Addressing the Racial Pay Gap

The pay gap and race

In the long run, eliminating the wage gap pays off.

The pay gap is real, and it cuts along more lines than gender. As the U.S. Department of Labor reports, black women earn 17 percent less than their white female counterparts and they bring in just 63 cents for every $1 a man makes. Over time, gender pay disparities have improved, but racial disparities have gotten worse. International tennis star Serena Williams has addressed the pay gap, writing in Fortune, "Changing the status quo will take dedicated action, legislation, employer recognition, and courage for employees to demand more."

Serena Williams is a champion, full stop. However, if she had not taken up tennis and shown such a gift for the sport, she could be another black woman earning less than white women or white men doing the same work. Pay may be equal for some superstars but that doesn't help the strong core performers who keep the business running.

Finance Leaders Can Help Close the Gap

Finance leaders have a key role to play in narrowing the pay gap across races as well as across genders. First, they may have access to data that describes the situation across the entire organization. They understand the importance of strong data in defining a problem, valuing the long-term costs and benefits, and measuring progress toward a goal. Without this information, managers rely on anecdote and emotion- and fail to solve the problem.

The finance leaders also understand financial risks, and there are a few to consider when addressing racial and gender pay disparities. One is the risk of documenting a problem in a way that makes it discoverable in a legal proceeding. The work of quantifying a pay gap should be done with the assistance of corporate counsel to ensure that it is protected by the work-product rule. And, it should be used to help managers at all levels of the organization take action to eliminate pay disparities.

Assessing Costs and Benefits

The money for equalizing pay will have to come from somewhere else in the budget, causing some short-term disruption in the organization's budget. Financial leaders can provide guidance on how to manage spending in order to keep the business on track and meet profitability targets.

In the long run, though, eliminating the wage gap pays off. Underpaying some workers may save money in the short run, but it also creates tension in the workplace that interferes with productivity and may be discriminatory. It leaves the organization open to public relations headaches, compliance costs and litigation. And, it causes good workers to seek opportunities elsewhere.

The benefits of paying workers appropriately can be shown through financial analysis. That's ultimately the key to making changes.