Concerned About Pay Equity? Try Pay Transparency

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Mar 30, 2020

In 2019, the pay for women was $.80 for every $1.00 earned by a man, which is significantly narrowed from the time when the Equal Pay Act was signed in 1963, and women made $0.59 to every $1.00 a man earned. However, it hasn’t closed enough.

The Pew Research Center found that both the narrowing of the gender pay gap and its persistence tie to larger changes in American society. Specifically, women are almost twice as likely as men to work part-time and take more time off in their working lives to care for children and other family members. And although more women in the workforce are occupying high-paying jobs like lawyers and managers than they used to, they do so in less concentration than men. The integration of women into higher-paying jobs has also slowed over the last decade. However, a significant amount of the gender wage gap remains hard to quantify and might be explained by persistent sexism or unconscious bias in compensation practices.

At PayScale, the company where I work, we wanted to better understand whether pay transparency – the practice of talking more openly about pay and how decisions about pay were determined – has an impact on the gender pay gap. Our researchers conducted a broad survey to delve into this issue, and the resulting report revealed that organizations that are transparent about pay effectively close the gender pay gap.

Currently, when all data are controlled to compare women and men doing the same jobs with the same compensable factors, the gender wage gap persists at $0.98 for every $1.00 a man makes. While it’s much closer than comparing the pay of all women to all men, it shows that women are still not receiving equal pay for equal work. Not only is unequal pay unfair, but there are also laws that prohibit unequal pay practices along gender lines in the United States. This means a lot of organizations are leaving themselves open to lawsuits.

And we’ve definitely seen some. In 2018, Nike was accused of sexual harassment and gender discrimination in the workplace, allegations which later exploded into a class action lawsuit on gender pay equity. Other major companies that have grappled with pay equity lawsuits include Goldman Sachs, Google, Disney, Microsoft, Twitter, Uber, and many more.

However, the new research offers a solution. Organizations with transparent pay practices show that the gender wage gap closes completely, with women making between $1.00 and $1.01 for every $1.00 a man makes. This was found to be true at every job level, from individual contributor to executive, with women in director-level roles seeing the largest jump from $0.91 for non-transparent organizations to $1.00 for transparent organizations. The gender wage gap was also shown to close across age groups with pay transparency.

When broken out across industries and occupations, the research shows that pay transparency narrows the gender wage gap, but does not close it consistently across the board. For example, the gender wage gap was less likely to close in more male-dominated occupations (like construction & extraction and protective services) or those with strong gender norms (like food preparation & serving related). However, there were many male-dominated occupations that did close the gender wage gap completely with pay transparency, including highly educated occupations such as computer & mathematics, legal, and architecture & engineering (among others).

The reasons for implementing pay transparency are compelling in light of its impact on pay equity, but the benefits of pay transparency extend beyond compliance with U.S. law. The next generation of incoming workers — generation Z — will have greater expectations for transparency and equity than any generation before them.  The future is data-driven, and fairness will be expected as technology makes transparency and communication both easier and more integrated at all levels of the organization. The good news is that this additional transparency around compensation is poised to have a positive impact on closing the gender pay gap.