Closing the Gender Pay Gap with Climate-Style Data

The web of regulations covering corporate diversity disclosures in the U.S. allows for a yawning gender pay gap. This “ladies’ loophole” makes it difficult, if not impossible, for women’s equal pay advocates to make a data-backed case for reform. Nevertheless, hard evidence is beginning to emerge, and a new report on high-level pay disparity could help build momentum for the pay transparency movement.

Why measuring the gender pay gap is a daunting task

The new report covering the gender pay gap is from the firm Morningstar (the full report is available here).

The authors note that some gender-based reporting is required of U.S. corporations, but little is required to be made public. In addition, the authors describe a data loophole that shrouds gender-linked pay in mystery.

U.S. corporations are required to track race, ethnicity, and gender. They are also required to track CEO and median worker pay. But neither one of these metrics link pay to gender.

A warning sign from above

The Morningstar report covers the rarified world of C-suite pay, where even lesser-paid executives are amply rewarded. Regardless of gender, the authors note a median pay of just over $2 million in 2019, with the average coming in at almost $3.5 million.

Nevertheless, if pay disparity persists among women who presumably have the legal, educational, and career resources to negotiate a satisfactory salary, it is safe to assume that women farther down the corporate ladder are faced with a similar, if not worse, level of disparity.

The Morningstar report draws on senior executive pay data from its Executive Insight database, as disclosed in corporate proxy materials. Those disclosures include the CEO, CFO, and three more of the highest-paid, named officers. It includes the five-year period from 2015 to 2019, covering 2,384 companies in the Russell 3000 index (the Russell Index represents about 98 percent of all U.S incorporated equity securities, as it tracks the 3,000 largest U.S.-traded stocks).

“Whether measured by median pay or average pay, female senior executives earn considerably less than their male counterparts,” the authors conclude. “In 2019, median female NEO pay was $1.76 million, or 84.6 percent that of median male NEO pay.”

Other important findings on the gender pay gap circle back to the raw numbers of representation. Pay disparity aside, the Morningstar report finds that women receive that critical first promotion later in their careers and tend to be tracked away from profit-loss positions. That pattern establishes a “leaky pipeline” that cuts women off from the highest paid positions.

As a result, in 2019 only 47 percent of companies had at least one woman among their highest-paid executives, and only 12 percent had more than one.

The status of “being the only woman in the room” can overlay pay disparity with added stress. The authors cite a 2020 McKinsey survey finding that women senior levels of leadership frequently feel pressure to show more evidence of their competence, and this pressure results in the high likelihood of deciding to downshift their careers.

Signs of momentum for change - or not

The authors note that a fraction of progress has occurred since 2015, when women were paid 81.5 percent of their male counterparts. That pace of change is far from satisfactory, but they also note that pressure for accelerating reform is growing, even in the absence of new federal regulations to close the data gap.

“Litigation risk based on gender pay discrimination creates a source of financial exposure for corporations,” they write, citing the cases of Oracle and Google, which are the target of gender-based class action lawsuits.

The activist shareholder movement also appears to be stirring the pot. In the case of Oracle, the authors noted that 80 percent of outside minority shareholders supported a resolution on gender and racial pay reporting at the company’s November 2020 shareholder meeting.

Even as signs of progress in closing the gender pay gap are growing, the authors note a countertrend spurred by the COVID-19 crisis. As described in McKinsey’s 2020 Women in the Workplace report, almost 25 percent of women surveyed felt the effects of child care, elder care, and other new responsibilities leading to the possibility of cutting back on work – or even leaving the workforce entirely.

Taking a page from the climate action lesson

Aside from moral and ethical concerns, the authors point out that gender and racial pay disparity has negative consequences for the entire economy, and thus ripples back to impact individual corporations.

In that regard, the gender pay gap issue shares key similarities with the climate crisis, in which business-as-usual has created new, potentially existential risks to businesses across the board.

The climate crisis is also giving rise to new businesses and new opportunities, as a new low-carbon economy emerges. Gender and race equity have a similar potential.

The Science Based Targets initiative has garnered considerable support from hundreds of corporations that commit to goal-setting and transparency in reporting. In the absence of federal regulations, more corporate leaders could commit to a similar program of goal setting, road-mapping, and transparency for pay equity.

That still leaves the “leaky pipe” issue to resolve, but the bottom-line benefits of placing women in non-traditional roles is becoming more apparent. Insightful corporate leaders will gain an edge by ramping up their efforts to promote more women, more quickly, and by dedicating more attention and resources to outreach, recruitment and training.

Here’s one sign that a sharp acceleration in change is possible: In 2019, women at the U.S. Department of Energy developed a roadmap for resolving gender gaps through outreach efforts that recognize a range of difference in work/life balance for women. With newly appointed Energy Secretary Jennifer Granholm helming the agency as the first women in U.S. history to hold that position, it will be interesting to see what lessons can be learned in the years to come.

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