Professionelle on the Pay Gap

A shortened version of this article was published in the Business Herald on Friday 29 July 2011.

Now that the dust has settled from the hullabaloo that followed the (very) unfortunate comments made by the former CEO of the Employers and Manufacturers Association (Northern), we felt it was time to take a fresh, long, and fact-based look at the issue of the New Zealand gender pay gap and its causes.

At Professionelle, we have been thrilled to see the debate that emerged as a consequence of the comments.  Granted, some of the debaters were more informed than others, but nonetheless it has been a long time since we've seen the issue addressed with such vigour in the media.  Now that things have calmed down, we want to add our research and experienced based views on this matter with the aim of provoking more informed discussion and debate.

That women earn less than men, and have done so for many years, is an indisputable fact. There have been many explanations as to the pay gap, up to and including Mr Thompson's ill advised comments. Other explanations put forward have, however, been more thoughtful and worthy of further exploration.

Earning gap versus pay gap

There are some who argue that there is no pay gap, but instead an 'earning gap' that is the result of women's choices to take time out to have children, to take part time options etc.   Indeed, when you look at high level statistics that compare hourly wages across a wide range of industries and do not take into account personal and workplace characteristics such as education and field of employment, you can attribute a whole range of reasons to the earning gap.

Consequently, it is important to differentiate between the unadjusted pay gap and the adjusted pay gap. The unadjusted, or raw, pay gap is the earning gap; it does not take into the differences outlined above between men and women. So, indeed, portions of the gap can be attributed to the fact that women are more likely to be in part-time and in lower paid industries that are perceived to offer more flexibility.  However, there is still a proportion of the pay gap that cannot be explained by these 'life choice' variables.

One of the best ways, in our view, to illustrate that there is a gap - regardless of women's 'life choices -' is to examine the pay of students fresh out of University. This way, we can control for education and  life choices, as most young graduates haven't yet had to make these.

New Zealand's Ministry of Women's affairs conducted a study of male and female graduate incomes using the Student Loans and Allowances Integrated Dataset of students who left university between 2001 and 2006. The study examined differences in income between male and female graduates one and five years after entering employment following completion of a bachelor degree or higher qualification.

Noting that aggregated figures mask variation between different fields of study, their results are still striking.  In the first years of the new century, after 40 years of the feminist movement, women with a bachelor's qualification or above were still earning an average 6% less than men with the same qualifications straight out of university.  After five years (2002 -2006) the average income gap had increased to 17%.  The largest pay gaps, five years into their careers, were found in Agriculture, Health, and Management and Commerce.

Let's take a 'female' dominated field - Media and Public Relations. The 2010 New Zealand Census of Women's Participation published by the Equal Opportunities Commissioner, Judy McGregor, found that while women with 1-2 years' experience earned on average $342 more than their male counterparts , within 5-9 years the situation was reversed, with women getting paid at least $20,000 less than men.

What are the mechanisms behind these striking figures?

Life is complex, and like most things, there isn't one simple explanation.  Rather, there are a number of explanations offered, all of which are worth considering.

Dearth of women in the topmost earning positions

Women are woefully under-represented in the top jobs in New Zealand, and those jobs are of course the highest earning positions.  The 2010 Census of Women's participation makes interesting but somewhat depressing reading.  Of positions held by women in the top management teams of the NZSX top 100, a mere 4% of CEOs were women and only 21% of those in senior leadership teams that report to CEOs were women.  Unsurprisingly, among women in the top team over one in five (20.7% ) were in HR.

And were those women paid the same as their male counterparts? In analysis we conducted using 2001 census data, we found that 18% of men in HR occupations earned over $100,000 whereas only 10% of women did.  Once again, this demonstrates that women are less likely to be in top-earning positions, and when they are there, they are likely to earn less.

Presenteeism and productivity

It has now been refuted that women in NZ take substantially more sick days than men.  But the bigger question hasn't been addressed: does having your jacket draped over the back of your seat at all hours really mean you're productive?

In a recent National Radio 4pm slot we heard a very ill informed discussion on productivity. One of the (male) commentators expressed the view that, because men work longer hours, they amass more experience during their careers, and this explains why they get paid more. Hmm. Both of us have worked for one of the world's most prestigious strategic consulting companies, The Boston Consulting Group.  While there, we put in many 20 hours days and our fair share of all nighters, too. We're sure we were neither productive between 2 and 4 am, nor did we gain any meaningful experience in the process!  And we know that this super-charged 'work experience' did not result in better pay for us.

Being present doesn't equal being productive. The challenge as we see it, is for employers to be able to measure output - the quality of the product produced -  regardless of input ie the number of hours one is seen at one's desk.

Women's reluctance to negotiate

We believe that it should be acknowledged that women are typically not great negotiators, and that that can in part explain why they are paid less.  It's a simple case of "if you don't ask, you don't get".

It is well documented that women are simply not as good as men in negotiating their salaries.  Many explanations for this have been put forward. Our own gender schemas about what it means to be feminine prevent us from asking for more pay because we fear being seen as 'aggressive' or 'pushy'.  Judy McGregor, in a recent interview, commented,

Very often women lack the confidence to feel they're worth a higher amount. They haven't had the practice of it, it's not assumed as a divine right; we have a different way of thinking and always feel lucky that we got the job as opposed to feeling the organisation is lucky to get us.

Nonetheless, we do not believe in 'blaming the victim'.  Yes, women might well be worse negotiators than men, but still that doesn't offer a full explanation as to why, when everything is accounted for, there still is a gap.  This leads us to a final, and challenging, issue.

The D word - discrimination

No one likes to talk about it, and we are told it surely doesn't exist in New Zealand, but the truth is that when all objective extraneous factors are accounted for a component of the pay gap remains. Notably, when economists Francine Blau and Lawrence Kahn took into account a set of human capital variables from the United States such as education, labour market experience, and race, as well as additional factors such as occupation, industry, and union involvement, a substantial portion of the pay gap (12%) remained unexplained.  The reality is that 'unconscious' bias does exist, and it does have something to do with why we, as women, get paid less.

Alice Eagly and Linda Carli, two outstanding researchers in the field who we follow closely, offer an overview of research literature on women's progress in the work place from a variety of dimensions including pay.  Following their description of studies on how women are disadvantaged in variety of settings, they concluded that:

"A general bias against women appears to operate with approximately equal strength at all levels. The scarcity of female corporate officers is the sum of discrimination that has operated at all ranks, not evidence of a particular obstacle to advancement as women approach the top. The problem, in other words, is not a glass ceiling."  Indeed their article in the Harvard Business Review is aptly named: Women and the Labyrinth of Leadership.

What can be done about it?

At Professionelle we are all about 'making it work for professional women'. We bring women together on our website as well as in person at our networking seminars to discuss issues that matter to us all and to come up with workable and practical solutions.

Do your homework - negotiate better

In our work with professional women over the last four years we have found that they perform best in stressful situations when they are very well prepared.  This is particularly true when it comes to pay negotiations.  We advise women to do their market research very thoroughly, and to be well aware of what the salary band is for their role in their own and other organisations.  The latter information, of course, depends on the networks the women have to draw on.  And, indeed, we encourage women to broaden and invest in their networks, which is another area that women lag behind men.

We also advise women to be very clear about what they have achieved and what they have contributed to their organisations. They need to feel comfortable relaying those in negotiations, too.  There is a lot of advice out there for women on how to negotiate and we believe women will be well served if they take the time to read up prior to entering the negotiating room.

But, it's not all up to us as individual women.  To ensure there is a level playing field, we believe that transparency in the best policy.

Legislative change - sunlight is the best disinfectant

Frankly, we are getting impatient.  As business women, we wanted to believe that patiently demonstrating the strong business case for having more women in senior and governance positions would speak for itself, but sadly it hasn't.  As the recent debacle suggests, there are still some deeply held and discriminatory views out there.

Legislation can be seen as a blunt instrument, but it is a way to shine sunlight on an issue and to bring about social change by making the issue visible. It has certainly worked with drink-driving.  Both of us are immigrants to this country, and we have witnessed first-hand the sea change in public opinion from tolerance, even indulgence, of people mixing their drinks with their driving, to repulsion and complete social refutation of the practice following the introduction of the legislation in the Land Transport Act 1998

As such, we are supportive of the legislation being proposed by Dr MacGregor (and a similar proposal from Green MP Catherine Delahunty), which we believe will bring about greater transparency. We also support it because it should lead to more informed decision making by both employers and employees when negotiating and reviewing pay.

We are especially supportive of the EEO Commissioner's Section 8 Clause 2 of the proposed legislation

Every employer must record any differences in the remuneration of male and female employees.

In our experience as strategic consultants, we find that what get measured gets done.  If employers are not even aware they are discriminating against women, how will they ever be able to take steps to address the situation?