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The Real-World Impact of Gender Pay Gaps

Gender pay equity is essential for economies and societies to flourish. Unfortunately, recent findings from the World Economic Forum show that the global pay gap between men and women will take 202 years to close due to the vastness of the gap and the slow pace of change.

What’s more, even though the gap has narrowed slightly, the number of women in the professional workplace has fallen and pay equity has stalled. Globally, women are paid on average 63% less than their male counterparts for similar roles.

Given that women comprise about half of the world’s working potential, the more women earn, the more fully they can participate in the economy. Clearly, the full economic participation of women is better for the communities in which they live — and beyond.

Whom Does the Issue Affect?

Achieving gender pay equity in the workplace is a critical issue not just for human resources, but for all of us. Closing the gender wage gap matters for a broad range of stakeholders and makes a difference not just to the bottom line, but to our society as a whole.

Employees

According to a survey conducted by Randstand US, 80% of women say they would switch to an employer they felt had greater gender equality, 49% would leave their job if they learned male colleagues in the same position were paid more and 42% have experienced discrimination at work. Over three-quarters of men and women (78%) say that a workplace where people are treated equally, regardless of gender, sexual orientation, age, race, or religion, is important to them.

Organizations

The gender wage gap affects an organization’s performance, workplace culture and bottom line. Companies that close pay gaps now will pay less than those who wait to take action, as the average cost to correct gaps increases by $439,000 each year. Organizations that formally prioritize gender pay equity tend to have superior performance. Those organizations are 54% more likely to beat industry average employee turnover benchmarks and are 46% more likely to have higher year-over year Glassdoor ratings.

Investors

In short, gender pay equity contributes to the bottom line. When employees feel they’re being rewarded fairly, they are more engaged and motivated — which results in higher retention rates, an improved ability to attract top talent, improved customer orientation, employee satisfaction and better decision-making. Recent research also reflects that companies who prioritize pay equity are more likely to have financial returns above their national industry medians.

How Pervasive Is This Problem?

Each year, the Organization for Economic Cooperation and Development (OECD) produces an annual report on jobs and employment in 34 participating countries. While the gender wage gap has lessened over time in some countries, it is expanding in others. The gap is the widest in South Korea, with a 34.6% gap between what men and women earn. Women in countries such as Italy and Denmark fare better, with only a 5.6% and 5.7% gap, respectively. However, countries such as France (9.9%), the United Kingdom (16.8%) and the United States (18.2%) still have a lot of ground to cover to reduce the wage gap.

Why Is This So Challenging to Solve?

To address the gender wage gap, we must understand its causes. A report by the Economic Policy Institute points to the complex factors that contribute to gender inequality. It stresses that occupational differences between women and men are themselves affected by gender bias. Serious attempts to understand the gender wage gap should examine where our economy provides unequal opportunities for women at every point of their education, training and career choices. (See “Key Factors Contributing to the Gender Wage Gap.”)

A Best-Practice Approach to Gender Pay Equity

For many organizations, equality, diversity and inclusion are at the heart of their people strategy because they understand how those workforce attributes contribute to their financial performance.

Transparent policies and data, along with intelligent technologies, can help employees, leaders and organizations as a whole make better decisions. Organizations are looking to do more than just meet increasing regulatory requirements. Here are some steps that can help improve pay equity in your organization:

Improve Transparency

  • Provide reporting on workforce composition and gender wage gap performance.
  • Publish salaries and calculations to facilitate objective salary conversations.

De-Emphasize Salary History

  • Prohibit questions pertaining to salary history in interviews.
  • Provide a pay range for roles when asked by prospects and interviewees.
  • Establish and publicly disclose pay equity practices.

Analyze Pay Equity

  • Perform annually when merit increases are under consideration.
  • Quantify the business value of the contribution workers make.

Assign Promotion Parity Targets

  • Assess opportunities and criteria for promotions to help ensure equity.
  • Specify who is responsible for equitable pay and identify how that individual or department will be evaluated.

Flag Promotion Decisions

  • Maintain communication with managers regarding promotion readiness of employees and the feedback employees are receiving.
  • Create an actionable plan for identifying and addressing potential issues for employees not considered.

Set Targets and Deadlines

  • Frame problems and planned solutions publicly using empirical metrics.
  • Facilitate open discussions among managers to drive goal setting and accountability.

Make It Visible

  • Showcase an understanding of the problem globally and incentivize positive behaviors.
  • Bring attention to global pay equity issues inside and outside the company.
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Unconscious Bias in Compensation

Recent research shows that we have up to 188 biases running through our brains at any given time. These inherent cognitive biases can have a significant unconscious impact on our thoughts, actions and decision making.

Our struggle with bias basically comes down to how our brains work. According to the Huffington Post, it “happens automatically, is outside of our control and is triggered by our brain making quick judgments and assessments of people and situations based on our background, cultural environment and personal experiences.”

Bias doesn’t make us bad people — it’s just an unconscious part of the human experience. But we do need to be aware of where and when it shows up to mitigate any negative consequences in compensation and talent management.

Technology alone cannot holistically address unconscious bias. However, it can serve as a catalyst for change when accompanied by a shift in mindset, policies and culture.

Using Tools to Identify Bias

Technology alone cannot holistically address the issue. However, it can serve as a catalyst for change when accompanied by a shift in mind-set, policies and culture. Intelligent solutions can provide the impartiality and transparency needed to help close the wage gap. Examples of ways in which technology can help to mitigate unconscious bias throughout the talent management lifecycle include:

Recruiting

  • Conduct gender-bias language scans with job analyzer tools to identify and recommend word replacements in job descriptions and attract a gender-balanced applicant pool.
  • Use technology such as machine learning to analyze salary data and provide an objective recommendation for new-hire salaries.

Compensation

  • Use compensation-ratio overviews to highlight inequities in pay.
  • Determine pay on company averages, not former salaries, and link pay to performance. Pay should be set based on independent compensation benchmarks gathered from a diverse population of employees.
  • Calculate pay increases using absolute values instead of percentages that can exacerbate previous bias.

Performance Management

  • Surface patterns of potentially biased decision making with alerts for triggers, such as a performance reduction after a leave of absence or for employees continually overlooked for a promotion.
  • Adopt photoless calibration, which hides employee photos, and a gender summary view to highlight possible bias in performance ratings.

Intelligent technologies and solutions provide decision-makers and HR professionals with the capabilities and transparency they need to identify and reduce unconscious bias throughout the employee journey — from recruitment through development and succession. As a result, they can enable decisions that address the issue of gender pay equity and cultivate and celebrate a diverse and inclusive workforce.



Tamara Phillips Tamara Phillips is the global marketing director for the Business Beyond Bias initiative at SAP SuccessFactors

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