Can Pay Transparency Help Close the Gender Wage Gap?

Women may have more professional opportunities today than ever before in history but the unfortunate reality is that they still earn less than men on the whole, thanks to a persistent gender wage gap. The most commonly cited statistic in the gender pay gap discussion is that women earn 77 cents for every $1 earned by their male counterparts. But according to Stephanie Thomas, a lecturer at Cornell University’s ILR School who has spent 15 years researching the gender gap, there is more to that figure than meets the eye.

As part of eCornell’s webinar series, Thomas joined Chris Wofford to discuss the complexities of the gender wage gap and how employers can use transparent pay practices to help close it. Below is an abridged version of their conversation.

Wofford: I think everyone is probably familiar with the common figure that we all kick around, that women earn 77 cents to the dollar that men earn. Is there more to the story?

Thomas: That figure is part of the story, but it’s not the whole story. When we look at various explanatory factors and make appropriate comparisons, we see that the 23 cent gap really narrows. Yes, it’s a real number but it’s not necessarily reflective of the true gender pay gap when we measure things correctly.

Part of the reason that we have this 23 cent differential is due to the way we’re measuring the gap. If we look at all men versus all women, we see a large gap but that’s not necessarily the right comparison to make. We know that there are a lot of non-discriminatory factors that influence pay, like occupational choice, industry, labor market experience, and education — all those kinds of things. So when we lump everybody together and look at all men versus all women, and the only thing we account for is gender, we see that 23 cent gap. When we control for things like occupation, industry, labor market experience and union status, we see that the 23 cent gap really closes. When these factors are included, we get that gap down to about nine cents per dollar.

Wofford: If everything else has been accounted for, does that suggest that the nine cent difference is down to pure discrimination?

Thomas: It’s difficult to make an inference of discrimination. We first need to make sure that we’re comparing people properly, so we want to look at people who are in the same occupation, in the same industry, with the same labor market experience. Women tend to have less labor market experience than men, simply because of biology. Women are the ones that give birth and most women don’t want to give birth under their desk and go right back to work. So we take time off and that makes a difference in the labor force experience of men and women of the same age. When we account for all of those things, there’s about a nine cent gap left.

But there are some other factors that are a little more difficult to measure, that could explain that remaining nine cents. For example, women will, generally speaking, take a lower salary and a richer benefits package while men are more likely to take a higher salary and less benefits. Men also tend to prefer more risky compensation elements like stock options and bonuses. Women, on the other hand, tend to be a little more risk averse than their male counterparts.

We can also look at the role of caregiving responsibilities, whether that’s for children, disabled family members or elderly parents. In our society today, women still bear the brunt of those caregiving responsibilities. Whether that is right or wrong is a different conversation, but it’s still seen as a female thing to do. So if women are taking time off from work, or scaling back their hours, that can influence what we see in terms of the overall earnings numbers.

Wofford: Doesn’t negotiation also play an important role in this?

Thomas: Absolutely. Negotiation and compensation expectations are really important. There have been a variety of studies done on this. One of the most interesting asked people who had just finished their MBA what they thought a reasonable starting salary would be. Depending on how you look at the data, compensation expectations for women were anywhere from 25 to 50 percent lower than their male counterparts.

Wofford: Wow, that’s substantial.

Thomas: It is, and if women have lower expectations about what a reasonable pay package would look like, that can contribute to the disparity. We also know that women are only one-third as likely as men to engage in compensation negotiations. When they do negotiate, they’re just as successful but they’re only one-third as likely to start that conversation.

The last thing I want to bring up here that helps explain that nine cent differential is the difference in work hours. We know that men tend to work more hours per week than women. A lot of times those extra hours are paid as time-and-a-half overtime earnings, so if men are working more overtime, that alone can be enough to explain the difference in the amount on the paycheck. Even though you and I might be paid the same hourly rate, if you’re getting time and a half for overtime and I’m not, you’re going to have higher earnings than me.

Now, even if we account for caregiving, hours, the cash benefits tradeoff, and all those other things, there still may be some gap left over. I think it’s important to note that just because we can explain the gap in the aggregate doesn’t mean that there aren’t real cases of gender discrimination happening. We could have a zero differential in the aggregate but that doesn’t mean that everyone’s being paid fairly. If there are cases of gender discrimination, and unfortunately there are, it’s really more than just the impact on the woman herself. It’s really a family issue. It’s a societal issue. More than 7.3 million families are headed by single mothers. If they’re not earning as much as they should be, then that’s going to affect where they can live, access to education, and opportunities for their kids. It’s really much more than just paying the woman fairly. If women have less income, that’s going to affect the economy as a whole because they’re not going to be spending as much, which in turn has a dampening effect on GDP growth and macroeconomic issues.

Wofford: So actually, everyone would benefit if the gender gap was brought down to zero, not just women.

Thomas: Yes. People are starting to realize that the gender pay gap is more than just about the woman. It’s a family issue, a societal issue and a big macroeconomic issue.

Wofford: So how do we work on closing the gap?

Thomas: One thing that can help is pay transparency, which is something we are hearing a lot about these days. Why do we care so much about pay transparency right now? From my perspective, I think that there are two different sets of forces playing a role here. On the one hand, it’s sort of a logical extension of what we’re seeing in society as a whole. With the rise of social media, people are sharing more things about themselves. I’m a little bit older and I was raised with the idea that nice people don’t talk about politics, religion or money. But my 16-year-old niece just tells everybody everything about herself on social media. It’s very open, it’s not a big deal. I think that millennials don’t have the same kind of privacy concerns that Gen-Xers like me do.

I think this push toward pay transparency is also an extension of business trends and the rise of big data. Today, we’re collecting more information and we have better technology to process that information and generate insights. Organizations are shifting somewhat to more person-based jobs, rather than job title-based jobs. It used to be that job descriptions would include “other duties as assigned.” A lot of times now, the “other duties as assigned” is the job. It’s a combination of business and societal trends that are sort of causing this issue of transparency to rise to the surface.

Wofford: How do you go about showing pay transparency? I’ve never been in an environment where that was the case.

Thomas: Pay transparency means different things to different people. What I recommend for businesses is what I refer to as pay process transparency. What that means is really setting out a very well-defined, organized, clear set of expectations. If this is your job and this is how many years of experience you have, and these are your skills, abilities, talents, and qualifications, this is what the pay range is going to be.

Cornell has what I would call pay process transparency. Depending on the job family that you’re in, there are different grades – B, C, D and E – and a starting salary range. If you are in this particular job family at this particular grade, then your salary is going to be between here and here. In order to get to the next step or to earn the next pay increase, the criteria are laid out very clearly. Each employee knows what they have to do to get that next merit increase or bonus. Being transparent about your pay process is really providing employees with enough information to really understand how those pay decisions are made.

Wofford: This also tells an employee how much negotiation wiggle room they have, right?

Thomas: Yes, there’s a minimum and maximum. Sometimes you’ll see it presented in terms of a midpoint. Some organizations, particularly in the high tech sector, have decided to opt for non-negotiation policies. They know that men and women have different tendencies to engage in those conversations, so one of the ways that they’re addressing the gender pay gap is to say, “This is what we’re offering you. Take it or leave it, we’re not going to discuss it.”

Another element of pay transparency is what I refer to as pay disclosure. Whole Foods is a great example of this. At Whole
Foods, anybody can go in and say, “I want to see how much so-and-so is earning” or “I want to see what the CEO’s compensation package is.” Whole Foods has taken somewhat of a radical approach to this in that they’re making their payroll books open. Any employee can go in and look at any other employee’s pay. For the culture that Whole Foods has, this is a good strategy for them but for other organizations this may not be optimal. I think you have to figure out what’s appropriate for your organization and what fits with your culture.

The third example that I want to talk about is something that happened at Google, and this is what I call radical transparency. This was not something that Google put into place but rather something that Google employees did on their own. It started with a former Google employee who was concerned about some pay equity issues at Google. She created a Google spreadsheet and circulated it among some of her co-workers and said, “Put in your name and your salary and we’re going to see what the pay practices are.” It was voluntary disclosure on the part of the employees.

Wofford: What happened? How did the higher-ups respond?

Thomas: Well, they weren’t happy, but technically, there was nothing that could be done. It’s not illegal for employees to talk amongst themselves about their pay. Whether you’re unionized or not, the National Labor Relations Act gives employees the right to talk about compensation.

There was a lot of buy-in from the fellow Google employees and the spreadsheet revealed what the workers thought were some discrepancies that needed to be looked at. Now, just looking at a sheet of people’s names and pay rates is not going to tell you everything that you need to know. Just because you and I have the same job title doesn’t mean that we should have the exact same pay rate.

Wofford: What happened at Google as a result?

Thomas: Well, the employee departed the organization and the whole thing blew up in the news. It was ultimately resolved internally so I don’t know the details but I know Google did take a look at this issue. I hope that if there were real disparities that needed to be corrected, they were.

Wofford: Great, so we’ve seen several examples of pay transparency, radical and otherwise. What’s next? Are more companies thinking of transitioning to a transparent process?

Thomas: A lot of organizations are thinking about it. Before I came to Cornell, I spent 15 years in private consulting and one of the things that I specialized in was the statistical analysis of pay disparities. So we would be retained to go in and look at an organization’s data, understand how they paid people, and actually do a statistical analysis to identify those disparities. If we found disparities, we would report that information back to the organization and help them figure out what steps they needed to put into place, not only to correct the situation, but to prevent it from happening again.

Wofford: Would you advocate generally for this kind of transparency?

Thomas: I completely support pay process transparency. I think that it’s the right thing to do. I think it’s information that your employees are entitled to and should be provided. For some organizations, it’s probably not time yet, but it might be in the future. You have to understand your workforce, their needs and their wants. There really isn’t a one-size-fits-all solution to this.

I think the bottom line is your employees are going to talk about pay. They’re going to have those conversations, whether you want them to or not. You can’t legally prevent them from doing it but what you can do is help manage them. By being open and providing this information up front, you can inform and direct those conversations. If you’re providing accurate information and people have an understanding of how those decisions are made, it can shut down the rumor mill.

Wofford: Stephanie, thank you for the conversation on these very important issues.

Thomas: Thank you, Chris.

Want to hear more? This interview is based on Stephanie Thomas’ live eCornell WebSeries event, The Gender Wage Gap: Causes, Consequences and the Way Forward. Subscribe now gain access to a recording of this event and other Human Resources topics.