tag:theconversation.com,2011:/uk/topics/salary-transparency-27141/articlesSalary transparency – The Conversation2019-03-28T20:12:28Ztag:theconversation.com,2011:article/1139752019-03-28T20:12:28Z2019-03-28T20:12:28ZWhy pay transparency alone won’t eliminate the persistent wage gap between men and women<figure><img src="https://images.theconversation.com/files/265887/original/file-20190326-36248-mf03wx.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">The gender pay gap has proved difficult to close. </span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/gender-pay-gap-488107402">Ian johnston/shutterstock.com</a></span></figcaption></figure><p>No matter how you slice the data, women in the U.S. earn a lot less than men. </p>
<p><a href="https://www.census.gov/data/tables/time-series/demo/income-poverty/cps-pinc/pinc-05.2017.html">A typical woman working full-time makes 81 cents</a> for every dollar a man earns, little more than the 77 cents she got a decade ago. Within careers, it can vary widely, with female physicians and marketing managers earning 71 cents, while female registered nurses are at 92 cents. A university degree doesn’t help, as women with a bachelor’s earn just 74 cents of every college-educated man’s dollar.</p>
<p>One of the <a href="http://www.pbs.org/wgbh/point-taken/should-salaries-be-transparent/#poll">popular solutions</a> proposed for <a href="https://pay-equity.org/day.html">narrowing this persistent gap</a> is <a href="http://www.law.uci.edu/lawreview/vol4/no2/Estlund.pdf">pay transparency</a>. There are two rationales for this. First, employers will be less likely to pay women less than men for the same job if salaries are known. Second, if a woman knows how much her male colleagues are earning for doing the same work, she’ll be in a better position to negotiate a higher salary. </p>
<p>The House <a href="https://www.congress.gov/bill/116th-congress/house-bill/7/text">passed a bill on March 27</a> <a href="https://thehill.com/homenews/house/436121-house-passes-paycheck-fairness-act">designed to promote equal pay and transparency</a> by, among other things, banning employers from asking applicants about their salary history and preventing them from retaliating against employees who compare wages. </p>
<p>Many states <a href="https://www.salary.com/blog/pay-transparency-laws-mean/">have already passed similar laws</a>, while the federal government has <a href="https://www.law.com/nationallawjournal/2019/03/04/federal-judge-hits-trump-agency-for-illegal-move-to-stop-new-pay-data-rule/?slreturn=20190228082114">issued</a> <a href="http://www.dol.gov/ofccp/regs/statutes/eo11246.htm">a few regulations</a> along these lines. </p>
<p>The question is, are they working? As an <a href="http://law.ubalt.edu/faculty/profiles/modesitt.cfm">expert in employment discrimination law</a>, including equal pay, I have my doubts about many of these laws. </p>
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<h2>No salary disclosure required</h2>
<p>Part of the problem is that with one exception – government employees – the laws currently in place to promote pay transparency do not actually require disclosure of individual salary information. </p>
<p>For example, the <a href="http://www.dol.gov/ofccp/regs/statutes/eo11246.htm">government regulation</a> that has been touted as a pay transparency law prohibits federal contractors only from retaliating against employees who disclose their own salary. And states with the <a href="https://www.dir.ca.gov/dlse/California_Equal_Pay_Act.htm%20https://labor.ny.gov/formsdocs/factsheets/pdfs/p828.pdf">toughest laws</a>, such as California and New York, use similar language.</p>
<p>The idea behind these anti-retaliation laws is to allow employees to disclose their pay without repercussion, eliminating pay secrecy policies and customs.</p>
<p>For these laws to create actual pay transparency, however, employees must be willing to share salary information. And while there <a href="http://www.hreonline.com/HRE/view/story.jhtml?id=534359883">appears to be a trend</a> toward employee willingness to do so, it is at odds with the <a href="http://scholarship.law.berkeley.edu/cgi/viewcontent.cgi?article=1345&context=bjell">longstanding social norm</a> against discussing pay.</p>
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<img alt="" src="https://images.theconversation.com/files/265889/original/file-20190326-36260-hdcomb.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/265889/original/file-20190326-36260-hdcomb.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=414&fit=crop&dpr=1 600w, https://images.theconversation.com/files/265889/original/file-20190326-36260-hdcomb.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=414&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/265889/original/file-20190326-36260-hdcomb.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=414&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/265889/original/file-20190326-36260-hdcomb.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=521&fit=crop&dpr=1 754w, https://images.theconversation.com/files/265889/original/file-20190326-36260-hdcomb.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=521&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/265889/original/file-20190326-36260-hdcomb.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=521&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Whole Foods is one company that allows employees to know other employees’ salaries.</span>
<span class="attribution"><a class="source" href="http://www.apimages.com/metadata/Index/Future-of-Work-Entry-Points/98b921ce6cf9454da667dada856a84be/30/0">AP Photo/Steven Senne</a></span>
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<h2>Finding a link to pay equity</h2>
<p>In the absence of a legal requirement to disclose actual wages, an increasing number of companies are making salary information transparent on their own. </p>
<p>Different companies have taken varying approaches to this. For example, Whole Foods <a href="http://www.cbsnews.com/news/at-whole-foods-paychecks-are-public/">allows workers to check</a> their colleagues’ salaries, while social media scheduler Buffer <a href="https://open.buffer.com/transparent-salaries/">publicly discloses the formula</a> it uses to determine employees’ salaries. At the extreme end of transparency, <a href="http://www.fedsdatacenter.com/federal-pay-rates/">many governmental employees’ salaries</a> are publicly available, depending on the state. </p>
<p><a href="http://www.law.uci.edu/lawreview/vol4/no2/Estlund.pdf">Proponents argue</a> that transparency decreases the gender pay gap because if employers disclose salaries, they will also be disclosing any gap that exists, which will lead to efforts to eliminate it. This is precisely what happened at Buffer, which, after disclosing employee salaries, found a wage gap and <a href="http://www.theatlantic.com/business/archive/2016/03/pay-transparency-gender-gap/475683/">changed its compensation system</a> and hiring priorities to eliminate it. </p>
<p>The federal workforce, where <a href="https://www.opm.gov/policy-data-oversight/pay-leave/reference-materials/reports/governmentwide-strategy-on-advancing-pay-equality-in-the-federal-government.pdf">the pay gap is significantly lower</a> than in the private sector, can also be seen as support for the argument that pay transparency <a href="https://www.dol.gov/wb/resources/womens_earnings_and_the_wage_gap_17.pdf">helps reduce it</a>. The <a href="https://thehill.com/policy/finance/391965-equal-pay-for-women-elusive-55-years-after-landmark-law">federal wage gap ranges</a> from about 4 percent to 9 percent, when controlling for relevant factors that affect pay, <a href="https://www.nber.org/papers/w21913.pdf">compared with 8 percent to 18 percent</a> among all employers.</p>
<h2>Limited research</h2>
<p>But there is little actual research that supports these arguments.</p>
<p>I don’t know of any empirical study of how pay transparency affects the gender wage gap, such as what happens to the gap when companies shift from withholding to disclosing employee pay. While <a href="https://www.opm.gov/policy-data-oversight/pay-leave/reference-materials/reports/governmentwide-strategy-on-advancing-pay-equality-in-the-federal-government.pdf">research does exist</a> comparing the federal workforce’s wage gap with the private sector’s, it does not show whether pay transparency is a factor. </p>
<p>It is quite probable that the most important reason for the smaller federal wage gap is the government’s highly structured pay and promotion system. Because pay is based on a job’s classification, with step raises that are identical, there is less chance for men and women to be paid different amounts for doing the same job.</p>
<p>When one looks more closely at the anecdotal evidence, pay transparency appears more likely to be simply one part of narrowing the pay gap. For example, while <a href="http://fortune.com/2015/08/18/tech-transparency-wage-gaps">Buffer eliminated its pay gap</a> after disclosing employee salaries, Salesforce <a href="https://www.salesforce.com/blog/2016/03/equality-at-salesforce-equal-pay.html">did so after merely conducting an internal review</a>. </p>
<p>The common link in these approaches is not pay transparency but recognition of a gap and a commitment to closing it. Thus, transparency can assist in pushing companies toward recognition of a problem but isn’t an essential component to eliminating it.</p>
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<img alt="" src="https://images.theconversation.com/files/265888/original/file-20190326-36248-3c1e9y.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/265888/original/file-20190326-36248-3c1e9y.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=399&fit=crop&dpr=1 600w, https://images.theconversation.com/files/265888/original/file-20190326-36248-3c1e9y.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=399&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/265888/original/file-20190326-36248-3c1e9y.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=399&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/265888/original/file-20190326-36248-3c1e9y.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=502&fit=crop&dpr=1 754w, https://images.theconversation.com/files/265888/original/file-20190326-36248-3c1e9y.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=502&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/265888/original/file-20190326-36248-3c1e9y.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=502&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">In 2016, the World Economic Forum found that the global gender pay gap will not close for another 170 years if current trends continue.</span>
<span class="attribution"><a class="source" href="http://www.apimages.com/metadata/Index/Gender-Pay-Gap/9a24d93c03e3434a9890915aa632745b/20/0">AP Photo/Jessica Hill</a></span>
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<h2>Pitfalls of transparency</h2>
<p>One downside to pay transparency is the effect on employee morale.</p>
<p>A <a href="https://www.princeton.edu/%7Eamas/papers/card-mas-moretti-saezAER11ucpay">fascinating study</a> on the effect of revealing salaries of University of California employees showed that employees below the median salary for their position had decreased job satisfaction and an increase in desire to change jobs. </p>
<p>This was not offset by improvements in employee morale among those who were paid higher than the median salary. Thus, there was a net overall decrease in employee morale. </p>
<p>On the other hand, a 2015 <a href="http://fortune.com/2015/10/15/pay-transparency/">PayScale survey suggests</a> that transparency has the opposite effect, encouraging retention, because employees tend to think they’re more underpaid than they actually are.</p>
<p>To avoid negative consequences, the <a href="https://www.shrm.org/publications/hrmagazine/editorialcontent/2014/0914/pages/0914-salary-transparency.aspx">Society for Human Resource Management recommends</a> that employers be prepared to explain any reasons for pay disparities that are revealed. This also suggests that how an employer handles a pay gap matters more than the disclosure of it. </p>
<h2>Other factors influencing the gap</h2>
<p>Another factor affecting the pay gap is simply an <a href="https://www.opm.gov/policy-data-oversight/pay-leave/reference-materials/reports/governmentwide-strategy-on-advancing-pay-equality-in-the-federal-government.pdf">employee’s initial salary</a>, which is usually higher for men than women for the same job.</p>
<p>California <a href="https://www.dir.ca.gov/dlse/California_Equal_Pay_Act.htm">recently passed a law</a> to combat this by prohibiting employers from asking applicants for salary history, and the <a href="https://www.congress.gov/bill/116th-congress/house-bill/7/text?r=2">bill the House just passed</a> would do the same thing. If employers don’t know the prior salaries of applicants, presumably they will offer the same pay to everyone. </p>
<p>This is a good start, but it may not be enough to completely close the wage gap. Even if offered the same salary, men are usually rewarded for negotiating a better salary – while <a href="http://thinkprogress.org/economy/2014/03/19/3416122/texas-republican-pay-gap-negotiate/">women are penalized</a> for doing the same. </p>
<p>Other factors blamed for why women earn less than men include seniority and time off to care for a baby or sick family member, and companies need to take these components into account as well if they wish to eliminate gender disparities in pay. </p>
<p>Putting this all together, pay transparency in and of itself doesn’t necessarily help close the gender pay gap. It creates opportunities for employers to reconsider their current compensation systems but doesn’t mean they’ll necessarily do anything about it. </p>
<p>So while pay transparency is a good idea, on its own it probably won’t be able to eliminate the persistent pay disparities between men and women. More aggressive legislation, such as the recent California prohibition on asking for prior salary or the pending House bill that makes it far more difficult for employers to pay women less than men, is likely needed to combat the persistent gender pay gap. </p>
<p><em>This is an updated version of an <a href="https://theconversation.com/could-knowing-how-much-your-coworker-earns-help-close-the-gender-pay-gap-58570">article</a> originally published on May 1, 2016.</em></p><img src="https://counter.theconversation.com/content/113975/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Nancy Modesitt does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Women make about 81 cents for every dollar a man earns, little changed in recent years. Could more pay transparency change that?Nancy Modesitt, Associate Professor of Law, University of BaltimoreLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/936092018-03-27T23:07:48Z2018-03-27T23:07:48ZCanadian professors still face a gender pay gap<figure><img src="https://images.theconversation.com/files/211793/original/file-20180324-54881-1yh6nk8.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">People participate in a Women's March in Toronto in January 2018.</span> <span class="attribution"><span class="source">THE CANADIAN PRESS/Chris Young</span></span></figcaption></figure><p>My sister and I are both professors. A few years ago, in the wake of the global financial crisis, she faced the possibility of a six per cent pay cut. She joked to me over the phone one night, “What am I going to do — have six per cent fewer thoughts?” </p>
<p>So naturally, when I learned that the University of Toronto pays female professors 14 per cent less than male professors, I wondered whether my employer thinks I have 14 per cent fewer thoughts. </p>
<p>I was researching the gender pay gap in order to lead an informal discussion in my department. We have a group that meets to crunch numbers on why there are so few female science professors. I ended up doing a deep dive into the publicly available data on professor salaries. </p>
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<a href="https://images.theconversation.com/files/211790/original/file-20180324-54898-1ie85c7.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/211790/original/file-20180324-54898-1ie85c7.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/211790/original/file-20180324-54898-1ie85c7.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=600&fit=crop&dpr=1 600w, https://images.theconversation.com/files/211790/original/file-20180324-54898-1ie85c7.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=600&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/211790/original/file-20180324-54898-1ie85c7.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=600&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/211790/original/file-20180324-54898-1ie85c7.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=754&fit=crop&dpr=1 754w, https://images.theconversation.com/files/211790/original/file-20180324-54898-1ie85c7.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=754&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/211790/original/file-20180324-54898-1ie85c7.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=754&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Gender pay gap at Canadian universities, measured as the difference in median salary between male and female professors.</span>
<span class="attribution"><span class="source">Data from Statistics Canada for 2016-2017.</span></span>
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<p><a href="http://www5.statcan.gc.ca/cansim/a26?lang=eng&retrLang=eng&id=4770123&&pattern=&stByVal=1&p1=1&p2=31&tabMode=dataTable&csid=">Statistics Canada</a> figures show that the University of Toronto paid male and female professors median salaries of $168,425 and $145,150, respectively, in 2016-2017. This is a difference of $23,275 a year, or 14 per cent. Over a 30-year career, this could add up to nearly $700,000 in lost income, a number that keeps me up at night. </p>
<p>The University of Toronto is not alone in paying female professors less. There is still a gender pay gap at nearly all Canadian universities, with especially big gaps at Canada’s 15 research-intensive universities, known as the U15.</p>
<p>Nationally, male professors were paid a median of <a href="https://www.universityaffairs.ca/features/feature-article/history-canadas-full-time-faculty-six-charts/?utm_source=University+Affairs+e-newsletter&utm_campaign=ef91df7589-EMAIL_CAMPAIGN_2018_03_21&utm_medium=email&utm_term=0_314bc2ee29-ef91df7589-425346225">$136,844 while female professors were paid $121,872 in 2016,</a> a difference of $14,972, or 11 per cent.</p>
<p>Ever curious, I wanted to know why. </p>
<h2>It’s not because men are better researchers</h2>
<p>“Why?” is a data-hungry question. </p>
<p>Luckily, since 1996, Ontario’s <a href="https://www.ontario.ca/page/public-sector-salary-disclosure">“sunshine list”</a> has published the salary of every professor in the province who earns more than $100,000 a year. This data set tends to underestimate the gender pay gap because it includes only professors making six-figure salaries, but it is rich in other ways. Salary data are available for more than 16,000 individual professors, in some cases going back 20 years. </p>
<p>Salary should reflect merit, but a professor’s merit is not easy to measure. </p>
<p>I know this first-hand from spending countless hours poring over professors’ CVs and research proposals for the Natural Sciences and Engineering Research Council of Canada (NSERC). I am on a committee tasked with boiling down a professor’s accomplishments to a single number: The dollar amount they will receive as a Discovery Grant. </p>
<p>The results are publicly available from <a href="http://www.nserc-crsng.gc.ca/ase-oro/index_eng.asp">NSERC</a>, as are Insight Grant awards from the <a href="http://www.outil.ost.uqam.ca/CRSH/RechProj.aspx?vLangue=Anglais">Social Sciences and Humanities Research Council of Canada (SSHRC)</a>, making it possible to combine grant and salary data for thousands of Ontario professors. These data sets do not include gender, but computer programs can infer gender from first names with high accuracy. (I used <a href="https://CRAN.R-project.org/package=gender"><em>gender</em></a> in the <a href="https://www.r-project.org/">programming language R</a>.) </p>
<p>Among all professors on the sunshine list, women were paid $9,921 less than men in 2016. Accounting for grant size hardly moves the needle, as women are paid close to this much less than men even when they get the exact same funding. </p>
<p>In other words, the gender pay gap is not because men bring in larger operating grants and therefore merit larger salaries. Also, the gender pay gap is slightly larger among professors getting grants from SSHRC than from NSERC, suggesting it is not driven by the scarcity of women in highly paid natural science or engineering fields. </p>
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<img alt="" src="https://images.theconversation.com/files/211661/original/file-20180323-54898-1uz2hfb.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/211661/original/file-20180323-54898-1uz2hfb.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=450&fit=crop&dpr=1 600w, https://images.theconversation.com/files/211661/original/file-20180323-54898-1uz2hfb.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=450&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/211661/original/file-20180323-54898-1uz2hfb.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=450&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/211661/original/file-20180323-54898-1uz2hfb.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=566&fit=crop&dpr=1 754w, https://images.theconversation.com/files/211661/original/file-20180323-54898-1uz2hfb.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=566&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/211661/original/file-20180323-54898-1uz2hfb.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=566&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Male professors are paid more than female professors even when they get the same grant funding. Each dot is an Ontario professor who held a Discovery (NSERC) or Insight (SSHRC) Grant in 2016. Lines are simple linear regressions.</span>
<span class="attribution"><span class="source">Data from Ontario public salary disclosure and NSERC and SSHRC awards databases for 2016.</span></span>
</figcaption>
</figure>
<h2>The ghost of sexism past?</h2>
<p>Some professors, mostly men, still working today were hired in the 1980s or even earlier. The gender pay gap at universities may be partly the legacy of <a href="https://www.universityaffairs.ca/features/feature-article/history-canadas-full-time-faculty-six-charts/?utm_source=University+Affairs+e-newsletter&utm_campaign=ef91df7589-EMAIL_CAMPAIGN_2018_03_21&utm_medium=email&utm_term=0_314bc2ee29-ef91df7589-425346225">gender bias in hiring that dates back several decades</a>. </p>
<p>The highest paid professors are generally those who have worked at a university longest, so there may be few highly paid women now because universities hired very few women 30 years ago. However, the median male professor has been on Ontario’s sunshine list for only one year longer than the median female professor (seven versus six years, respectively). </p>
<p>Of course, I don’t know how long they were employed by a university before earning six figures. Still, the gender pay gap of today does not appear to be simply a holdover from discrimination of long ago.</p>
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Read more:
<a href="https://theconversation.com/international-womens-day-reminder-women-must-keep-fighting-everywhere-92819">International Women's Day: Reminder women must keep fighting — everywhere</a>
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<p>My discussion group wanted to know more. What about race? <a href="https://www.nytimes.com/2018/02/05/upshot/even-in-family-friendly-scandinavia-mothers-are-paid-less.html">The mommy penalty</a>? Gender bias in tenure and promotion? Salary negotiation? </p>
<p>These are hard questions to answer with publicly available data, but universities can and should (and indeed <a href="https://www.theglobeandmail.com/news/national/education/ubc-gives-all-female-tenure-stream-faculty-a-2-per-cent-raise/article8150659/">sometimes do</a>) study these factors with data collected by their human resources departments. </p>
<p>The gender pay gap is not a new problem. Ontario has legislated <a href="http://www.payequity.gov.on.ca/en/AboutUs/Pages/the_act.aspx">equal pay for equal work</a> for over 30 years. It’s high time universities valued male and female professors equally.</p><img src="https://counter.theconversation.com/content/93609/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Megan Frederickson is a professor at the University of Toronto and could benefit directly from policies aimed at closing the gender pay gap at her institution. She receives research funding from NSERC. </span></em></p>The gender pay gap at Canadian universities cannot be explained away as the holdover from discrimination of long ago. It’s high time universities valued male and female professors equally.Megan Frederickson, Associate Professor of Ecology & Evolutionary Biology, University of TorontoLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/832792017-09-06T11:40:58Z2017-09-06T11:40:58ZCan the grim reality of published pay ratios really curb executive pay?<figure><img src="https://images.theconversation.com/files/184737/original/file-20170905-13714-xk6pjs.jpg?ixlib=rb-1.1.0&rect=17%2C17%2C5790%2C3860&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/midsection-businessman-placing-chess-pieces-on-244876792?src=UZ8lY0s5csdwM-yckAHcCg-1-81">Andrey_Popov/Shutterstock</a></span></figcaption></figure><p>There has always been something inherently grubby about the executive pay debate. Many of us are happy to accept that the responsibility of running a big business should be handsomely compensated. But many are also left with an uncomfortable feeling that too many top executives are being rewarded for greed or failure, or both. </p>
<p>The announcement <a href="https://www.gov.uk/government/consultations/corporate-governance-reform">by the UK government</a> that the largest of the UK’s listed companies should be required to publish (and explain) figures showing the ratio of CEO pay to average pay in their business is an attempt to shine a light into the darker corners of executive remuneration. But will this work and, if not, are tougher measures justified?</p>
<p>There is no doubt that the pay gap is getting wider. Among FTSE 100 companies in the UK, the ratio of CEO pay to average pay <a href="https://www.theguardian.com/business/nils-pratley-on-finance/2017/aug/03/executive-wages-pay-ratios-remuneration-transparent">in 1998 was 47:1</a>. By 2017, this gap had increased to 129:1. For comparison, the 2015 figure among CEOs in the US was 335:1. The widening of the gap was not slowed significantly by the financial crisis and shows no sign of diminishing over the next decade. This has had a mobilising effect on both campaign groups and on some investors who believe such wide dispersion is unacceptable.</p>
<p>In the UK, January 4, 2017 was dubbed “Fat Cat Wednesday” <a href="http://highpaycentre.org/blog/fat-cat-wednesday-2017">by the High Pay Centre think tank</a> because it represented the day by which a FTSE 100 CEO has earned more than the average UK worker earns in a year. In April 2016, BP shareholders staged one of the biggest recent revolts against a planned executive pay increase when the board proposed to raise CEO Bob Dudley’s pay by nearly 20%, in a year when the company had also run up a US$6.5 billion loss, cut thousands of jobs and frozen employee pay. </p>
<p>Some 59% of votes cast by shareholders went against the proposals. Under current UK rules, the vote was non-binding, but the message it sent to the board and to the City of London was unambiguous. BP <a href="http://www.telegraph.co.uk/business/2017/05/17/bp-heads-pay-revolt-huge-cuts-executive-pay/">decided it had little choice but to cut Dudley’s pay</a>.</p>
<h2>Less focus on ‘fair’</h2>
<p>So why has the gap grown to the point where even City investors are rebelling? Well, it hasn’t grown by the same rate across all sectors with lower ratios (68:1) in financial services mainly because it is a generally high-paying sector. Ratios are higher in retail, by comparison, where low pay <a href="https://www.jrf.org.uk/report/improving-pay-progression-and-productivity-retail-sector">remains an issue</a>. </p>
<p>There are exceptions, of course. Charlie Mayfield, chairman of the John Lewis Partnership, is paid 60 times the average (compared with 345:1 at Tesco <a href="http://highpaycentre.org/pubs/cipd-high-pay-centre-survey-of-ftse100-ceo-pay-packages-2016">and 191:1 at Sainsbury’s</a>). However, John Lewis is an employee-owned business and was a pioneer of the principle that a wide pay gap regarded as disproportionate can damage the fabric and <a href="http://www.managementtoday.co.uk/john-lewis-boss-andy-street-becomes-west-midlands-mayor/leadership-lessons/article/1323420">“common purpose” of the business</a>.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/184696/original/file-20170905-13766-etl674.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/184696/original/file-20170905-13766-etl674.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/184696/original/file-20170905-13766-etl674.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=399&fit=crop&dpr=1 600w, https://images.theconversation.com/files/184696/original/file-20170905-13766-etl674.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=399&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/184696/original/file-20170905-13766-etl674.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=399&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/184696/original/file-20170905-13766-etl674.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=502&fit=crop&dpr=1 754w, https://images.theconversation.com/files/184696/original/file-20170905-13766-etl674.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=502&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/184696/original/file-20170905-13766-etl674.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=502&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="caption">The leading edge of pay fairness?</span>
<span class="attribution"><a class="source" href="https://www.flickr.com/photos/declarationend/5730844671/in/photolist-9Jq5sK-9vyvBF-pK3NQW-3Xjrj-4gYLwj-4a8pNQ-duUgfK-72yTJB-pnkTg3-WcKeSG-rzwC6A-6eMnKN-4cpqrP-9Xn3aq-5XKL63-5haRzH-fwQiBp-tYZcW-87Hjds-3Rq9TJ-6oZM5M-7jZmc1-RDB6VK-4dDvQi-orD6RZ-aGUYXM-hDsvME-bExTEC-8NgevR-XQ1u3X-dEENvt-SKExn6-7bXE5o-7BQptN-kpaM9x-8anEBG-kp9VHk-qJXuC-4EXFsT-9rQh9N-Bc3UaT-PU2S1-8pW396-PUAce-76hLbP-HW4vD-8ERUpd-pK59VH-8FB6gd-79n6J8">Andy K/Flickr</a>, <a class="license" href="http://creativecommons.org/licenses/by-sa/4.0/">CC BY-SA</a></span>
</figcaption>
</figure>
<p>One reason for the gap is that CEO pay is compared across sectors, while low paid retail workers never have their pay rates compared with investment bankers or offshore rig operatives. Another is that remuneration committees often attach more importance to external rather than internal comparators. This means that they worry less about having an internally coherent pay structure which feels fair to employees than one which enables them to attract a “megastar” CEO when they need one. </p>
<p>Another, slightly more technical reason, is the growing complexity of CEO reward packages. Many executives have several components to their deals so that if they are forced either by the market or by regulation to restrain one element, they seem able to make up the difference with another. This can mean that, if basic pay is kept low, then bonuses or stock options can appear <a href="http://fortune.com/2015/09/02/ceo-pay-flatter-salaries-but-bigger-bonuses/">to rise to compensate</a>.</p>
<h2>Open plan pay</h2>
<p>These kinds of concerns have prompted the UK government’s action, which echoes that of the US where the Dodd-Frank Act will also <a href="http://www.cftc.gov/LawRegulation/DoddFrankAct/index.htm">require the publication</a> of pay ratios from this year. But this is more than just an issue of reporting. The hope is that CEO pay decisions will look more at internal pay relativities and the message that big rises in executive pay send to employees facing another year of pay freezes. </p>
<p>The connections between leaders and the led really matter in modern organisations. The financial crisis challenged the fragile bond of trust between bosses and employees, and widening pay gaps at a time of wage growth stagnation for most UK workers can only make things worse.</p>
<p>This makes the example of IT training company Happy Computers especially interesting. The CEO, Henry Stewart, set up a spreadsheet on the company intranet which contains both the current pay of all staff (including his) <a href="http://www.telegraph.co.uk/men/thinking-man/11587099/If-we-all-talked-about-our-salaries-would-we-earn-more.html">and their pay history</a>. Aside from creating a strong, common bond between employees and a sense of fairness and transparency, the dispersion of pay is very narrow. Stewart is very proud of this innovation and believes the company benefits enormously. When he asks other CEOs why they don’t do the same, he says the most common answer is: “Our pay isn’t fair”. </p>
<p>Not everyone agrees that a focus on pay ratios is the best way to enforce restraint. Alex Edmans of London Business School argues, <a href="https://hbr.org/2017/02/why-we-need-to-stop-obsessing-over-ceo-pay-ratios">with some justification</a>, that pay ratios can lead to perverse incentives: the temptation might be, for example, to outsource low-paid jobs in order to inflate the average pay used to calculate the ratio. The current proposals are intended as a nudge towards greater transparency, with the threat of tougher regulation if they fail to bring about restraint. </p>
<p>Unfortunately, there is no science to proportionality. The “comply or explain” approach to publishing pay ratios may slow down the rate at which the pay gap widens, and might even enforce a de facto cap, but there must be more doubt as to whether it can apply enough pressure to narrow the gap at all.</p><img src="https://counter.theconversation.com/content/83279/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Stephen Bevan receives funding from bodies such as the Office of Manpower Economics to research pay issues in the UK.</span></em></p>Workers will soon get to see just how fat the fat cats have become.Stephen Bevan, Head of HR Research Development, Institute for Employment Studies, Lancaster UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/658982016-09-27T19:25:51Z2016-09-27T19:25:51ZAustralia should compare CEO and average worker pay like the US and UK<p>Australia should follow the lead of the United States in requiring public companies to disclose how much their CEO makes each year directly compared to an “average” rank and file employee. Ballooning executive pay contributes to <a href="http://inequality.org/income-inequality/">income inequality</a> and the CEO pay ratio provides a measure of the extent of the pay gap between the top and bottom income levels in the <a href="http://www.annualreviews.org/doi/abs/10.1146/annurev.soc.012809.102541">economy</a>. </p>
<p>US companies will be required to disclose from 1 January 2017 the ratio of pay of a CEO’s annual total remuneration to the median annual total remuneration of all company <a href="https://www.sec.gov/about/laws/wallstreetreform-cpa.pdf">employees</a>. UK companies are also subject to a variation of the CEO pay ratio rule, with relevant <a href="http://www.legislation.gov.uk/ukdsi/2013/9780111100318/schedule">regulation</a> requiring disclosure of the CEO’s remuneration compared to their employees. In Australia companies don’t have to disclose this ratio, although companies do disclose information about remuneration for executives.</p>
<p>Disclosing the ratio provides greater transparency around CEO pay and places some constraints on escalating executive <a href="https://theconversation.com/pay-ratios-could-curb-excessive-ceo-pay-and-counter-inequality-54496">remuneration</a>. CEOs in the US are paid around <a href="http://www.epi.org/publication/top-ceos-make-300-times-more-than-workers-pay-growth-surpasses-market-gains-and-the-rest-of-the-0-1-percent/">300 times</a> the median employee wage, while in the UK the ratio is roughly <a href="highpaycentre.org/files/The_Pay_Today_draft.pdf">183:1</a>. </p>
<p>The graphic below shows CEO pay compared to the average annual Australian pre-tax salary for a selection of large Australian companies. Comparing CEO pay against the median pay of a worker at the same company is the ideal way to compare ratios given companies in some sectors pay workers higher across the board. However a comparison with the average worker salary also provides insight on income inequality.</p>
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<p>The Commonwealth Bank has the highest CEO pay ratio in our sample, with CEO Ian Narev earning more than 100 times the salary of an average worker. Even the lowest paid CEO in our sample earned 15 times the average Australian annual salary. The figures for many of the corporations were sensitive to the inclusion of bonus or equity elements of pay, for example, Fortescue Metals is second highest ranked when salary and bonus are considered, but falls to sixth place when equity-based remuneration is also considered. </p>
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<p>There’s quite a debate about what actually makes up CEO pay. Some argue that US CEO pay ratios are more like 70 to one when <a href="http://www.payscale.com/data-packages/ceo-pay">only cash remuneration</a> is taken into account. Others include equity claims exercised – like stock options - and come up with a much higher ratio of something like <a href="http://www.epi.org/publication/top-ceos-make-300-times-more-than-workers-pay-growth-surpasses-market-gains-and-the-rest-of-the-0-1-percent/">300 to one</a>.</p>
<p>Cash bonuses paid to CEOs are likewise controversial, with some <a href="http://www.abc.net.au/news/2016-08-31/australian-ceo-pay-packets-fall-but-bonuses-rise/7799656">suggestions</a> that observed reductions in CEO pay levels in 2015/2016 are simply a case of shifting pay into cash bonuses rather than cash salaries. Certainly the ranking of our sample firms change when cash bonuses are included, indicating that bonuses are a significant source of remuneration for our CEOs. A cash bonus is effectively the same as a salary if it’s very likely to be paid and so should logically form part of the CEO pay ratio.</p>
<p>The CEO pay ratio is an important measure of income inequality over time and Australian regulators should consider making this information mandatory. This would greatly enhance comparability with US and UK companies. </p>
<p>Research evidence describes wide differences in CEO remuneration across the world, with US CEO pay described as an outlier at 23% greater than the UK and 55% greater than Continental Europe, thereby contributing to <a href="http://www.annualreviews.org/doi/abs/10.1146/annurev.soc.012809.102541">income inequality</a> in the US. </p>
<p>Disclosure of the ratio would allow Australian investors to understand better where a particular CEO lies in terms of pay packet size relative to other firms of similar size and industry. </p>
<p>In recent years, Australian corporate boards have been subject to the two-strikes legislation under which shareholders vote on the company’s remuneration report at the Annual General Meeting. Any company receiving 25% or more of “no” votes from eligible shareholders at two consecutive meetings must put a motion to shareholders to spill the <a href="https://theconversation.com/executive-pay-pain-wont-go-away-18696">board</a>. </p>
<p>The increased accountability around remuneration resulting from the two-strikes rule has provided shareholder and lobby groups with solid evidence about executive pay levels and disclosure. For example, the Australian Shareholders Association actively <a href="https://www.australianshareholders.com.au/companies">monitors</a> the remuneration of selected corporations with the intention of influencing remuneration report voting. </p>
<p>Proxy advisers also have an important role to play in <a href="http://www.corrs.com.au/thinking/insights/proxy-advisers-in-the-interests-of-market-integrity-it-s-time-for-reform/">lobbying</a> institutional investors on remuneration voting. Disclosure of the Australian CEO pay ratio would be a useful input to that discussion. </p>
<p>While the two-strikes legislation has improved corporate accountability around executive pay, disclosure of the CEO pay ratio would provide a useful summary measure to voting investors, independent of location and currency. </p>
<p>Historically, executive pay has not always been at the current controversial levels but has steadily increased since the mid-1970s, an increase which has continued <a href="web.mit.edu/frydman/www/trends_rfs2010.pdf">after the global financial crisis</a>. Disclosure of CEO pay ratios gives everyone a consistent and meaningful yardstick by which to measure income equality.</p><img src="https://counter.theconversation.com/content/65898/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Julie Walker has previously received funding from Chartered Accountants Australia New Zealand. </span></em></p>Like in the US and UK, Australian companies should be forced to disclose how the pay of CEOs compares with that of an average worker.Julie Walker, Associate Professor in Accounting, The University of QueenslandLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/599572016-06-01T01:02:57Z2016-06-01T01:02:57ZWhat the new overtime rules mean for you and your boss<p>Earlier this month, the <a href="https://www.dol.gov/whd/overtime/final2016/">Department of Labor</a> outlined changes to the existing overtime exemptions. </p>
<p>As you are probably aware, some employees are exempt from being paid overtime, meaning their employers don’t have to pay them extra when they work over 40 hours in a week. The Fair Labor Standards Act outlines the criteria for this exemption. </p>
<p>Employees currently qualify for exempt status by clearing two hurdles: 1) <a href="http://washingtonovertimelaw.com/Duties_Test.html">the duties test</a> (position is executive, administrative or professional) and 2) the salary test (worker earns at least US$455 a week or $23,660 a year). </p>
<p>The new rules, set to take effect on December 1, change the height of the hurdle for the salary test but do not alter the duties test. The new threshold will be $913 a week ($47,476 a year), or 40 percent of the average full-time salary in the lowest-wage census region (currently the South). </p>
<p>So the headline of all this is that some employees (estimated at 4.2 million) who are currently exempt from overtime because they earn at least $23,660 (but less than $47,476) will no longer be exempt.</p>
<p>Is this a <a href="https://theconversation.com/long-overdue-overtime-update-will-give-boost-to-workers-and-economy-44488">win for workers</a>? And a loss for employers? In truth, the real impact on both groups and the economy is much more nuanced. </p>
<h2>What this means for an employer</h2>
<p>To illustrate this, let’s imagine that a company employs Dennis as a lab technician. </p>
<p>Dennis currently earns $42,000 a year and regularly puts in 50 hours per week in the lab. The company doesn’t pay overtime for anything over 40 hours per week because he is exempt from overtime pay. He meets the following requirements: he passes the salary test by earning at least $455 a week and the duties test because he is a “professional” employee. That is, his primary duty requires advanced knowledge, in the field of science and acquired by a prolonged course of specialized intellectual instruction.</p>
<p>But on December 1, Dennis would no longer clear the salary hurdle. So what’s his employer to do? </p>
<p>The company has the following main options: </p>
<ol>
<li><p>increase Dennis’ salary to $47,476 and keep him as an exempt employee, </p></li>
<li><p>make him a non-exempt employee and pay him $20.19 per hour ($42,000 divided by 2,080 hours per year) for the first 40 hours per week and $30.28 (1.5 x $20.19) per hour for any hour over 40 per week, or </p></li>
<li><p>continue to pay Dennis $20.19 per hour and limit his lab time to 40 hours.</p></li>
</ol>
<h2>Winners or losers?</h2>
<p>How does this impact the company and the employee?</p>
<p>It depends. There are a lot of companies with exempt employees earning less than $47,467 per year. These employees, in many cases, work extended hours and carry heavy workloads. As such, for profit-maximizing companies, not having to pay overtime is rewarding. </p>
<p>So, a higher salary hurdle means some of these businesses will have to make a choice based on new marginal costs and benefits. That is, companies will have to identify the marginal benefit of the overtime hours currently being consumed by their employees. </p>
<p>At overtime wages valued at time-and-one-half, Dennis’ 10 hours would cost the company roughly $15,000 (based on his $30.28 overtime wage from the calculation above). That’s well more than double the $5,500 raise necessary to make him exempt from overtime under the new rules. That suggests increasing his salary to $47,476 would be prudent. As a result, Dennis makes more money, but, <em>ceteris paribus</em> (all things equal), the company has higher costs and lower profits. </p>
<p>This sounds awful for companies. Except that the <em>ceteris paribus</em> condition does not hold – not all things are constant. </p>
<p>When companies are forced to reexamine marginal costs and marginal benefits, the people working in these organizations (e.g., any number of my former MBA students) are likely to reexamine the way they are allocating resources and may find that Dennis has a higher return elsewhere in the organization. </p>
<p>Ultimately, this new salary hurdle and rule change might be exactly what the organization needs to change the way it’s thinking, to shuffle around talent or to rethink its business model. There is ample evidence, from Beyonce’s release of <a href="http://www.economist.com/news/finance-and-economics/21698274-economics-digital-music-favour-streaming-artists-are-learning-adapt-when">“Lemonade”</a> to airlines charging crazy baggage <a href="http://www.nytimes.com/2011/09/06/business/airlines-recovering-from-911-with-extra-fees.html?ref=business&_r=0">fees</a>, companies and entrepreneurs have shown themselves to be inventive and flexible when the market moves against them.</p>
<h2>The big impact</h2>
<p>House Speaker Paul Ryan and others have asserted this rule will actually hurt those it’s aimed at <a href="http://www.speaker.gov/press-release/statement-department-labor-s-overtime-rule">helping</a>. </p>
<p>Although Ryan is identified as a <a href="https://newrepublic.com/article/107242/how-paul-ryan-convinced-washington-his-genius'">big-thinking</a> numbers <a href="http://www.latimes.com/nation/la-na-ryan-poverty-20140304-story.html#axzz2v9C1xHor">guy</a>, he’s not thinking big about how companies are likely to work around the final rule issued by the Department of Labor. </p>
<p>Consider the Dennis example above. At $42,000 per year, the company could decide that it wants to make him an hourly employee and keep Dennis working at 50 hours per week. If the company desires to keep its costs for Dennis at $42,000 per year, the company could reduce Dennis’ regular hourly wages so that his annual pay doesn’t exceed that level. </p>
<p>Dennis currently earns $807.69 per week. The company could pay Dennis a base wage of $14.69 (for 40 hours) and an overtime wage of $22.03 (10 hours), and he will continue to earn $807.69 (plus or minus a few cents with rounding). So the end result is pretty much as it was before, except the company will incur the costs of changing the worker’s status and filing regular and overtime wages in payroll and won’t be able to get more hours out of the employee without extra costs. For the most part, this wouldn’t hurt Dennis. </p>
<p>But there are likely a number of workers who are really close to the new salary hurdle (let’s say earning $45,000 per year). In these cases, it is very likely that companies will just bump up their salaries to avoid the headaches and costs of reclassifying the worker and filing straight and overtime wages in payroll. </p>
<p>In these cases the worker is better off, but the company might be a little worse off because of the higher payroll costs.</p>
<p>Then again, the company might not want to engage in the action listed above – dropping Dennis to an hourly position. The efficiency <a href="http://www.jstor.org/stable/1804018?seq=1#page_scan_tab_contents">wage theory</a>, championed by economic giants George Akerlof, Joseph Stiglitz, Carl Shapiro and Janet Yellen, suggests that companies are less likely to reduce wages if doing so might increase costs incurred by higher worker turnover, retraining new employees and the like (Alex Tabbarok writes eloquently about this <a href="http://marginalrevolution.com/marginalrevolution/2015/04/the-false-prophets-of-efficiency-wages.html">here</a>). </p>
<p>As such, perhaps companies will bump employees like Dennis to the new threshold but limit new hires in the future. In the end, there are few paths that would lead to workers being worse off. </p>
<h2>A little push</h2>
<p>In any case, companies have a lot of flexibility when dealing with changes like this and can find ways to turn them to their advantage. The impact on the economy depends on how companies and employees perceive this change and the current economic climate when the change goes into effect. </p>
<p>Real wages have been relatively stagnant for the last few year (<a href="http://www.tradingeconomics.com/united-states/wage-growth">4-5 percent year-over-year growth</a>), and even in the last few years a majority of people have been convinced the economy was still in a <a href="https://www.washingtonpost.com/news/the-fix/wp/2014/09/25/americans-think-were-in-a-recession-theyre-wrong-but-still/">recession</a>. This rule change might be just the right push to start moving wages upward at a faster clip. And that might be enough to convince people that the economy is in an economic recovery.</p><img src="https://counter.theconversation.com/content/59957/count.gif" alt="The Conversation" width="1" height="1" />
Obama’s new overtime rules will be a big win for workers, but they could also give a boost to companies and the economy.Thomas More Smith, Associate Professor in the Practice of Finance, Emory UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/585702016-05-01T15:42:44Z2016-05-01T15:42:44ZCould knowing how much your coworker earns help close the gender pay gap?<figure><img src="https://images.theconversation.com/files/120728/original/image-20160429-28139-1yznmut.jpg?ixlib=rb-1.1.0&rect=0%2C47%2C945%2C662&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Want to know how your salary jar stacks up?</span> <span class="attribution"><span class="source">Money jars via www.shutterstock.com</span></span></figcaption></figure><p><em>Editor’s note: This article is part of our collaboration with <a href="http://www.pbs.org/wgbh/point-taken/">Point Taken</a>, a new program from WGBH that will next air on Tuesday, May 3 on PBS and online at pbs.org. The show features fact-based debate on major issues of the day, without the shouting.</em></p>
<p><a href="http://www.pbs.org/wgbh/point-taken/#poll">Pay transparency</a> is all the rage these days. </p>
<p>President Obama <a href="http://www.dol.gov/ofccp/regs/statutes/eo11246.htm">has taken action</a> to increase pay transparency among federal contractors. The Equal Employment Opportunity Commission, which enforces laws prohibiting employment discrimination, recently issued a regulation requiring large companies to disclose aggregate salary information in <a href="https://www1.eeoc.gov/eeoc/newsroom/release/1-29-16.cfm">their annual informational filing</a>. And states have been taking action as well, with <a href="http://www.natlawreview.com/article/strict-new-california-fair-pay-act-will-become-effective-january-1-2016">California</a> and <a href="http://s3.amazonaws.com/cdn.orrick.com/files/firstlink.pdf">New York</a> enacting legislation to support pay transparency efforts.</p>
<p>Their primary goal is to eliminate the gender wage gap. Currently, in the United States, <a href="http://www.aauw.org/files/2016/02/SimpleTruth_Spring2016.pdf">women earn approximately 21 percent less than men</a>. The gap between men’s and women’s wages remains even when taking into account factors such as career choice (e.g., college-educated women become teachers more often than men do, and teachers are paid less than many other jobs requiring a degree), experience and education. <a href="http://www.aauw.org/files/2016/02/SimpleTruth_Spring2016.pdf">One study</a> found that 10 years after graduation, women earned 12 percent less than men after accounting for all other factors that could affect pay.</p>
<p>Pay transparency laws represent the latest effort to close the gap, which has remained stubbornly in place for decades. But will they be effective? </p>
<p>The answer depends in part on whether employees are willing to disclose their salaries and how employers address the concerns that are likely to arise when a salary gap is revealed.</p>
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<h2>No salary disclosure required</h2>
<p>Part of the problem is that with one exception – government employees – the laws currently in place to promote pay transparency do not actually require disclosure of individual salary information. </p>
<p>For example, the <a href="http://www.dol.gov/ofccp/regs/statutes/eo11246.htm">federal regulation</a> that has been touted as a pay transparency law only prohibits employers from retaliating against employees who disclose their own salary. California’s and New York’s laws are essentially the same. The idea behind these anti-retaliation laws is to allow employees to disclose their pay without repercussion, eliminating pay secrecy policies and customs.</p>
<p>For these laws to create actual pay transparency, however, employees must be willing to share salary information. And while there <a href="http://www.hreonline.com/HRE/view/story.jhtml?id=534359883">appears to be a trend</a> toward employee willingness to do so, it is at odds with the <a href="http://scholarship.law.berkeley.edu/cgi/viewcontent.cgi?article=1345&context=bjell">longstanding social norm</a> against discussing pay.</p>
<h2>Finding a link to pay equity</h2>
<p>In the absence of a legal requirement to disclose wages, an increasing number of companies are making salary information transparent on their own. </p>
<p>Different companies have taken varying approaches to this. For example, Whole Foods <a href="http://www.cbsnews.com/news/at-whole-foods-paychecks-are-public/">allows workers to check</a> their colleagues’ salaries, while social media scheduler Buffer <a href="https://open.buffer.com/transparent-salaries/">publicly discloses the formula</a> it uses to determine employees’ salaries. At the extreme end of transparency, <a href="http://www.fedsdatacenter.com/federal-pay-rates/">many governmental employees’ salaries</a> are publicly available, depending on the state. </p>
<p>One could argue, and <a href="http://www.law.uci.edu/lawreview/vol4/no2/Estlund.pdf">many do</a>, that increased pay transparency decreases the gender pay gap. </p>
<p>The argument has logic: if employers disclose salaries, they will also be disclosing any gender pay gap that exists, and this will lead to efforts to eliminate it. This is precisely what happened at Buffer, which, after disclosing employee salaries, found a wage gap and <a href="http://www.theatlantic.com/business/archive/2016/03/pay-transparency-gender-gap/475683/">changed its compensation system</a> and hiring priorities to eliminate it.</p>
<p>Pay transparency in the federal workforce can also be seen as support for the argument that pay transparency helps eliminate the gender wage gap. <a href="https://www.opm.gov/policy-data-oversight/pay-leave/reference-materials/reports/governmentwide-strategy-on-advancing-pay-equality-in-the-federal-government.pdf">It is significantly lower</a> in the federal workforce – in which salaries are publicly available online – than in the private sector.</p>
<h2>Assessing pay transparency’s impact</h2>
<p>Despite this anecdotal evidence of the effect of pay transparency, a note of caution is warranted. </p>
<p>First, there appears to be no empirical study of the effect of pay transparency on the gender wage gap. Specifically, there is no systematic research of what happens to the gap when companies shift from withholding to disclosing employee pay. Nor is there research comparing the gender wage gap in companies that keep salaries secret with companies that disclose employee pay. </p>
<p>While <a href="https://www.opm.gov/policy-data-oversight/pay-leave/reference-materials/reports/governmentwide-strategy-on-advancing-pay-equality-in-the-federal-government.pdf">there is research</a> comparing the federal workforce’s gender wage gap with that in the private sector, it does not show whether pay transparency is a factor. And, in fact, it is quite probable that the most important factor explaining the smaller federal wage gap is the government’s highly structured pay and promotion system. </p>
<p>Second, when one looks closer at the anecdotal evidence, what it suggests is that pay transparency is only one piece at play. Comparing the experiences of Buffer, the example that appears to be most popular in the press, with Salesforce illustrates this. </p>
<p>At Buffer, the company disclosed salaries then took concrete steps to eliminate the gender wage gap that was revealed. In contrast, Salesforce <a href="http://fortune.com/2015/08/18/tech-transparency-wage-gaps/">conducted an internal review</a> but did not disclose salaries. On the basis of the review, the <a href="https://www.salesforce.com/blog/2016/03/equality-at-salesforce-equal-pay.html">company adjusted the pay</a> of six percent of its employees to eliminate the gender wage gap. </p>
<p>The common link in these approaches is not pay transparency but recognition of a gap between men’s and women’s pay and a commitment to close it. Thus, pay transparency can assist in pushing companies toward recognition of a problem, but it isn’t an essential component to eliminating it.</p>
<h2>Corporate attitude</h2>
<p>Indeed, a company’s attitude toward the wage gap and its causes may be more significant in eliminating it than putting in place a transparent pay policy. </p>
<p>Consider the fact that differences in an employee’s initial salary <a href="https://www.opm.gov/policy-data-oversight/pay-leave/reference-materials/reports/governmentwide-strategy-on-advancing-pay-equality-in-the-federal-government.pdf">contributes to the gender wage gap</a>. Is this caused by differences in previous salary? Or that men are usually rewarded for negotiating a better salary – while <a href="http://thinkprogress.org/economy/2014/03/19/3416122/texas-republican-pay-gap-negotiate/">women are penalized</a> for doing the same? </p>
<p>Pay transparency would reveal a gap in starting salary, but the company could decide that it is not due to gender but “market forces” – e.g., the man had to be paid more to take the job in order to avoid a wage cut – or because of his negotiating ability. That would make it less likely that the company would take action. </p>
<p>To take another example, women take off more time than men do after the birth of a child. A “gender neutral” policy of basing raises on seniority will result in women having lower salaries over time than men do. Pay transparency will reveal this difference. </p>
<p>Yet seniority is generally considered a neutral, nongendered reason for a wage gap, and a company can explain away any differences based on this, claiming that it has nothing to do with sex. But isn’t a pay gap based on gender if it is caused by the fact that women have babies or that they stay home with sick children more often than men? </p>
<p>Companies have to be willing to reconsider many such components of compensation to eliminate gender disparities in pay.</p>
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<img alt="" src="https://images.theconversation.com/files/120780/original/image-20160501-28118-1kwaykb.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/120780/original/image-20160501-28118-1kwaykb.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=401&fit=crop&dpr=1 600w, https://images.theconversation.com/files/120780/original/image-20160501-28118-1kwaykb.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=401&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/120780/original/image-20160501-28118-1kwaykb.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=401&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/120780/original/image-20160501-28118-1kwaykb.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=504&fit=crop&dpr=1 754w, https://images.theconversation.com/files/120780/original/image-20160501-28118-1kwaykb.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=504&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/120780/original/image-20160501-28118-1kwaykb.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=504&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">Should absences caused by pregnancy count against a worker’s seniority?</span>
<span class="attribution"><span class="source">Pregnant worker via www.shutterstock.com</span></span>
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<h2>Negative consequences</h2>
<p>Taking a step back and accepting that pay transparency would at least allow differences to be revealed, which could lead to a decrease in the gender pay gap, one must also consider the negative repercussions. </p>
<p>One downside to pay transparency is the effect on employee morale. A <a href="https://www.princeton.edu/%7Eamas/papers/card-mas-moretti-saezAER11ucpay">fascinating study</a> on the effect of revealing salaries of University of California employees showed that employees below the median salary for their position had decreased job satisfaction and an increase in desire to change jobs. </p>
<p>This was not offset by improvements in employee morale among those who were paid higher than the median salary. Thus, there was a net overall decrease in employee morale. </p>
<p>On the other hand, a recent <a href="http://fortune.com/2015/10/15/pay-transparency/">PayScale survey suggests</a> that transparency has the opposite effect, encouraging retention, because employees tend to think they’re more underpaid than they actually are.</p>
<p>To avoid negative consequences, the <a href="https://www.shrm.org/publications/hrmagazine/editorialcontent/2014/0914/pages/0914-salary-transparency.aspx">Society for Human Resource Management recommends</a> that employers be prepared to explain any reasons for pay disparities that are revealed. This also suggests that how an employer handles a pay gap matters more than the disclosure of it. </p>
<p>Putting this all together, pay transparency in and of itself doesn’t necessarily help close the gender pay gap. It creates opportunities for employers to reconsider their current compensation systems but doesn’t mean they’ll necessarily do anything about it. </p>
<p>So while pay transparency is a good idea, on its own it probably won’t be able to eliminate the persistent pay disparities between men and women.</p><img src="https://counter.theconversation.com/content/58570/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Nancy Modesitt does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Pay transparency laws are the latest effort to eliminate the still-yawning gap between the salaries of men and women. Do they work?Nancy Modesitt, Associate Professor of Law, University of BaltimoreLicensed as Creative Commons – attribution, no derivatives.