The gender pay gap: more than a pay problem

In the last 50 years, women’s participation in the labour market has continued to increase in most developed countries. At the same time, women around the world have earned less than men. And the further back you go, the more pronounced the disparity becomes. But things have begun to change. Governments and organisations have realised that advancing women’s equality is a powerful financial driver; it’s a win-win for women, business and economy at the same time.

The general business case for increasing gender diversity is well established, with McKinsey research showing that going from 0% to 30% women in corporate leadership is associated with a 15% increase in profitability. The most gender-diverse companies get an additional performance boost, with companies in the top-quartile for gender diversity on executive teams 21% more likely to outperform on profitability. From the economy perspective, latest Citi report (2017) estimates, that decreasing the gap in labor participation, working hours and average productivity between man and woman by 50% will give additional GDP growth in developed economies of 6% (and that is a conservative number).

In APAC countries, the numbers tell a similar story. For instance, research shows that if India was to increase female participation in the workforce by 10% it would add US$770 billion to the country’s GDP. Similarly, Japan has plans to turnaround years of economic stagnation by encouraging more women to work. In Malaysia, women are recognised as a “pivotal resource to drive economic growth” and experts believe that a better representation of women will boost the country’s economy.

Beyond the business case

If having equal representation makes sense for the economy in general, the question becomes: why does the pay gap persist, and if the gap exists, what does it mean and where it comes from? To understand why, we need to dig deeper into the issue and understand its complexity.

Public discussion of gender pay gap tends to treat the issue as a single topic and single number – women earn X% less than man on average. In reality, there are two separate issues at play here. One is equal pay for equal work: the extent to which women are paid less than men for doing the same job. The other is the gender pay gap: the difference between the aggregate average pay for women and men across an organisation.

The first issue is the most obvious and, arguably, the easier one to fix. The second presents organisations with a more complex challenge. While differences in average pay may be due in part to equal pay for equal work issues, they’re more typically a product of female underrepresentation in the higher-paid industries and functions, and in leadership roles.

Underrepresentation doesn’t come from nowhere, it’s a symptom of deeper talent and cultural problems. It’s why taking a reward-focused approach only won’t fix gender pay gap issues, it requires a more holistic approach to uncover why the organisation is either failing to advance women to the top or is maintaining a disproportionate number of women at the bottom.

A data-driven approach...

Adding few numbers to the discussion. At Korn Ferry, we have a unique way of looking at this issue. Our pay database holds reward data for more than 25 million employees in more than 110 countries and across 25,000 organisations. This makes it the largest—and the most comprehensive—rewards database in the world.

Looking at the pay gender gap, we look behind the single number to isolate the main factors that influence pay: job level, company, and function. What we see, when we compare male and female earnings globally, is that the difference narrows dramatically the more specific the comparison becomes. While women, on average, earn 16% less than men (it is a “headline” pay gap), the gap between a man and a woman working at the same job level, for the same company, in the same function is typically only 0.5%. a global problem

In most OECD (Organisation for Economic Co-operation and Development) countries, women are not just more likely to complete a tertiary or university degree than men, they’ll also out-earn them in the early stages of their careers. However this story changes at more senior levels. As you look higher up in organisations, the more men begin to dominate and the more the overall pay gap widens as a result.

In our 2018 analysis of 14,284 companies in 52 countries around the world, only 19% of executive roles were filled by women. Even in the most female-friendly countries such as Ukraine, USA and New Zealand, that figure still languished at 33%. If those numbers sound low, how about Argentina and Mexico (both 13%), Germany (12%) or India (6%)?

What prevents women securing the highest paid positions?

The root causes vary from sector to sector and from organisation to organisation, but our recent research identified seven “headwinds” that commonly hold women back:

  • Traditions: A preference for hiring people who look and act like you, which results in men (who occupy most leadership positions) hiring more men.
  • Reference groups: Lack of reference groups and role models to help women see themselves in leadership roles.
  • Cultural norms that favour masculine leadership styles and behaviours.
  • Pushback against diversity measures by those who believe the pendulum has swung too far in the other direction.
  • Assumptions about what women want and don’t want from their careers, without actually understanding their goals.
  • Bias: While overt bias is now unusual, unconscious bias remains and is harder to deal with.
  • Internal debate by women, who doubt their fit for leadership because they don’t see others like them in more senior roles and who therefore shy away from taking on the role of trailblazer.
The strong headwind in APAC: cultural norms

In many APAC countries, women often still take on the majority of domestic duties and may leave the workforce to do this full-time. The female labour participation rate in Malaysia, for example is 55%, with a significant proportion of women leaving work to start a family and not returning. In Japan, deep-rooted views that women are the primary caregivers still prevail. A Japanese survey revealed 45% of men believe women should remain at home, while a Japanese university was recently shown to have systematically excluded more-capable women, favouring less-capable men.

The gender pay gap issue is not simply an issue of pay. Nor is it simply an issue of gender. Instead, it highlights the cultural shifts that need to happen inside and outside the organisation if we are to shift the dial towards a more equal society and workplace. Even more interesting, the culture challenge does not only impact how men perceive women but also, how women perceive other women and even, how they perceive themselves.

Such strongly rooted bias requires a very cautious and well thought decision process in every HR area. Quick actions you can take looking at the data you may have available are:

  • Conduct Pay audit, looking not only at the average gap, but also “like for like” gaps, as well as representation
  • Review your (anonymized) performance rating reviews. Are e.g. more strong words/ judgements appearing in women performance review than man (e.g. abrasive, aggressive etc.?). How does that impact salary increases, bonuses or promotion possibilities? More advanced tools for people analytics can be helpful here.
  • Review how you build a pipeline of candidates e.g. does that includes self – application? It has been researched that women are much stricter in evaluating own competencies and fit for the role, so there might be less capable women applying for internal roles and development programs then men with same or lower level of competencies.
  • Review data coming form your engagement survey – comparing how questions about fairness and inclusion, performance management etc. are answered by male and female part of your employee population? Where ar e biggest gaps and where they come from?
Our new report, The Real Pay Gap, provides further insights into this important issue and steps that organisations, line managers and individuals can take to improve female representation in the workforce.