A Proactive Approach to Wage Equality Is Good for Business

“It’s our time to have wage equality once and for all,” called actress Patricia Arquette in her now-famous Oscar acceptance speech in February. Her sentiment is nothing new. A broad public conversation over gender discrimination has been building for two years, due in part to the catalytic nature of Sheryl Sandberg’s New York Times bestseller Lean In. Even President Obama, in his State of the Union address, declared: “Women deserve equal pay for equal work.”

But Ms. Arquette’s speech was a pop culture message that went viral. Just 48 hours prior, eBay’s board of directors committed to publicly opposing a shareholder proposal, filed by investment managers Arjuna Capital and Baldwin Brothers, asking the company to close its gender pay gap. This moved the company into its own, albeit less attractive, limelight.

So why did eBay misjudge the risks of taking a defensive approach to gender pay disparity?

At the current rate of societal change, women, who are paid an average of 78 cents for every dollar men earn, will not reach pay parity until 2058. This is a damning statistic that any board, C-suite, or HR manager should examine, long and hard. It reflects structural bias, a lack of transparency, and a troubling deficiency in accountability to investor owners, who need to understand the risks and opportunities presented by their companies’ compensation practices.

Gender pay disparity not only is one of the biggest social justice issues of our time, but also poses a risk to companies’ performance, brand, and investor returns.

THE BUSINESS CASE FOR EQUAL PAY

In the technology industry, the logic for paying women a fair wage is easy to follow. Technology companies thrive by attracting and retaining the best talent, including women, and by driving competitive advantage through innovation. There is a substantial body of research indicating that gender-diverse teams are more productive and innovative and drive better results than homogenous ones.

The key benefits of gender diversity were reported by the National Center for Women and Information Technology and include better financial performance, superior team dynamics, teams that stay on schedule and under budget, and improved employee performance. A factor of particular importance to the technology industry is that of enabling innovation. The Journal of Innovation-Management Policy & Practice found that gender-diverse teams “foster novel solutions leading to radical innovation.”1

The McKinsey Global Institute makes the financial case for gender diversity and wage equality, stating, “The business case for the advancement and promotion of women is compelling.”2 The benefits of diverse views include higher returns on equity and greater performance. When three or more women are represented in executive leadership, companies tend to perform better on return on equity (+10.7 percent), profits (+91.4 percent), and stock price growth (+36 percent). However, in a sample of 1,500 companies, gender diversity is a top priority for only 28 percent of them, and for 33 percent of those surveyed, diversity is absent from their strategic agenda.3 McKinsey advocates best practices to address this underleveraged opportunity, including “tracking and eliminating gender pay gaps.”2

A failure to disclose and set hard targets for ameliorating existing pay-parity issues could damage a company’s brand and limit its ability to attract top talent.

And though the performance opportunities of a fairly compensated and diverse workforce are compelling, companies must also protect themselves from the material risks of failing to proactively address gender pay equality. Consumer-facing companies are particularly vulnerable to reputation and brand erosion, for example. A failure to disclose and set hard targets for ameliorating existing pay-parity issues could damage a company’s brand and limit its ability to attract top talent. It could also result in lost business, further eroding shareholder value.

Recent gender discrimination lawsuits brought against Twitter and Facebook are reflective of an industry with a big branding problem—specifically, an inability to cultivate and retain top female talent owing to structural and cultural bias. Clearly, a failure to attract qualified female employees is detrimental to a company’s ability to innovate and compete. So why is Silicon Valley one of the most high-profile boys’ clubs in corporate America—with women occupying only 11 percent of executive positions?

STRUCTURAL BIAS

In 2014, tech-industry recruiting firm Dice reported that “on average, men [in the information technology sector] earned $91,362 in 2014, nearly $10,000 more than the $81,651 women made on average during the same time period.”4 Yet, despite the fact that employer demand in the technology field is increasing, women’s participation has fallen. That is, women making less than men are more apt to leave the field.

Furthermore, men constitute 60 to 70 percent of employees in the tech field, and 45 percent of tech companies don’t have a single female executive. Few women are represented in senior management positions and even fewer appear on company boards.5 Actually, eBay has fared slightly better than average, with women representing 42 percent of the company’s employees—yet women account for only 28 percent of the firm’s leadership.6

Twenty years ago, women made up 37 percent of the US technology workforce. By 2010, they made up only 25 percent. This decline is not due to a lack of qualified women. According to a Harvard Business Review study, 41 percent of highly qualified scientists, engineers, and technologists in entry-level positions are female. But 56 percent of midcareer women end up leaving the field before reaching senior positions.7

If Silicon Valley is indeed a boys’ club, there is no silver bullet to rid it of systemic discrimination. Companies need to proactively address the structural bias inherent in their current practices that prevent women from entering and staying in the field. In fact, it is their job to do so, given the operational, reputational, legal, and performance risks they face.

Companies need to proactively address the structural bias inherent in their current practices that prevent women from entering and staying in the field.

One of the top structural barriers to gender pay equality is negotiation, according to the Workplace Gender Equality Agency. Women are less aggressive negotiators; a University of California, Berkeley study found they do not advocate for themselves, are more intimidated than men, and are easier to mislead.8 Microsoft CEO Satya Nadella was chastised last October after suggesting that female employees shouldn’t ask for raises, but instead, “have faith that the system will actually give you the right raises as you go along.” He further underlined that not asking for a raise is “good karma.”9

According to Linda Babcock, in her book Women Don’t Ask: Negotiation and the Gender Divide, women’s salary expectations are as much as 30 percent lower than men’s in the same jobs. Hired, an online tech job-search platform, reports that the average salary request is $10,000 less for women than for men.10

Ellen Pao, whose high-profile gender discrimination lawsuit against Kleiner Perkins has turned up the heat on inequality in Silicon Valley, took a novel structural approach to solving the compensation issue at Reddit, where she serves as interim CEO. Pao has eliminated the negotiation for salaries during hiring so as not “to reward people who are better negotiators with more compensation.” While this is not a panacea, the approach provides a strong example of the kinds of policies that can help overcome persistent bias.11

Apart from the ability to fairly negotiate, eBay’s female employees report structural and cultural barriers to their success. Women at the company have disclosed that they feel their performance has not been fairly assessed, and that those in leadership positions were less likely to advocate for female employees at the time of promotions. Most notably, many women reported leaving the company after being recruited by other firms, where they felt their chances of promotion were greater.

In 2011, eBay’s president and CEO, John Donahoe, teamed up with head of human resources Beth Axelrod to address the company’s internal gender equality shortfalls. They launched the Women’s Initiative Network (WIN) to support women in their careers at eBay. The following year, the company partnered with the Anita Borg Institute (ABI), a nonprofit that works to recruit, retain, and advance women technologists. The intent was to “make eBay Inc. the employer of choice for talented women.”12

These initiatives are to be commended, yet they fall short of what’s needed. For investor owners, the results lack essential transparency. ABI’s Leadership Index ranks companies on a number of metrics related to diversity according to different position levels, recruitment, and promotion, but the details of these reports are not publicly available, and they neglect to address persistent wage gaps.

LACK OF TRANSPARENCY

This spring, all eBay shareholders will vote at the company’s annual meeting on whether management should disclose the percentage pay gap between male and female employees and whether to set quantitative reduction targets to close that gap. Arjuna Capital’s shareholder proposal represents the first time shareowners will have a chance to weigh in and call for gender pay transparency and action.

One of the biggest barriers to solving the gender pay gap is a lack of transparent wage data. As the old saying goes, “What gets measured gets managed.” In this case, while we have broad data that point squarely to the problem, company-level transparency is virtually nonexistent. Investors do not know the extent of the problem or the actions being taken to remediate it. Employees do not know what others are getting paid and what represents fair pay, so they are in a vulnerable position when negotiating salaries.

Given the material business risks that gender inequality presents, investors are not satisfied with qualitative programs and commitments. A quantitative approach is also necessary. This summer, eBay followed a number of peers, including Google, Facebook, and Yahoo, to release data on the gender and racial makeup of their employees. This is both a first and a necessary step in the right direction. And although it is complementary to a proactive gender equality program, it is not sufficient to address the wage gap.

Other measures are being taken. The Obama administration has increased the regulatory and litigation risk facing companies that fail to take a proactive approach to disclose and close the wage gap. At the policy level, the Paycheck Fairness Act, currently pending before Congress, would shift the burden of proof in pay discrimination suits to employers and give the Department of Labor and the Equal Employment Commission the tools they need to enforce existing pay equity laws. The Act would also substantially strengthen the existing protections afforded to female employees under the Equal Pay Act.

For example, the Department of Labor would be empowered to collect wage-related data, and employers would be required to demonstrate that wage differentials are based on factors other than sex. Female workers would also be protected from retaliation if they inquire about their employers’ wage practices or disclose their own wages.

Companies that do business with the federal government are now expected to report pay data by gender and race, following President Obama’s executive action.

Companies that do business with the federal government are now expected to report pay data by gender and race, following President Obama’s executive action. In 2011, Pharmaceutical giant AstraZeneca and G&K Services Company paid settlements after the government sued the companies for gender discrimination. The Department of Labor alleged that AstraZeneca discriminated against female sales specialists by paying them $1,700 less than their male counterparts. G&K Services settled a similar lawsuit in 2013 that alleged they steered female laundry workers into lower-paying positions regardless of their qualifications.

The technology industry has not been immune to all of this, most recently becoming the subject of multiple lawsuits alleging gender discrimination. In March 2015, Twitter was hit with a class-action lawsuit alleging discriminatory promotion policies by all current and former female employees who had been denied promotions within the prior three years. Only days prior, Facebook faced a separate legal action by a female employee who alleged she was discriminated against and fired based on her gender.

One can expect litigation risk to accelerate as more women are empowered by recent legal actions and they start to speak up about the structural and cultural bias they have faced. Improved legislation will also afford them more protections in doing so. Companies that are accountable to their employees, stakeholders, and investors will be most insulated from this risk.

ACCOUNTABILITY

The one shining example of a company proactively and transparently working to close the gender pay gap is the ironically named Gap Inc. The Gap, which was founded as the equal monetary investment of a husband-andwife team, claims to have built gender equality (and, consequently, pay parity) “into the fabric of the company culture and work.”13 But we don’t have to take Gap’s word for it.

The Gap hired an external consultant to audit the company’s compensation practices. Exponential Talent, a workforce diversity consulting firm, found there is “no significant gender wage difference” between the 130,000 women and men performing the same jobs at the Gap. Gap’s leadership insulates them from many of the operational, reputational, and legal risk factors faced by other corporations. Moreover, it has garnered good press and goodwill for the company’s brand.

On April 14, “Equal Pay Day”—a day selected by the National Committee on Pay Equity to represent how far into the new year the average woman must work to catch up to the earnings the average man made the prior year—Gap invited its customers to wear red as part of a national awareness movement and learn why “every day is Equal Pay Day at Gap Inc.” The Gap also provided a calculator for its customers that enabled them to plug in their own wages and ages, so they could understand the impact that wage inequality will have over the course of their careers. Startlingly, that impact is $435,000, on average, over 40 years.

Apart from seizing a great branding opportunity, Gap is being accountable to its investors. External audits, transparent compensation wage-gap data, and quantitative commitments to address wage differentials are some of the essential elements necessary to achieve not only results but also accountability to shareowners.

A NEW LEVEL OF EXPECTATIONS

Given the exponential uptick in attention paid to a persistent gender pay gap, investors expect proactive company-level solutions to mitigate resultant risk factors. More importantly, investors seek to invest in companies that are creating fair, empowered cultures that reap the performance benefits that diversity affords.

Investors seek to invest in companies that are creating fair, empowered cultures that reap the performance benefits that diversity affords.

In this light, eBay’s leadership can no longer expect that an internally focused approach to gender discrimination and women’s empowerment is sufficient. These programs are essential, but they are not enough. More innovation, change, and accountability are required to move Silicon Valley into the twenty-first century.

It is the job of HR to provide the transparent, prescriptive data required by the C-suite, board of directors, and investors to overcome the structural bias core to the problem. Investors expect transparent, honest disclosures and quantitative goals. Employees expect a new level of structural support that addresses root causes and empowers fair negotiation, promotion, and ultimately equal pay.

People listened when Ms. Arquette shined a light on the problem, but it will take more than public outrage to create solutions. We all can reflect on the 1950s as the Mad Men era, a decade that carried with it outright sexism and gender inequality. A 100-year spread exists between then and when we expect to close the gender pay gap in 2058; this is unacceptable, as well as a sad reflection of a society lacking organizational will. The fact is, every company in the United States could and should commit today to closing the gender pay gap.

NOTES
1. Diaz-Garcia, C., Gonzalez-Moreno, A., & Saez-Martinez, F. (2013). Gender diversity within R&D teams: Its impact on radicalness of innovation. Innovation: Management Policy and Practice, 15(2), 149–160.
2. McKinsey Global Institute. (2015). Promoting gender parity in the global workplace. Retrieved from http://www.mckinsey.com/insights/organization/promoting_gender_parity_in_the_global_workplace
3. Desvaux, G., Devillard-Hoellinger, S., & Baumgarten, P. (2007). Women matter: Gender diversity, a corporate performance driver. Retrieved from http://www.mckinsey.com/~/media/mckinsey/dotcom/client_service/organization/pdfs/women_matter_oct2007_english.ashx
4. Dice. (2015). The position gap. Retrieved from http://media.dice.com/report/february-2015-the-position-gap/
5. Fenwick & West, LLP. (2013). Gender diversity in Silicon Valley. Retrieved from https://www.fenwick.com/FenwickDocuments/Gender_Diversity_Survey_2013_Proxy_Season_Results.pdf
6. eBay Inc. (2014). Building a stronger, better, more diverse eBay. Retrieved from http://www.ebayinc.com/stories/news/building-stronger-better-more-diverse-ebay/
7. Hewlett, S., Luce, C., Servon, L., Sherbin, L., Shiller, P., Sosnovich, E., & Sumberg, K. (2008). The Athena factor: Reversing the brain drain in science, engineering, and technology. Harvard Business Review, 86(6), 22–41.
8. Kray, L. J., Kennedy, J., & Van Zant, A. (2014). Not competent enough to know the difference? Gender stereotypes about women’s ease of being misled predict negotiator deception. Organizational Behavior and Human Decision Processes, 152(2), 61–72.
9. Masters, B. (2014, October 10). Satya Nadella’s bad karma over remarks on women’s pay. Retrieved from http://www.ft.com/intl/cms/s/2/ac818bf4-5057-11e4-8645-00144feab7de.html
10. Babcock, L., & Laschever, S., (2003). Women don’t ask: Negotiation and the gender divide. Princeton, NJ: Princeton University Press.
11. Giang, V. (2015). Why tech leaders are mixed on Reddit’s end to salary negotiations. Retrieved from http://www.fastcompany.com/3044928/hit-the-ground-running/what-other-leaders-think-about-reddits-end-to-salary-negotiations
12. eBay Inc. (2015). Committed to women’s career development. Retrieved from http://blog.ebay.com/committed-to-womens-career-development/
13. Maheshwari, S. (2014, August 26). Gap, in unusual move, discloses men and women are paid equally. Retrieved from http://www.buzzfeed.com/sapna/gap-in-unusual-move-discloses-men-and-women-are-paid-equally#.atoGJV3dw

Natasha Lamb is the director of Equity Research and Shareholder Engagement and a portfolio manager at wealth-management firm Arjuna Capital (www.arjuna-capital.com). Specializing in the integration of sustainability and shareholder value creation, Natasha integrates environmental, social, and governance (ESG) factors into fundamental investment decisions, while engaging corporate leadership to improve performance through shareholder proposals, dialogue, and advocacy. In 2014, her landmark negotiation with Exxon Mobil led to the company’s first public report on global warming and carbon asset risk. Natasha teaches sustainable investing at Bainbridge Graduate Institute. She can be contacted at natasha@arjuna-capital.com.
Will Klein is a research analyst at Baldwin Brothers, a Massachusetts-based wealth management firm. He conducts research for both global and domestic investment portfolios. And he is responsible for incorporating environmental, social, and governance factors into his investment process.

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