The best way to shrink the pay gap may be to pull back the curtain on employee salaries
- One strategy to decrease the gender pay gap is requiring companies to publicly report salary information.
- That's according to a recent paper on Danish firms that were legally obligated to disclose their gender pay gap.
- Tech companies that have adopted some degree of pay transparency say fair compensation is about more than just money: it involves reevaluating hiring and promotion processes as well.
Progress in shrinking the gender pay gap has stalled over the last 15 years or so: Women working full time in the US today earn 80.7 cents for every dollar a man working full-time makes.
Potential reasons for the stubborn persistence of the pay gap are both numerous and complex (think gender discrimination and the fact that women are more likely to take breaks from their careers to care for their families). But a recent paper suggests a relatively straightforward strategy for narrowing the chasm: Make companies disclose their salary data.
Researchers at INSEAD, the University of North Carolina, Cornell University, and Columbia University capitalized on legislation passed in Denmark in 2006, which requires companies with at least 35 employees to publicly report the discrepancy between the earnings of men and women.
Comparing firms that just missed the cutoff and firms that just made it, the researchers looked specifically at the evolution of the wage gap between 2003 and 2008. Firms that were forced to disclose this data saw the pay gap shrink 7%, from 18.9% to 17.5%. Meanwhile, the gap barely budged at firms that weren't obligated to disclose that information.
Interestingly, the decreased gap wasn't due to the larger firms bumping up women's salaries. Instead, it happened mostly because they slowed the growth of men's wages. And while productivity decreased at these larger firms, possibly because men were disgruntled about the slower rate of salary increases, they didn't see a dip in profit since they were spending less on men's salaries.
There's often a link between greater salary transparency and fairer compensation
This research feels especially relevant now. In early March 2019, a federal judge ordered the Trump administration to reinstate a requirement that companies with at least 100 employees must report pay data by gender and race. President Barack Obama had proposed the rule, but President Donald Trump worked against it, arguing that it would be burdensome for employers.
Meanwhile, Google recently announced the results of a salary analysis that found more male employees were underpaid in 2018, based on the company's methodology for determining fair compensation. In a blog post, Google acknowledged that it may now have to face other, more systemic issues, like how employee performance is evaluated in the first place.
The research on Danish firms is also bolstered by a growing body of evidence suggesting that, in organizations where salary information is (at least somewhat) transparent, the pay gap tends to be smaller than in organizations where that information is cloaked in secrecy.
According to a report from the Institute for Women's Policy Research, the pay gap in the US private sector was 18% in 2010, compared to 11% in the US public sector. That could be attributable to the fact that public-sector salaries are widely available, while private-sector salaries generally aren't. And in a 2015 paper, Marlene Kim at the University of Massachusetts, Boston, found that in US states that legally permitted workers to discuss pay, wages were higher for women.
Paying people fairly is rarely just about money
Across the globe, more companies - particularly those in the tech industry - are choosing to pull back the curtain on salary information. And while shrinking the pay gap isn't always their sole motive, these organizations often find that disclosing pay data is like pulling a thread that unravels a tangle of issues related to fair compensation.
Take GoDaddy, for example. The 8,000-employee web-services firm doesn't publicize exact salaries, but it tells employees how their pay stacks up against their coworkers' and what they need to do to reach the next level. When GoDaddy conducted a salary analysis and shared the results publicly in 2015, they thought they were doing pretty well. For every $1 the average man was earning, his female counterpart was earning $1.01. Then human resources dug further into the numbers.
As GoDaddy chief people officer Monica Bailey told Business Insider, they learned that some women had been in their roles longer than men, but were still making the same salaries. "When looking at just a snapshot of job for job, there was pay parity," she said. "But when you look at the effect that has over people's careers, if women are taking longer to progress through their levels and get promoted, that obviously has an impact on their earnings."
GoDaddy took several measures to ensure fair compensation for all employees. One change they made was to alert managers when an employee had been in their role for a certain amount of time, so that the manager could assess whether that person was ready for a promotion. As a result, women's promotions grew by one-third.
At 58-employee software company Truss, everyone has access to each other's salaries. But the most complicated hurdle toward fair compensation was that employees' own performance evaluations often differed from that of their managers. Before making salaries transparent in 2015, Truss took the very practical step of providing clear information about what was needed to reach different performance levels, according to co-founder and COO Jennifer Leech.
Social media company Buffer, which employs roughly 60 people all over the world, takes perhaps the most extreme stance on pay transparency by making staff salaries publicly available. Yet, when it comes to pay parity, founder and CEO Joel Gascoigne admits there's more work to be done.
The average salaries for men and women are the same, but a gap remains at the highest salary levels, Gascoigne said. He suspects that's because most of the longest-tenured employees are men, since Buffer hired more men in its early days. Gascoigne said the most important thing he can do going forward is change Buffer's hiring process, so that the company draws from a more diverse candidate pool.
Indeed, the research on Danish firms found those that disclosed salary information were more likely to promote women and to hire women at middle- and lower-tier jobs.
As for GoDaddy, Bailey alluded to the findings on Danish firms when she said her company didn't grant fewer promotions to Caucasian men (even as they granted more promotions to women). Because business was "thriving," they could simply afford to promote more people. "The result of that," she said of the promotion initiative, "is that the pie got bigger."