Although gender wage discrimination is illegal, the gender pay gap remains a significant issue in the American workforce.
While federal law specifically prohibits gender wage discrimination, there are a number of factors that lead to the gender pay gap — for example, promotion tracks or incentive pay practices. That's because these methods of compensation adjustments are typically conducted without the same degree of oversight as annual compensation reviews, allowing potential biases and skewed perspectives to come into play.
Specifically, recruiting, base pay and incentive pay contribute significantly to gender pay inequality. As outlined below, the issues often arise before an employee's hiring date, and then continue to escalate throughout their tenure.
Societal Factors at Work
According to the Bureau of Labor Statistics, most of the strides in moving the pay gap from 62 percent in 1979 to its current range of 80-83 percent occurred in the 1980s and 90s. As of 2016, women who work on salary and are full-time employees make about 82 percent of what their male counterparts earn. Traditionally and continuing through today, women work in more office and support roles instead of in the higher paying engineering, finance and operational roles.
For example, only 10 percent of women working in professional occupations worked in the high paying engineering and computer fields vs. 46 percent of men, per BLS. Societal factors such as encouraging women to be caregivers, focusing on girls' physical beauty or artistic tendencies instead of their academic achievements and chiding girls to be "nice" and not assertive are additional contributing factors to a lower pay scale for women.
The Role of Incentives
In addition to regular pay, traditionally those who obtain jobs that are more directly tied to profit and loss, such as in engineering or operations, receive larger bonuses than those who work in back-office or support roles. Since women are much more likely to fill these latter roles, they are more likely to receive lower bonuses — or none at all.
According to the ADP Research Institute® paper, Rethinking Gender Pay Inequity in a More Transparent World, the gap in bonus pay was a staggering 69 percent. In some fields, such as education and professional and business services, the gap between base pay was statistically insignificant. However, in those and other fields, there was a significant gap between annual bonuses.
The large disparity between men and women's bonuses obviously has a major impact on the total compensation gap in certain fields. Although some of this is due to women having a smaller presence in certain fields, these disparities also appear for comparable peer groups, which means that other factors beyond societal ones are contributing.
Men and Women Negotiate Differently
One possible reason to explain the pay gap is that men may be far more likely than women to negotiate overall compensation, which includes their base pay, commissions, bonus and stock options. Conversely, women may be more likely to negotiate their hours and schedule flexibility. In addition, men could be more likely to start negotiations by asking for more than they want or have earned in the past, while women may sometimes start by asking for less than they actually desire. Women may also be more likely than men to accept an offer without negotiating. Regardless of the reasons, women are more often starting out with lower overall compensation in firms that rely on negotiated starting wages to set the employee's compensation pathway.
Salary Is Often Considered a Measure of Success
All successful firms have a success orientation — conscious or unconscious. Nevertheless, how that success is defined can greatly impact how people are identified for promotions.
If that success definition is linked to overall compensation amount, women will be at a disadvantage. According to the ADP Rethinking Gender Pay paper, lower salary employees may be overlooked for promotion compared with a higher-paid employee of the same caliber. If a manager's success orientation is pay, then that manager is more likely to view a more highly compensated employee as more skilled or talented than a lower compensated employee.
As this perspective plays out in successive rounds of promotions, the pay gap either widens or becomes entrenched. Essentially, an employee who negotiates lower incentive pay at her time of hire may be inadvertently reducing her career advancement prospects.
Ultimately, low overall starting compensation, particularly low incentive pay, has become a major limiting factor that prevents or slows career advancement for women. Hence, lower starting compensation, and its long-lasting impact, is one of the most potent contributors to the ongoing gender pay gap.
Read about ADP's award-winning Pay Equity Explorer which offers employers real-time access to data for compensation decision-making.
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Rethinking Gender Pay Inequity in a More Transparent World
The ADP Research Institute® (ADP RI) examined disparities in base pay and incentive pay between genders both at time of hire and after six years of tenure within the same firm.Get the Report