Narrow the Hidden Executive Pay Gap Starting Now

Woman-on-a-ladder-searchingWomen reaching for the top rungs of the executive ladder will want to watch for the hidden pay gap. As Bloomberg writes, “Even top female workers can’t catch a break when it comes to pay inequality.”

As women move to senior ranks, the gender pay gap widens. Your best career management play? Begin closing it now.

A March 2015 study by the Federal Reserve Bank of New Yorkprovides insight into the hidden pay gap between top male and female executives. Based upon 1992-2005 S&P’s Execucomp data, it covers executive compensation in the S&P 500, the S&P Midcap 400, and the S&P SmallCap 600. The research focused on Chair/CEOs, Vice Chairs, Presidents, CFOs and COOs.

Less Incentive Pay

The researchers found 93% of the pay gap between male and female executives is due to disparate incentive pay – bonuses, stocks granted, and stock options.

Accumulating year upon year into “firm-specific wealth”, incentive pay encourages executives to elevate corporate performance. But the study found overall women executives reaped less of it. Pay disparities held true even when age, title, tenure and firm size were controlled for.

Pay Less Sensitive to Performance

The value of incentive pay such as stock options rises and falls with the company’s performance, but leading a firm to equal strong performance pays off more for men.

Researchers found that a $1 million increase in firm value increases firm specific wealth for a male executive by $17,150 but only $1,670 for a female executive (<10%), since, as

Bloomberg notes,women’s “incentive compensation tied to the company’s equity tends to be lower.”

Pay More Exposed to Under-Performance

Researchers found that pay sensitivity goes in the oppositedirection when firms under-perform: “Overall, changes in firm performance penalize female executives while they favor male executives.”

A one percent increase in firm value creates only a 13% increase in firm specific wealth for a female executive, but a 44% increase for a male executive.

But a one percent decline in value creates a 63% decline in firm-specific wealth for a woman executive, and only a 33% hit for a man. A female executive’s incentive pay is hit twice as hard for firm under-performance.

The researchers found no differences in firm performance by gender to explain pay disparities.

As Fivethirtyeight writes, “Male CEOS get bonuses; female CEOS get blame.”

Less Influence On Pay?

The researchers theorize that men hold more insider purse strings, such as greater influence with Board Members and influence on their compensation.

CFOsummarizes the authors speculation stating the gender gap “does not reflect executive performance but ‘different degrees of managerial power of female and male executives,’ with women ‘less entrenched’, than men and exerting less control over their compensation due to limited access to informal networks, gender stereotyping, and an inhospitable corporate culture, along with their younger age and lower tenure.”

Bloomberg writes, “Men, on the other hand, who are more entrenched in an organization and can cash in favors after years in the industry, are more likely to be able to steer their pay in a way that’s more favorable for them.”

Change Means Transparency

Compensation would not remain one of the hidden, insidious biases still alive in the old boy’s club if met with disclosure.

The researchers call for greater transparency.

They write, “Our analysis suggest that performance pay schemes should be held to closer scrutiny and raises a note of concern for the standing of professional women in the labor market as incentive pay becomes more prevalent.”

Co-author Stefania Albanesi told Bloomberg, “increasing transparency in general in an organization but specifically with how your pay is set relative to others in similar positions is going to be helpful.”

Albanesi notes that it’s important to get transparency sooner. The gap doesn’t magically appear at executive level – it compounds. As incentive pay popularizes at lower ranks, disparities will build annually so inequality has to be addressed early.

“The accumulation is going to be there even when women get promoted, and also possibly if you move to another firm, because usually your past compensation is used in some degree,” Albanesi said. “These differences can be very, very persistent.”

Brave the Discussion

Women can’t afford to keep quiet about pay.

The systemic gap is unlikely to change as long as having children results in a cascading impact on salaries and opportunities for women. Increasing pressure to offer temporal flexibility and returner programs is essential.

But at an individual level, you can push for transparency and initiate the conversation of negotiating your compensation.

As Business Insider points out, women may face a “social cost” of negotiating salary but they can’t afford not to negotiate. Settling early compounds to highly significant salary differences later in your career.

According to Forbes, in a study for her book Women Don’t Ask, Stanford’s Margaret A. Neale found only seven percent of women MBAs negotiated their job offer salary compared to 57% of men MBAs.

Neale explains that if one person negotiates a $7,000 rise on a $100,000 offer and another settles, then 35 years later that $7,000 gap equates to a difference of eight working years to accumulate the same wealth, and that’s if both people experience identical raises and promotions in their career.

When women don’t negotiate, they affirm the pay gap status quo. Strategic salary negotiation is a career and gender equality move.

Let’s bring the pay gap out of the entrenched corner (offices) it hides in and put it on the table.