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Mind the Pay Gap

By Julie Fox Gorte, Ph.D., Senior Vice President for Sustainable Investing, Pax World and Heather Smith, Lead Sustainability Research Analyst, Pax World

Equal pay for equal work: it’s not just the law, it makes sense financially and ethically. But just because something is sensible doesn’t make it standard operating procedure. Every country in the Organisation for Economic Co-operation and Development (OECD) has a gender pay gap, ranging from Korea’s 36.6% pay gap to New Zealand’s 5.6%. According to the OECD, the U.S. gender pay gap is 17.9%. These pay gaps aren’t fading anytime soon; at current rates of progress, gender wage equality will take another 70 years to materialize. In theU.S., women’s wages have been stagnant for more than a decade, and the gender pay gap has remained the same since about 2001.

What would happen if women and men participated equally in the economy? Lots of good things. According to the European Commission, closing the gender pay gap makes the entire economy more profitable. A recent study from McKinsey made a plausible case that if women participated equally in the global economy, global GDP would rise by 26% - the size of the U.S. and Chinese economies combined. There is more, of course, to full gender equality than pay parity, but that’s a significant piece of the puzzle.

At the company level, there is also evidence that closing the pay gap benefits everyone. All companies have a workforce, and it is logical to think that a better, more talented and motivated workforce is more of a help than a hindrance to companies’ financial performance. That, in turn, makes workplace management material for investors. This is borne out by recent research from Harvard, showing that human capital is positively correlated with financial performance. Investment consultant Mercer has found that active management of pay equity is a crucial driver of gender diversity and notes that “If all organizations were aligned on the importance of pay equity in ensuring access to the right talent, we would be much further along on our journey toward the equal representation of men and women in the workforce.”

There will always be pushback from people who just know that women are paid less because they do less, work less, or have learned less. Yet this does not stand up against actual facts. Women outnumber men in college in the U.S., as well asglobally, both in enrollment and in graduation, and that’s been true for quite some time. Women do leave the workforce to care for children and family members in greater proportions than men, but even taking that out of the equation still leaves a gender gap in pay that cannot be explained by skill, learning, or experience—only by discrimination. 

One of the best ways to set about solving this problem is through the disinfecting power of sunlight.  Would we put up with discrimination if we knew it was happening? Probably not. That is why companies should report on pay ratios by gender. This is material information that helps inform investors of the quality of a company’s management, and we think it should be reported publicly. That is why Pax Ellevate recently petitioned the Securities and Exchange Commission to require companies to disclose gender pay ratios and has asked companies to start voluntarily reporting pay ratios now.  Several states, including California, are already moving on this issue, and in the United Kingdom new laws will require companies to report on gender pay ratios – around 8,000 of the largest companies there will have to state how many men and women are in each pay range. 

The Obama administration also proposed new reporting regulation earlier this year. The new EEOC regulation will oblige most companies to collect and report pay equity data, though not publicly. EEOC notes in the regulatory proposal that companies are already required to collect the information needed to fulfill this new requirement; reporting it to shareholders is therefore just another straightforward step. 

Indeed, some companies are leading the way on this issue—Apple, Intel, Salesforce.com, GoDaddy, Gap Inc.—but it will require the efforts of many more to disrupt the business as usual scenario of waiting another 70 years to achieve equal pay for equal work. 

*Republished with permission of Julie Gorte, Ph.D. Senior Vice President for Sustainable Investing at Pax World

Find her on Twitter @jgorte @paxworld or follow her on LinkedIN: https://www.linkedin.com/in/julie-gorte-9278ab

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