Is Transparency Enough to Close the Gender Pay Gap?

The UK’s new law requiring companies to reveal gender pay gaps is shining a bright and uncomfortable light on how women still make less—sometimes much less—than male coworkers, but it may not be enough to force firms to equalize paychecks.

The first wave of data has not been heartening for equal pay advocates. After the new law mandated firms with more than 250 employees to hand over pay data by April 2018, the Financial Times followed up in December with a sobering report showing a tiny narrowing of the pay gap — from 11.8 to 11.4 percent.

And at some financial firms, the pay gap got even worse in 2018. HSBC, Nomura, Deloitte and McKinsey all saw increased disparity between men’s and women’s salaries- up anywhere from .08 to 3.5 percent. To make matters worse, the increased gap occurred in a sector that already had one of the largest reported pay gaps in April — 22 percent, second only to the construction industry, with a 25 percent gender pay gap. Some finance firms reported gaps of more than 40 percent in 2018, which industry watchers blame on men holding the most senior and highest-salaried roles.

Does this new data mean that transparency isn’t working?

Not necessarily, according to Rachel Vogelstein, who studies gender issues at the Council on Foreign Relations.

“I would caution that it will take longer than a year to change many of the trends that have been persistent for a long time,” says Vogelstein, who serves as Director of CFR’s Women and Foreign Policy Program.

Transparency could eventually move the needle toward narrowing the pay gap, Vogelstein says, but there are other reforms that need to accompany it, or else progress will be painfully slow. In consulting firm PwC’s estimation, it could take 95 years to close the pay gap in OECD nations, which include the UK.

“If we are going to reduce this 95 years, there’s a constellation of policies we need,” Vogelstein says.

Both Vogelstein and Cathy Maraist, CultureIQ’s Head of Client Delivery, have some specific gap-closing strategies:

Enforcement

Beef up enforcement. “As much as I support pay transparency laws–and that public shaming is helpful…the repercussions are still weak, Vogelstein says. “In the context of the UK, the entire budget for enforcing [equal pay] regulations is £300,000–that’s not enough to ensure that the agency charged with enforcing equal pay is able to follow up on the pay gaps that are reported.”

Accountability

Hold managers and HR departments accountable–with data.  “Part of the equation to successful fairness and inclusion in the workplace is highlighting a problem to solve in the first place,” Maraist says. To close the pay gap, there must be “a commitment on the part of leadership to investigate their own pay data.  Set a clear goal that pay fairness is a top priority, then HR departments will be spurred on to find the solutions and use metrics to evaluate progress toward the goal.”

Balanced Benefits

Increase and equalize tax and childcare benefits. Often “benefits offered to mothers as opposed to fathers are greater, so women are more likely to be out of the workforce,” Vogelstein says, and perceptions around women leaving the workforce for family duties may lead women “to be passed over promotions and make less than male peers.”

Mentorship

Create mentorship programs for higher wage work in fields like STEM. “Most women when younger are not readily given information where they can weigh the economic implications of choosing one career over the other,” Vogelstein says.

And if companies still fail to achieve gender pay parity, more drastic measures might be needed, such as Iceland, which last year became the first nation in the world to legally enforce gender pay equality. An Icelandic Welfare Ministry spokesperson told the Guardian that its laws, which include daily fines, are being considered by Portugal, and that it’s possible that Iceland’s equal pay policies could expand to Europe.

According to Vogelstein, ending pay discrimination—however that is accomplished—would result in not only a social good, but a business benefit as well. If nations were to close the gender gap in the workforce, they’d add “a staggering $28 trillion to the global GDP,” according to a CFR study she co-authored on “Building Inclusive Economies.”

“It’s instructive that so many companies are disclosing pay and proportion of women and women in leadership,” Vogelstein says. Particularly the tech giants, who “perceive that this information will help make them competitive…that’s true of many private sector companies outdoing each other with respect to their leave policies,” she says.

And while new research shows that most UK firms say they’re making equal pay a priority, in order to do that, they’ll need to “build a culture of inclusion at all levels within the organization,” particularly those at the upper levels, Maraist says. “In part, the gender pay gap exists because of fewer women being in the higher paying jobs within organizations.”

Companies that understand that “the culture of inclusion needs to be a value lived each day within the organization,” will ultimately reap the benefits, both culturally and financially, Maraist says. “Having an inclusive and diverse organization is the right thing to do for businesses.”