HRTech Primer: A Quick Snapshot on Gender Pay Gap (GPG) and How it Influences Organizational Culture
The Gender Pay Gap [GPG] continues to be a topic of hot discussion among HR business leaders around the world. In the United States of America, where despite pay discrimination being a federal offense as per The Equal Pay Act of 1963, the gender pay gap is a pain point, particularly in the technology business. According to a 2020 report, the gender pay gap has remained somewhat stable in the US, even as female workers earned 84% of what their male counterparts made in the same roles. To earn exactly what male workers made in a year, it would take women 42 extra working days, as per the Pew Research Center analysis. According to WGEA data, women in the private sector earn $25,800 USD per year lesser compared to men. Pay discrimination, at this rate, would hurt the economy and negatively influence the organizational culture in the overall context of the talent war in the current era of the Great Resignation.
How does this affect the organizational culture?
According to AAUW’s 2018 report, titled “The Simple Truth about the Gender Pay Gap“, GPG in any organization or industry has a long-lasting financial impact on the women workforce. It directly encourages poverty and showcases the abject lack of opportunity for women workers. For instance, AAUW found out it would take women more than 40 years [by the year 2059, as per the 2018 report] to reach pay equity with men. Some reports also say it’s not going to change until 2111.
When HR business leaders speak of workplace equality and gender inclusion, it is important that you consider the fact women employees are forced to continue working at their existing pay scale and have much less (20 cents less compared to men in the same roles) for a rainy day. Lower-income roles mean a limited scope for savings in a lifetime– and this is something the HR business leaders should seriously fight against, especially when global trends in hiring and recruitment have changed during the pandemic months.
In a sluggish economy, working on GPG issues can have global implications too. According to a report, the ILO estimates that by closing the participation gaps between men and women by 25% could generate an annual GDP of $5.8 trillion.
Fact Check: The EU average gender pay gap was 13.0% in 2020.
In order to understand the negative effects of GPG, let’s first define how Gender Pay Gap is defined and calculated.
What is Gender Pay Gap?
The Gender Pay Gap is defined as the socioeconomic condition in an organization where people of different genders are paid unequally for the same or similar roles. The Gender Pay Gap is also called the Gender Wage Gap.
According to the ILO, “The gender pay gap is a measurable indicator of inequality between women and men.”
It would be wise to include all gender profiles in GPG calculations, considering the bias each group has to face when it comes to their pay scale and livelihood security.
According to the European Parliament (EU), GPG is defined as the “difference in average gross hourly earnings between women and men. It is based on salaries paid directly to employees before income tax and social security contributions are deducted.”
According to Australia’s Workplace Gender Equality Agency, “The gender pay gap measures the difference between the average earnings of women and men in the workforce. The gender pay gap is an internationally established measure of women’s position in the economy in comparison to men.”
How to Calculate the Gender Pay Gap
The gender pay gap can be calculated as a ratio, percentage, or a whole number ( calculated in dollars, rounded off to the nearest 10). Types of GPG are “Mean GPG” and “Median GPG.”
In order to calculate GPG, regulations have to be followed. Here’s what’s included and excluded in GPG calculations.
- Basic Pay
- Shift payment (night-time working hours)
- Piecemeal work pay
- Paid leaves
- Remote workplace allowance
- Location allowance
- Expatriate allowance
- Vehicle/ helper/ internet allowance
- On-call emergency allowance
- Safety allowances (applicable to healthcare, fire-workers, and military)
- Redundancy pay/ leave without pay
- Termination allowance
- Rewards (in cash or kind)
- Company loans and insurance premium
Formula to calculate GPG
Add the hourly wage rate of part-time and full-time salaried male workers. Assign them as “A” – MEAN HOURLY RATE for men.
Add the hourly wage rate of part-time and full-time salaried female workers. Assign them as “B”- MEAN HOURLY RATE for women workers.
Calculate the pay difference between men and women workers.
Gender Pay Difference= A-B
Percentage Gender Pay Difference for women= (A-B)/A *100
The same formula can be used to calculate GPG among men, women, and the non-binary/ genderless workforce in the company.
Here’s a useful infographic on how to calculate GPG for your company.
According to the U.S. Census Bureau 2016, the current gender pay ratio is 0.796, or, expressed as a percent, it is 79.6 percent.
It should be noted that GPG is not the same as unequal pay, but might be interlinked from a legal angle.
What’s the difference between GPG and Equal Pay?
Gender Pay Gap may exist in an organization despite having an equal number of men and women in the company. As we saw earlier in how GPG is calculated, the women workforce might be still at a disadvantage in a female-dominant organization if males take up all the high-income roles.
So, it is important to really understand the difference between GPG and Equal Pay.
While GPG is an expression of a company’s compensation statistics comparing the income of all working men and women employees irrespective of their current job titles, working assignments, skills, qualifications, and financial as well as socioeconomic positions. Whereas, equal pay is a legal obligation to be fulfilled by the employer anyhow for all working men and women by paying them an equal salary for performing the same jobs. A company can be penalized for not meeting the norms laid down for compensation as stated in The Equal Pay Act (EPA).
GPG exists at all levels of the organizational hierarchy and is primarily defined based on two factors: monthly gaps in remuneration and jobs performed.
GPG, based on remuneration, can be classified in the following ways:
- Low-income GPG
- Lower-middle income GPG
- Upper-middle income GPG
- High-income GPG
It could take decades to close the GPG existing in the world. It’s a shame that it would take 202 years to completely close high-income GPG, especially in industries where some jobs are reserved for “male only.”
What leads to a GPG in any organization?
Several laws have been passed in the last 50 years to reduce GPG and encourage equal pay for equal work with welfare policies specifically meant for female staff. But, GPG stems from social, legal, and economic factors that largely impact women workers who are historically believed to have been underpaid for certain roles. GPG continues to influence company culture, particularly on Boards and top management where women are under-represented in numbers and job titles.
Based on our HR tech analysis, here are the top factors contributing to GPG in 2022.
Poor Representation of Women at Top-levels
Only 86 women compared to 100 men counterparts get promoted to their first managerial role, which again limits the scope of getting promotion in the subsequent higher-up managerial roles. Analysts call this a “glass-ceiling” for women employees in North American companies.
Under-representation of women in the decision-making roles at top-level and mid-level management breed GPG. A part of the problem lies with women themselves feeling “under-confident” about the higher roles they should be applying for, given their qualifications and skills, apart from the obvious lack of opportunities to showcase these skills and excel at an organizational level.
According to McKinsey, 33% of the women who were surveyed felt gender played a big role in them getting a promotion or otherwise.
Maybe, it’s because women don’t like to fail or are too overwhelmed to take up roles that require more brain-share in dealing with activities that take up much of their peace and emotional intelligence.
That’s why, despite social campaigns to encourage “women who code”, “women in tech” etc, women’s representation in major business functions is abysmally low and limited.
Stereotypes and cultural bias against women in the workplace continue to exist. For instance, women are mostly either superwomen or homemakers, while males are dominant “breadwinners” for most families. These norms show up at the workplace too, when GPG is calculated. Also, even today, some roles are considered to be too “masculine” for women to participate in or interview for. In other places, where more empathy, patience, and perseverance are needed, women tend to do well in any role.
According to an HR leadership report on the number of women CEOs, less than 5% belonged to Fortune 500s and only 6% from S%P 500 companies. GPG continues due to work-to-family obligations and lifestyle balances, which stereotypically drew different responses from each gender. For instance, men are more likely to focus on the work at hand and its completion, while women would rather focus on the people who do the work. So, women are more likely to take up people-centric roles in HR and Marketing, while male workers would take up the product and sales-related jobs.
Departments and domains that hire the maximum number of women executives
- HR and Recruitment: ~75%
- Medical and health services: ~75%
- Marketing: ~60%
- Food services: ~48%
Now, quickly comparing these roles to sales-centric ones (the well-paying ones), GPG will conspicuously emerge.
Do you agree?
Every organization has a certain level of job segmentation based on the organization matrix. If an organization has more female employees doing low-paying job roles compared to males who do high-paying jobs, it leads to GPG. It is obvious that if women do more of the less well-paid jobs within an organization than men, then the gender pay gap is usually bigger.
For instance, if a company has women serving at top management levels, the GPG would be negative.
Involuntary Bias due to Equality Pay Policies
Subtle cultural themes give rise to gender pay gaps. In most cases, only companies of ten or more employees are taken into account in the calculations for GPG. The involuntary bias arises due to the legal obligations to be met due to established Equality Pay policies which restrict any direct analysis of how certain practices, activities, behaviors, and overall workplace culture prevent women from joining a company with poor GPG. Due to involuntary biases against women in the workplace, GPG extends as managers fail to address the importance of mentoring, training and development, and building informal relationships that put women at ease and encourage them to take on challenging, high-paying jobs in the same organization.
Other significant reasons for GPG in an industry
We also identified factors that have emerged only recently and driving the gender pay gap in the industry. These are:
- Race and ethnicity (Asian and white women are paid lesser in comparison to Hispanics and also men from the same race and ethnicity)
- Increase in the number of women freelancers, who are taking up low pay assignments
- Increase in number of part-time / low-paying contractual/ ad-hoc roles hiring “women only”
- Increase in the number of barriers to conventional male-dominated job roles (also called “blokey”)
- Increase in the number of hours spent in doing unpaid work per week, which leaves fewer hours of paid work
- Career breaks, care, and family
- Not becoming a part of a labor union
Here’s what KPMG’s GPG survey revealed in an infographic.
KPMG Analysis/ WGEA
How Should Organizations Deal with GPG and Improve Workplace Culture?
Organizations should start closing GPG by paying minimum living wages with committed programs for universal social protection. A high GPG reveals an unattractive workplace as far as the conversations on fair pay and DEI programs are concerned.
In a recent report published by Amazon, the company has broadly outlined the importance of GPG reporting in becoming a respectable employer. It stated, “While GPG reporting alone cannot determine or resolve the complex set of causes for these differences, it is a crucial and welcome element. As we strive to be earth’s best employer, we take this initiative seriously.”
Therefore, the presence of GPG does not show whether women are being paid less than men in the same roles. For example, if an employer has more men in senior, higher-paid positions than women, this can explain why there is a GPG between the average pay of all men and all women in that entity. A GPG may exist, even when men and women receive equal pay for equal work in accordance with equal pay legislation.
Reducing the GPG should be one of the objectives of HR business leaders in the post-pandemic world. This can be done by promoting women executives to senior-level positions, by providing mentoring and executive training, and entrusting them with the responsibilities related to talent acquisition, retention, and company culture development. Without succumbing to the biases, all competent women should be encouraged to take up more leadership roles with opportunities to move to Upper-middle income and High-income brackets.
To make women feel ‘more inclusive’ in the career progression plans within an organization, leaders should play a game-changing role by providing positive affirmations and growth opportunities, even if it means uplifting women workforce from their current financial and social positions for a better future tomorrow. To think of gender diversity without closing on GPG sounds like a hoax. An educated, visionary management would rely on clear communication, effective leadership, and analytics-based KPI tracking to nurture the present and future aspirations of every employee.
What’s your take on GPG and how do you envision your organizational culture in the post-COVID era?