Your Bonuses May Be Widening the Gender Pay Gap

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.

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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.

Ahu Yildirmaz is the co-head of ADP Research Institute®, where she directs economic and labor market research. The institute leverages insights gained from ADP’s global employee sample of nearly 40 million workers worldwide, to conduct research that illuminates the crucial trends shaping today’s working environments. In addition, Dr. Yildirmaz overseas the Institute’s labor market reports, including the world-renowned ADP National Employment Report® and ADP Workforce Vitality Report.

Dr. Yildirmaz’s broad research interests include workforce trends and labor market conditions including job and wage dynamics. She frequently is cited by leading business publications, including The New York Times, The Wall Street Journal, USA Today, Reuters, CNBC, TheStreet, CNN Money and Forbes. She appears regularly on national radio and television programs, including “Bloomberg TV and Radio,” “Fox Business,” “National Public Radio” and “Voice of America.”.

Throughout her career, Ahu has approached her research with a global mindset, having lived and worked in Europe, United States and Central Asia. Prior to joining ADP® in 2011, Dr. Yildirmaz held a number of roles at Johnson & Johnson and AT&T in the areas of strategy, corporate finance and market research. She also lectured and taught several economics and finance classes within the Economics Department at New York University (NYU) and the City University of New York (CUNY).

Dr. Yildirmaz earned a doctorate degree in economics from the Graduate Center of the City University of New York and a bachelor’s degree in economics from Bosphorus University in Istanbul, Turkey.