Your Bonuses May Be Widening the Gender Pay Gap

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Dec 14, 2018

As 2018 comes to a close, year-end bonuses are top of mind for both employers and employees. What will they be? When will they be awarded? Who will receive them?

It has been widely reported that there is a significant pay gap between men and women. Several factors, such as recruitment, performance review, age and tenure, education level, industry, and more, contribute to a 18% average pay disparity observed between male and female employees in the US.

With this in mind, as HR leaders prepare bonuses, it is important to consider pay equity when awarding bonus and incentive pay.

Why wait until year end to pay bonuses. “Don’t Wait For December, Pay Bonuses Year Round.”

The ADP Research Institute (ADPRI) conducted a new study titled Rethinking Gender Pay Inequity in a More Transparent World, which found that wage inequality worsens for women when bonus pay is considered.

By following the career paths of male and female exempt, new hires who stayed with the same company from the third quarter of 2010 until the end of 2016, the study found that women, on average, are paid 17% ($15,000) less in base salary than men. However, when factoring in the gender pay gap for incentive pay, which we found is 69%, the total earnings pay gap widens to 19% ($18,500).

The study also found:

  • Women begin their career at a lower wage compared to men which can impact their overall bonus rate.
  • The average bonus amount for women was less than two-thirds of the amount paid to men who had equivalent base pay, age, and tenure.
  • Younger women have the worst bonus to base ratio, 21% less than their male counterparts, which widened their overall pay gap from a total earnings perspective.
  • Women between ages 40-50 earning $40,000 to $60,000 per year received an average bonus of 8.5%, whereas men in the same salary band received 11.4% — a gap of 74%.
  • Women in the finance and real estate industries make 21% less than men in bonus to base ratio.
  • However, not all industries pay women less in bonus/incentive pay. Women in the information industry make 7% more in bonus to base ratio than men, which improves their overall gap in total earnings.

With a better understanding of the current gender pay gap in bonus and incentive pay, below are three key considerations for HR leaders as they approach bonuses at the end of 2018:

Conduct a comprehensive pay equity review — Before awarding bonuses, take a close look at employee base pay, incentive pay, and total compensation to determine where your organization stands. With deeper insight into pay practices, more informed decisions can be made around bonus and incentive pay.

Implement a tracking system — Utilizing a tracking system can help leaders accurately monitor pay, age and tenure. When HR leaders regularly review this information along with bonus and incentive rewards, they can have a clearer picture to actively manage incentives to meet organizational goals for gender pay equity.

Communicate with transparency — To cultivate a culture that embraces fair and equitable pay, communication goes a long way. Actively sharing with associates the organization’s policies on equitable pay practices, comparisons to industry benchmarks, and a commitment to support women with a holistic approach to career growth can further demonstrate that these issues are important to leadership.

This level of transparency can also build trust between managers and employees, which can ultimately foster a more productive working environment for everyone on the team.

When reviewing pay practices, looking at accurate sources of data is a critical place to start in order to give leaders an unbiased view of the current pay landscape.

As a next step, reviewing these broader industry benchmarks against an organization’s internal data can help employers look closely at their compensation program and determine if any changes may be needed to better-align with industry standards. This can this be helpful as employers work to attract and retain skilled talent in the tightening labor market.