Strategies for Reducing the Wage Gap Between Men and Women

Unequal stacks of money illustrate the wage gap between men and women.

Finance leaders are beginning to help reduce the wage gap between men and women. Here's what you need to know about driving this positive change.

The last year has seen significant attention turned to the issues of sexual harassment and pay discrimination in the workplace. As a consequence, many organizations are conducting deeper examinations of their approaches, policies and procedures.

As a part of these efforts, many finance leaders have begun working with other members of the leadership team and talent managers to understand the best way to reduce the wage gap between men and women in their organizations. Here's what you need to know as you undertake similar initiatives.

What Are the Key Drivers of Pay Inequality?

According to the ADP Research Institute's report, "Rethinking Gender Pay Inequity in a More Transparent World," multiple independent factors are driving pay inequality. Among them are not only recruitment and defining job roles but also performance reviews and associated promotion opportunities. Related to these, incentive pay appears to be one of the biggest drivers of the widening in the pay gap that's especially evident as employees progress. Alongside these issues, sociodemographic factors like pregnancy, maternity leave or women being primary caregivers also contribute to this inequity.

What Are the New Trends Around Sexual Harassment and Pay Discrimination?

The women surveyed for "Rethinking Gender Pay Inequity" reported that they were hired at a base salary representing only 82 percent of their male counterparts in the same role. Women's bonus-to-base percentage was about the same — 83 percent of that of men. And since lower-paid employees are often overlooked when it comes to being considered for promotions and challenging opportunities, this initial pay inequity "becomes an insurmountable obstacle" for equal pay over time, according to the report.

The increase in the number of women sharing accounts of being sexually harassed is continually raising the profile and credibility of this issue. It's also shining a spotlight on the fact that organizations have historically been more focused on adhering to legal requirements than on truly promoting a safe and supportive work environment for all. As such, more women and men have begun asking empowering questions about whether their organizations really treat all employees as equals — and if they don't, what can be done to change this.

How Can We Keep Compensation Strategies Up to Date?

Instead of trying to secure new talent for the lowest price possible or relying on salary negotiations, finance leaders should stress the need for relatively flat pay structures for specific job roles. According to the Wall Street Journal, these pay structures should be tied to clear position expectations and performance objectives. This helps employers more fairly compensate personnel truly on the basis of their merit as employees and not on the basis of their salary negotiating skills.

According to the ADP report, employers can reap the highest rate of return on incentive pay systems like bonuses and merit raises by using them to align individual employees with team and organizational performance. This helps ensure that high performers — whether male or female — are being identified and appropriately rewarded.

What Are the Financial Consequences Overlooking Pay and Compensation Levels?

Unequal compensation and biased incentive pay structures can bring significant financial costs through lawsuits and settlements. Pay and incentive schemes that are convoluted to the point of obscuring exactly how employees qualify for merit raises, bonuses or promotions may be deemed discriminatory.

Serious financial consequences may also stem from lost opportunities. Rather than fight for equality internally, many women may leave an organization to work at one that appreciates their efforts. This, of course, means higher turnover. And when performance level doesn't appear to matter, there's less incentive against mediocrity, resulting not only in general lower levels of performance but also in difficulty recruiting new high performers. As "Rethinking Gender Pay Inequity" asks, "Who would want to work for an organization that does not objectively identify and reward its best contributors?"

Just as the wage gap wasn't created in a day, it won't disappear overnight. That said, earnest, targeted action can help the wage gap between men and women can shrink faster in the next 20 years than it has over the previous 60.

Read more:

The Gender Pay Gap Widens As Women Earn Less Bonus Pay