There has been a lot in the news recently about the gender pay gap, but unfortunately it has all been pretty descriptive: shock horror, women are paid less than men. As if we didn’t know that already. The Equality Bill had its second reading in the Lords last month and consultation on the guidance starts on Monday. There is also an inquiry into the gender pay gap in the financial sector, which is now in Phase 3, which should move us from the descriptive stuff we have known about for ages to some solutions to tackling the problem. So while we wait for the Equality and Human Rights Commission to come up with their recommendations about how to close the gap between men and women’s pay, I thought I’d do my own research into what companies should be doing to get ahead of the game.
“Corporate HR and talent management leaders should take a close look at their compensation plans to identify if there’s a gender pay gap in their organisation,” says Lauryn Franzoni, Executive Director of ExecuNet, a private network for business leaders. “If a discrepancy exists, their focus should immediately turn to closing it, as the cost of losing key business leaders, regardless of gender, is far greater than most companies realise.”
Companies should not assume that managers are setting fair starting salaries, and fair annual increases. It’s not because managers aren’t trying, but the market rate for different skill sets changes depending on scarcity of that resource. For example, after the dot com burst, there were plenty of web project managers around and people who may have commanded a serious salary three years earlier would have had to settle for less. Over the course of several years, this can create massive discrepancies within a department. Simply looking at the results of internal analysis into who gets paid what for doing what work is a step in the right direction.
The case for pay audits
“At the minimum, companies need to inventory their use of salary dollars at least every two years,” says Cy Wakeman, HR expert. “One filter with which to analyse is the view of dollars paid to men versus women in similar positions,” she says. “If one or more positions are heavily dominated by men or women, it is also important to review the value of the positions carefully to ensure that the company is not discriminating on a mass scale and disguising it as an issue with the market value of the positions.”
But you do need to be careful what data you seek out and how a pay audit is managed. “Pay audits can be useful if they are done objectively, openly and comprehensively,” says Dr. Sasha Galbraith, a partner at Galbraith Management Consultants, and an expert in diversity issues. “Most companies tend to exclude certain data, thus skewing the overall results,” she adds. “Another useful type of audit is a comparison between education, tenure, pay and gender. When those data are tracked, one often finds obvious examples of pay and gender gaps that cannot be explained by education and tenure alone.”
This kind of analysis can help companies identify bias inside the organisation. Your company won’t be immune to having these, but you might have to look hard to seek them out, especially if they align strongly with your own personal ideologies. “It might be a belief that unless you went to a particular university or earned a particular type of degree you aren’t considered among the most promotable,” says Galbraith. “Biases can also be very subtle, such as the belief that women should never be assigned to manage a construction site in a Muslim country – but that experience is deemed necessary to become promoted.”
Beyond auditing: what else can we do?
Pay audits alone aren’t enough. “Simple auditing to ensure that men and women are paid equally totally misses the point of using dollars to turn talent into productivity – male or female,” says Wakeman. “A better approach is to take it beyond the issue of gender and to base pay on the value added to the organization. Individualise compensation and benefit packages with an eye on performance management and talent management.”
Galbraith also feels strongly that companies need to move beyond their existing models of compensation. “Companies can do a lot that they are not currently doing,” she says. “They can stop the forced ranking systems, like those used at General Electric. They can set forth very objective criteria that state what achievements merit what kinds of pay increases and bonuses. They can mandate that at least three qualified people be involved in every salary review of every person. I think that companies need to actively work to bring in a critical mass of women at all levels so that the token woman syndrome is no longer an issue. The more different women there are in an organisation, the more people will see that not all women are alike and that women approach things in ways that are different from each other but also from the male power structure.”
The benefits of equal pay for equal work
Closing the pay gap will hopefully bring more women into senior project management positions and across companies generally. However, it also has some tangible benefits for organisations. “Without question, companies that offer equitable pay packages are far more attractive to prospective employees – a distinction that will become increasingly important as the economy improves and the war for talent is reignited,” says Franzoni. She points out that with hiring at the top of the employment stabilising, companies that fail to eliminate gender pay gaps will see costly increases in management turnover, lost productivity, and lower morale, as key leaders increasingly look outside of their company for better opportunities. Unplanned leadership turnover generally results in unplanned recruiting expenses and a substantial drop in productivity. “Not only do pay gaps put organisations at a competitive disadvantage when trying to attract talent, they can also poison a company’s reputation and corporate culture – creating irrevocable damage that will derail growth,” she says.