There is a multitude of reasons why the gender pay gap exists. Here's why organizations should focus on those institutionalized inequities that they can directly control and manage now.
When it comes to the gender pay gap, the lower overall starting compensation for women, including incentives, is a major concern. Lower incentive pay — and its contribution to the gender pay gap — may create a hidden bias against the promotion of qualified women versus their more highly compensated male peers.
Money can play a big part in how most people in the United States define success. If someone who makes more money is defined as successful, that person is likely to be viewed as having certain hard and soft skills that make them a better candidate for promotion.
This is often found in the technology industry. According to the Wall Street Journal, women in technology start-ups only receive half the amount of equity that their male peers receive. The percentage is even lower for female founders, who own 39 percent of the equity of male founders.
The Impact of the Success Principle is Real
According to the ADP Research Institute® Salary Negotiation Survey, men and women who are hiring managers or who otherwise can impact salaries agree that "managers have the responsibility to make sure female direct reports are paid fairly and equally." Unfortunately, agreeing with this statement doesn't mean that these individuals always take action to ensure this. The survey also notes women are less likely to negotiate for higher overall compensation.
The success principle dictates that higher incentive pay can lead to the belief that the higher paid employee has a better skill set. Thus, according to the ADP Research Institute® report, Rethinking Gender Pay Inequality in a More Transparent World, the lower incentive pay attained by women may "create a natural barrier to promotion," while the higher incentive pay attained by men may do the opposite and create a natural advantage for male co-workers. Hence, managers' ideas of what is "fair and equal" may be distorted.
The Threat of Unwanted Attention
The ADP RI report states the base and incentive gender pay gap also continues because promoting an "underpaid candidate" may invite unwanted attention and visibility to the organization's historical and systemically unfair pay practices. It is natural to ask, "If I am the better candidate for promotion, why has my co-worker received larger bonuses than me for the past five years?" This will be especially true if that co-worker has broadcast his bonuses or equity increases over the years.
The newly considered employee may also wonder why she is only now being considered for a promotion when she was passed over once or even multiple times before. If these questions are asked forcefully or to numerous individuals, others may join in on the questioning, potentially leading to difficult conversations.
Many Organizations Practice Avoidance
Some employers will avoid any and all uncomfortable questions by simply promoting the employee who has the higher incentive compensation. In most cases, that employee will be male. Fear of exposure leads to a doubling down, as well as a continuation of the compensation practices that led to the gender pay gap.
Per the ADP RI report, this is one of the ways in which "lower negotiated incentive pay at the time of hire may prevent personal advancement years down the road."
Identify and Focus on What You Can Control
For businesses concerned with compliance and talent, the key is to focus on what they can control. One major way to ensure fair and equal pay is to rely less on a candidate's negotiation skills when entering a new role. Organizations can begin by reviewing the recruiting and hiring guidelines provided to hiring managers to guide them through salary and incentive negotiations.
Businesses that truly seek to reduce the equity gaps should establish narrower and more transparent pay ranges for new employees and ensure that these new policies are communicated to those on the hiring front line. HR leadership can control compliance by requiring the approval of all offers by those in charge of this directive.
Additional Actions Organizations Can Take Now
According to the ADP RI report, organizations can conduct a comprehensive review of their pay structure, including all overall compensation and all components, including base pay, bonus, commissions and stock options. Based on what's happening in their organization, leadership can create different management or technical tiers with smaller compensation bands and clearly define the skill sets or achievements needed to obtain these positions.
Finally, organizations can take the necessary steps to ensure performance and position fit receive higher consideration than an employee's current compensation level. Specifically, HR professionals and senior hiring managers can work together to establish and publicize a clear set of criteria upon which bonus and other incentives are based.
The gender pay gap exists for a variety of reasons. However, by focusing on those institutionalized inequities that they can control, businesses can make starting overall compensation more equitable for all. In addition, organizations can prevent lower negotiated incentive pay at the time of hire from becoming a limiting factor in career advancement years later.
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[WEBCAST] Do Variable Pay Practices Contribute to Gender Pay Discrimination?
Learn about findings from a recent ADP study, as well as actions and potential strategies to help address pay disparity.Go To Webcast
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