one is thriving.”
It’s logical that feeling undervalued and unappreciated would undercut employee loyalty and their willingness to go above and beyond in their role. We know that pay has a direct impact on employee productivity and engagement, which in turn guides profitability. According to Gallup, there are approximately 22 million disengaged employees in America, which costs the economy $350 billion dollars per year in lost productivity.
Low morale also leads to absenteeism, illness, and of course, retention issues.
“Good employees who are not getting paid what they’re worth at their current organization leave,” said Mary Faulkner, senior advisor at IA. “I know so many people who could only get a raise by leaving their current company because most pay systems only address new hires, not incumbents. And because women (especially women of color) tend to be paid less than market, their exit will impact diversity at your organization—you will lose great talent, unique experiences, and could end up perpetuating the good ol’ boys’ club.”
“Gender pay equity is affecting retention rates,” agrees Minda Harts, CEO of The Memo LLC, a career development company specifically for women of color, and best-selling author of The Memo. “If you want to compete for the best talent, your salaries have to be competitive as well.”
According to MarketWatch, 45% of workers say salary is the top reason for switching jobs, ahead of career advancement opportunities, benefits, and location. Underpaying female employees sends a powerful message about their ability to grow and prosper in an organization. And they’re listening.
Fortunately, by addressing gender pay equity through action and transparency, organizations are well-positioned to improve business metrics on all fronts.
“Addressing pay equity is an opportunity to shift your culture in a positive direction, improve retention, and attract great new employees, all of which will help you do better work and make more money in the long run,” said Bussing. “Again: Equity and inclusion is not just doing the right thing. It’s good business.”
Next week, we’ll share expert insights on exactly how leaders can address gender pay equity in their own organizations, as well as detailed advice about what to do if you suspect you are being paid unfairly. In the meantime, register for our Women in Leadership webcast to hear firsthand accounts of how real women fought for pay transparency and equality in their own successful careers.
Looking for other actionable ways to make your organization a Best Place to Work? Download our interactive guide to becoming an employer of choice.