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The Far-Reaching Effects of the Gender Pay Gap

A cartoon illustrating the effects of the gender pay gap

In 2020, women earned 84 percent of what men earned, according to a Pew Research Center analysis of median hourly earnings. This means it takes an additional 42 days of work for women to earn what men do in a year.

It’s no secret that systemic biases against women and people of color, as well as biases based on age or sexual orientation, have existed for decades. We know that gender-based pay gaps are harmful for all of us. Here, I’ll share what people-centric organizations and corporate cultures can do about this very challenging issue (hint: technology can help).

The Challenge

Some argue that gender-based pay discrimination, or pay inequity, is the result of a “controlled (or explainable) gender pay gap,” which ultimately, they say, makes the disparity less of a concern. I am not in that camp.

Central to this explanation are family caregiving responsibilities that cause both careers and career plans often to be disrupted. Differences in other areas such as education, previous work experience or number of hours in a work schedule are also sometimes cited when gender pay gaps are discussed—or when the “uncontrolled” 84 percent figure is essentially minimized. In considering these differences, some analyses have pronounced that the gender-based pay gap is effectively reduced to near zero.

I disagree. Along with many others, I believe this “controlled” lens view is harmful to individuals and society in general. I’ll explain why later, but first, a primer on equal pay in the U.S.

Governing Equal Pay in the U.S.

Fairness in pay in the U.S. is often determined through the pay equity doctrine and governed by the Equal Pay Act. In addition to those policies, the Equal Employment Opportunity/Affirmative Action programs are designed to achieve “pay equality” within organizations that provide services to the federal government.

Sometimes pay equality refers not just to equal pay for people in jobs of similar skill, effort, and responsibility, but also to equality of opportunity. This broader framing tends to be more common in countries outside the U.S., such as France, where employers can also be held accountable for gender differences in promotion rates and pay increases; and in the U.K., which requires larger employers to disclose the percentage of women in each pay quartile and have defensible positions for obvious disparities.

So why does equal pay matter? Next, we’ll look at three harmful consequences of pay inequality.

The Harmful Effects are Far-Reaching

DEIB, or Diversity, Equity, Inclusion, and Belonging, is a term that modern organizations use to characterize some of the intended effects of their policies, practices, programs, and desired corporate culture. In short, the term symbolizes something important about an employer brand. Focusing on the ‘E’, though, can also conjure up the notion of “fairness” when brought into pay equity discussions. Fairness, however, can very much be in the eye of the beholder—or perceiver. Moreover, when someone perceives a lack of fairness in their work life, such as how they are compensated or afforded growth and job satisfaction opportunities, a sweeping set of negative consequences come into play. Here are three:

  1. Lower self-esteem: Many of the most prominent and influential psychologists and sociologists of the last two centuries (Erik Erikson, for example) focused heavily on self-esteem, including how the lack of self-esteem can, at worst, result in wreaking havoc in someone’s life. Certainly, it can at least serve to impose limits on someone’s ability to be psychologically healthy, which of course affects total well-being. It’s quite logical to link the perception of a lack of fairness at work—perhaps in terms of how one is rewarded or invested in, or otherwise afforded growth opportunities—with having a major adverse effect on one’s self-esteem.
     
  2. Not feeling valued: An erosion of self-esteem from perceiving inequities at work that are personally relevant can also exacerbate a sense of not being appropriately recognized or valued—one of the most harmful states of being. Employees deliver value to organizations in a multitude of ways, including many that are outside the confines of one’s job or role. Examples include mentoring and coaching others, referring great candidates, and funneling operational improvement ideas or sales leads. These “above and beyond” contributions can easily disappear when value is not honored or accounted for.
     
  3. Productivity wanes: Given that very modest downturns in the employee productivity levels of organizations can significantly drag down business performance, in both small and larger organizations, enterprises must do what they can to avoid such downward trends. Clearly, when employees experience inequities at work, their motivation and commitment to excellence is negatively impacted, therefore their productivity suffers.

It’s critical to note that all the conditions above drag down the performance and results of an organization, undermine its appeal to otherwise top candidates, and can easily have a chilling effect on customers when this becomes a hallmark of a corporate culture.

HR Technology’s Role

As evidenced by the DEIB theme being discussed and aligned with, HR and other corporate leaders are earnestly assessing ways to counter the damaging effects of pay inequities and inequalities. One area getting much more attention is the major role technology can play. This starts with software that proactively alerts management of systemic conditions, both existing and those that have the potential to occur. For example, a system is programmed to send an alert to management when analytics or metrics reach certain thresholds, such as a percentage difference in median compensation between genders in specific roles or in general. Ideally, these alerts would include best remedies or actions to take to address the systemic conditions. Machine learning can also help us to prevent bad patterns from developing. 

Moreover, easy to use and engaging dashboards are very effective in quickly highlighting pay disparities, whether based on gender, ethnicity, age, or disability. Galvanizing appropriate actions at the enterprise level requires executive-level attention not just HR leadership involvement.

As a simple, concrete example, displaying these three numbers will provide immediate attention:

  • Average salary – females
  • Average salary – males
  • The variance between the two

Then, graphically showing disparities by location or business area allows for a quick drill-down analysis once attention is captured with headline numbers.

Other indications of pay inequities and broader inequalities can be surfaced through employee pulse surveys and exit interviews, although it’s usually not advisable to act without conducting the necessary analysis and due diligence. Technology allows this process to be both quick and reliable, and the actions taken to be defensible.

Pay equity is a major concern for many organizations, as it should be. Technology and data, coupled with a winning culture and authentic communications about any changes needed, are a proven mitigation formula.

Check out this resource to learn more pay transparency strategies.