A scale which is equally balanced with a man and a woman on each end

The Role Of Pay Equity In The War For Talent

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The arguments for pay equality are staggering – with estimates of a $12 trillion return to the global economy as it relates to gender parity alone. Looking at Fortune 500 companies – those with the highest representation of women board directors have significantly higher financial performance than those with low female representation. And yet, the gender gap is widening.

The World Economic Forum’s Global Gender Gap Report 2016 estimates that it could take 170 years to eradicate the disparity in pay and employment opportunities for men and women. Considering the US’s Equal Pay Act of 1963, aimed to eliminate pay gaps between men and women, these latest figures from the WEF – over five decades later – tell a different story. So why is there seemingly reverse progress as it relates to the pay gap? From unconscious biases, to lack of female representation in key leadership roles – and even unintended consequences of programs designed for working mothers – there are many possibilities to what has hindered progress.

So why do these inequalities persist and what can be done to push the agenda forward and close this widening pay gap?

In Depth

Usha Mirchandani, Service Line Leader of Performance Analytics, Aon Hewitt affirms that “the gender pay gap is no longer a debatable issue.” According to research by the Economic Policy Institute, men significantly out-earn women across all pay scales. A typical woman working full time is paid 80 cents for every dollar a typical man working full time is paid.

And the arguments for gender equality are there – companies with at least 30 percent of women in leadership roles can boost their net profit margins by about 15 percent compared to those with no female leaders, according to research by the Peterson Institute for International Economics. Furthermore, organizations that focused on gender parity enjoyed lower stock volatility, according to a Morgan Stanley study.

Referring to proprietary Aon data, Mirchandani further elaborates, “after we control for factors like experience, education, tenure, performance and promotions, there is an undeniable gap in pay for equal work.” This gap, she explains, is a business issue and with the war for talent, an important one to address.

Addressing the Pay Gap

In addition to bettering an organization’s ability to attract and retain top talent and remain competitive for all individuals, gender parity in pay also correlates with better performance from individual employees. Repeated annual Aon Employee Engagement surveys have found that while women tend to be more engaged than males at lower levels of an organization, female senior leaders and executives are less engaged than their male counterparts.

Why might this be? Eleni Lobene, Associate Consultant, Aon, who conducts extensive research on the topic of gender differences, states, “according to the data, female executives and senior leaders are significantly less likely to believe that career opportunities go to the most qualified candidates.” The data also suggests that women do not feel adequately informed on matters that directly affect them, ultimately lowering engagement scores despite likelihoods of higher pay than less senior females within a same organization.

Mirchandani offers another possibility impeding pay equality, “our research suggests that as women join an organization, their starting pay tends to disadvantage them throughout their professional career.” To combat the issue, she explains, several organizations have started to no longer consider current pay in preliminary salary negotiations and instead focus on the market value of the role and overall contributions required for the job.

While the 170 year estimates from the WEF might be sobering to many, there are positive signs of change. Governments are beginning to take action to address the issue as well, with the US city of Philadelphia recently passing first-of-its-kind legislation that would ban companies from asking for an interviewee’s pay history when hiring. This would, in theory, prevent employers from basing offers on previous salaries which might have been reflective of a gap. Beginning in April of 2017, private and voluntary sectors in the UK will have to report gender pay and bonuses of over 250 million people as part of the initiative to address such gaps.

In parallel, what proactive steps can be taken by organizations to address the issue?

The Role of Senior Leadership

Progressing this agenda within an organization, arguably, comes down to senior leadership. An understanding of talent pools is a first step in addressing known – or unknown gaps – as it relates to women in leadership positions and subsequent gaps in compensation. Mirchandani refers to research that suggests diversity breeds diversity, in that diverse leaders tend to recruit more diverse talent, pay people more equally, recognize and grow diverse talent, and retain staff for longer. And increasingly, C-suite officers across organizations are reaffirming their commitment to diversity for just these reasons.

However, while organizations are starting to review their talent pools to ensure they’re diverse, “although women are identified as high performers, they still struggle in getting promoted at the same rate as men,” says Mirchandani.  This promotion gap likely translates to not achieving the same level of pay increases or bonuses as male counterparts.

Eliminating the ‘Affinity Bias’

One less well-known factor preventing women from progressing in the workplace is ‘affinity bias’ – a natural tendency to hire and promote those who look similar to them. As there are more men at the top of large companies making hiring decisions than women (only 17 percent of board members, 15 percent of C-Suite executives, and 5 percent of Fortune 500 CEOs are women), such bias indicates that males are most likely to get the top jobs.

“Companies must make a concerted effort to mitigate the effects of the ‘affinity bias to ensure they’re both hiring, as well as promoting genders equally,” says Lobene. “This is something that’s much easier said than done considering this type of bias is inherently unconscious in nature.”

To address this, some organizations have begun to review needed leadership competencies to ensure that they can be demonstrated in a range of ways – not just the “towering personalities” typically associated with “alpha males.” At the same time, to address unconscious biases such as the ‘affinity bias,’ “leading organizations are using text analytics to review performance reviews to ensure that biases are not creeping into the language of such feedback,” says Mirchandani.

Advocating for a Parent-Friendly Vs. Mother-Friendly Workplace

As it relates to traditional gender roles such as parenting, according to Lobene, something interesting tends to surface: when you single out the woman, it can inadvertently lead to bias because “as good of an intention as you have, when you create gender-specific perks, you might be inadvertently shining more light on someone that is the ‘other.’”

Facebook made news in 2015 when it offered equally generous parental leave for expectant mothers and fathers and Swedish-based retail giant Ikea, announced similar non-gender specific benefits in late 2016. Such moves help advance the case for an equal treatment of parents without necessarily singling out a woman’s role.

“By focusing on policies across genders – such as parental policies and perks – you’re able to more equally offer valuable benefits to more employees rather than singling out a female and placing her into the more traditional ‘mother’ role,” says Lobene. Whether compressed work weeks, telecommuting and work from home options, job sharing or shift swapping, overall flexibility is seemingly in-demand by both male and females – parents or not.

So Which Comes First: Women in Leadership Roles or Equal Pay?

While there is no clear answer to which will progress equality faster – leadership or pay – one thing is clear: executive leaders need to take proactive measures to address discrepancies within their organization.

Aon’s proprietary research has indicated that companies with diverse leaders enjoy greater diversity. These organizations are more likely to recruit diverse talent and reward in an equal manner – key factors in addressing issues across genders and positioning them for future success. From recruitment to engagement, business outcomes can be significant – especially considering the estimated $12 trillion in returns gender parity can bring the global economy.

Talking Points

“Diversity fosters creativity. We need to generate the best ideas from our people in all levels of the company and incorporate them into our business practices.”– Frédéric Rozé, CEO, L’Oréal USA

“The gender wage gap is sizeable no matter how it’s measured. And despite attempts by some analysts, it can’t be explained away with creative number crunching. The gender wage gap is ingrained in our economy and it cannot be solved by simply asking women to make different choices with regard to their education, occupation, work schedules, or family life.” – Elise Gould, Senior Economist, Economic Policy Institute

Further Reading