March 8, 2020

What Does Pay Equity Mean to You?

Group of business women discussing pay equity in an office

Gender pay equity has been a hotly discussed topic for decades. Yet, despite political attention and federal regulations — the Equal Pay Act was established in 1963! — there remains significant disparity in terms of how much men and women are paid. For women of color, these figures are even more disheartening, with countless additional barriers significantly undercutting leadership, growth, and salary potential.

In this piece, we’ll discuss the scope of gender pay inequity as well as the impact it can have on individuals, organizations, and society at large.

What is Pay Equity?

Pay equity means receiving the same amount of pay for providing the same amount of value.
 
“Pay equity simply means eliminating sex, race and all types of discrimination out of the wage-setting system,” said Andrea Beidl, Learning Manager at UKG. “Many women and people of color are still segregated into a pay scale that has been antiquated for decades. I’m a strong believer in Equal Pay for Equal Work — no one should be paid any more or less based on their identity; they should be paid by their contribution and skills.”

Gender Pay Equity: The Numbers

The commonly referenced statistic that women earn $0.82 for every $1.00 that men earn represents the current uncontrolled U.S. gender pay gap. This 18% difference, amplified from “one dollar” to “thousands of dollars” and applied to a lifetime of compounding effects, snowballs into an incredibly significant lifetime earning loss.

“Our culture often equates money with value and power,” said employment attorney Heather Bussing. “If people are doing the same work but are not making the same pay, it is a strong statement, even if implicit, that some people are more or less valuable. It also tells you about how power is and will be distributed in the organization. When employees see this, it will affect their work, how long they stay, and who wants to work there. Equity and inclusion is not just doing the right thing; it’s good for business.”

Additional Pay Equity Considerations

It’s worth noting that most studies also don’t reflect the true magnitude of the gender wage gap because they fail to take into account other types of compensation, such as bonuses, 401k contributions, and Social Security. Women’s bonuses are statistically smaller on average than men’s, and since companies often match a percentage of pay to retirement accounts, these investment vehicles serve as yet another factor where women are disadvantaged. In the same vein, Social Security benefits are based on lifetime earnings, so as women earn less over the course of their lives, they pay less into Social Security, and will therefore receive smaller Social Security payouts in retirement compared to their male peers. The financial implications here are particularly troublesome considering women live 6.6% longer, on average, than men.

How Does the Pay Gap Impact Women, Their Children, and Society?

“Gender pay inequity leaves nearly 50% of our workforce coming to and leaving from work every day feeling taken advantage of and undervalued,” said Sarah Morgan, CEO of BuzzARooney LLC. “The long-term impact of this on morale within our workforce as well as the individual health and wellness of the individual cannot be ignored.”

Meanwhile, the American Psychological Association reports that women consistently report higher stress levels than their male counterparts, citing the mental and physical consequences of uneven levels of domestic and emotional labor. I would argue it’s likely that financial implications contribute to this “stress gap” as well.

Despite the fact that both men and women have children, women are taxed with the “motherhood penalty.” On average, women’s wages drop from 5% to 10% per child among women in their 20s and 30s. In some cases, this is due to taking temporary breaks from the workforce, but this motherhood penalty is also used to explain why mothers make lower wages than childless women, even after productivity and time-off factors are controlled for. Meanwhile, fathers get a raise — a recent study found that fathers make roughly 20% more than their childless male peers do.

“With respect to women specifically, there are so many single mothers these days and their kids should have access to everything that other kids do,” said Pragya Malhotra, VP, Product Management at UKG. “Pay equity is not only important for the person who is doing the work but also for the next generations to come.”

In fact, pay inequity’s impact can be felt far beyond the nuclear family. 

“The money that women and people of color are NOT receiving as a result of pay inequity is lost to our economy,” said Morgan. “We cannot consume or contribute because we don’t have equitable income. In these ways, pay inequity hurts everyone.”

The Bottom Line: The Business Case for Equal Pay

First and foremost, equal pay is good for business because it’s the law.

“Pay equity is not optional; it’s a legal compliance issue,” said Bussing. “Pay equity is the law. Not paying people equally for the same work is a form of illegal discrimination. Pretending you don’t have a problem is not a defense.”

Defending an equal pay claim is extremely expensive. Losing one even more so. And even if an employer wins their case, they are often still responsible for their own legal fees. And, regardless of the outcome of the case, equal pay claims are likely to have a negative impact on employer brand and reputation, which can adversely impact recruitment efforts.

But in many cases, the real cost of pay inequity is evident through lost productivity, innovation, attrition, and low staff morale. 

“The results of inequitable pay are behaviors that chip away at confidence and trust,” said Katrina Kibben, CEO of Three Ears Media. “These are two things required for people to thrive at work, but if a person is constantly questioning their pay and if they are valued? No one is thriving.”

It’s logical that feeling undervalued and unappreciated would undercut employee loyalty and their willingness to go above and beyond in their role. We know that pay has a direct impact on employee productivity and engagement, which in turn guides profitability. According to Gallup, there are approximately 22 million disengaged employees in America, which costs the economy $350 billion dollars per year in lost productivity. 

Low morale also leads to absenteeism, illness, and of course, retention issues.

“Good employees who are not getting paid what they’re worth at their current organization leave,” said Mary Faulkner, principal at IA. “I know so many people who could only get a raise by leaving their current company because most pay systems only address new hires, not incumbents. And because women (especially women of color) tend to be paid less than market, their exit will impact diversity at your organization — you will lose great talent, unique experiences, and could end up perpetuating the good ol’ boys’ club.”

“Pay equity is affecting retention rates,” agrees Minda Harts, CEO of The Memo LLC and best-selling author of The Memo. “If you want to compete for the best talent, your salaries have to be competitive as well.”

According to MarketWatch, 45% of workers say salary is the top reason for switching jobs, ahead of career advancement opportunities, benefits, and location. Underpaying female employees sends a powerful message about their ability to grow and prosper in an organization. And they’re listening.

Fortunately, by addressing these issues through action and transparency, organizations are well-positioned to improve business metrics on all fronts.

“Addressing pay equity is an opportunity to shift your culture in a positive direction, improve retention, and attract great new employees, all of which will help you do better work and make more money in the long run,” said Bussing. “Again: Equity and inclusion is not just doing the right thing. It’s good business.”