Pay Transparency and the Gender Gap

By Daisy Ni (PO ’21)

In the fight to bridge the gender pay gap, pay transparency has long been a tool suggested by civil rights groups. Theoretically, pay transparency—referring to a company’s public release of the salary information of all their employees—would reveal gender discrepancies where they exist. Such disclosure could force businesses to think about the gender pay gap in ways they may not have before, and essentially put public pressure on them to make more of an effort to close the divide.

Globally, pay transparency is increasingly being embraced as national policy. The United Kingdom passed a law last year to make companies publicly disclose their salary information, and the first reports were made public last week. Australia and Germany, too, have mandated similar gender pay gap reporting for companies. Iceland has been more aggressive, putting the responsibility on the companies themselves to prove that they are paying male and female employees equally.

However, there are possible complications involved in implementing pay transparency. A multitude of factors and calculations go into salaries, many of which are independent from gender. For example, for companies that want to reward outstanding individual performance, individual contributions may not be visible to everyone viewing the salary reports or easy to measure in a fully objective way. Companies that depend on highly collaborative work may also have difficulties demonstrating how input was evaluated and valued. Such situations can lead to outrage based on inequalities that don’t actually exist, and may overshadow the threat of the real gender equalities by blurring the lines between the real and imagined.

In addition, perceived inequality is heightened by the fact that people are often poor judges of their own contributions. A study of engineers in Silicon Valley showed that nearly 40 percent of employees perceived themselves as performing within the top five percent of their peers, and 92 percent felt that they were within the top quartile. Such exaggerated perceptions of self-worth make rewarding performances in a way that all employees deem fair difficult, and increase the probability that people will read into perceived inequalities when in fact the pay discrepancies are justified.

Such transparency has the potential to cost businesses. When people believe that others are unfairly receiving higher pay, they are more likely to become dissatisfied with their employer. This situation leads to a reduction in productivity and morale, and a higher likelihood to depart the organization. In implementing policies related to pay transparency, countries must be careful to account for such complications. For example, perhaps companies will need to provide all the comprehensive details upon which salary information is calculated, or in any case fully account for and explain the visible differences that exist.

Complications aside, the moves toward pay transparency have been huge steps forward for gender equality, and the legislation in the UK, Germany, Australia, and Iceland have been widely celebrated by advocacy organizations. Transparency by itself, however, will not solve the issue of the gender pay gap. It serves merely as a tool to do so, providing information with which to assess the fairness of pay allocation. It thus must be taken in conjunction with other, more substantial policies. Pay transparency, however, is indeed a necessary first step—without it, countries seeking to enforce equal pay laws would have little evidence that such a gap even existed.

Advocates for pay transparency further argue that such policies would enable women who are paid unfairly, with evidence of the inequality at their disposal, to negotiate their salary. This course of action would address another cause of the gender pay gap—gender differences regarding negotiation. Study shows that while 51.5 percent of men ask for more money while receiving job offers, only 12.5 percent of women do; when women do ask, they ask for 30 percent less than men had requested. The effectiveness of pay transparency depends on women actively taking initiative once sources of inequality are revealed to try to eliminate the divide. As such, by providing grounds for negotiation, pay transparency could empower and embolden women to request more pay, and encourage and coach females everywhere to negotiate like their male employee counterparts.

Ultimately, the gender pay gap is not merely a corporate phenomenon, but representative of a broader social issue in the way that society views genders. The disparity in pay is not only the issue, but is the result. Pay transparency has been a celebrated move worldwide—indeed, other than just revealing gender inequality, it could help eradicate other types of discrimination, as well. However, as a society we must acknowledge that implementing pay transparency will not be the end of gender discrimination, and so we must not become complacent towards the bigger and longer fight ahead.

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