What operational effects does the gender pay gap have?

A new study on US companies’ gender pay gap reporting highlights the operational issues it creates around people and culture management. 

Andrew Putwain POSTED ON 3/15/2024 9:00:00 AM


The corporate US is making progress on resolving the gender pay gap, but there is still a large amount of work to do in the asset management and investment sector. 

This finding comes from a new report by Arjuna Capital, Proxy Impact, and DiversIQ – the seventh annual Racial and Gender Pay Scorecard – which ranked how the largest 100 US companies, as well as companies engaged with by investors, stacked up on pay gap disclosure and performance. 

“There appears to be no systematic difference in the average earnings within specific roles."

The report focused on how the gender pay gap – and wider diversity and inclusion (D&I) issues – can hamper organisations with the highest discrepancies, as well as the economy. 

The gender pay gap is a massive D&I issue that has broad effects on operations, such as hiring and retention of female staff. In 2022, according to an article by Morningstar based on 2023 disclosures, women holding the senior-most executive roles in the largest companies in the US earned around $0.85 for every $1.00 earned by men, yet “there appears to be no systematic difference in the average earnings within specific roles”.

“Women are the least represented in the three highest-paid C-Suite titles and hold just 8% of S&P 500 CEO positions,” said author Jackie Cook. 

What did the report say? 

In the report, many of the US’s largest companies received middling or failing grades. 

“As its most comprehensive pay gap disclosure review yet (128 companies), the 2024 Scorecard captures the momentum in pay gap disclosures since 2016 – a 12-fold increase in the number of companies reporting quantitative pay gap data,” said Arjuna Capital in its statement on the report. “Over half – 53% – of companies in the Scorecard are disclosing quantitative data, compared to 25 percent of the S&P 500.” 

Financial services companies featured in the report included BNY Mellon and Citigroup, which both received ‘A’ grades. JPMorgan Chase, and BlackRock, also appeared, scoring ‘B’ grades, as did the banks Citizens Financial Group and Bank of America, while Wells Fargo received a ‘C’. 

"The world’s largest corporations are working to close their racial and gender pay gaps in response to investor pressure."

Progressive was the highest rated insurer with a ‘B’ grade, while Cincinnati Financial Reinsurance Group earned a ‘C’ and MetLife a ‘D’. 

Financial companies in the ‘F’ category included: Charles Schwab, Morgan Stanley, Berkshire Hathaway, and Goldman Sachs, and insurers Chubb and Hartford Financial Services. 

The financial sector was rated second best per sector for pay equity grades, after consumer, and ahead of IT, health care, communications, industrial, and energy. 

“The world’s largest corporations are working to close their racial and gender pay gaps in response to investor pressure, a desire to retain and recruit diverse talent, increasing regulation domestically and abroad, and our global reckoning with systemic racism and sexism amplified by movements like Black Lives Matter and #MeToo,” said the report. It did, however, add that “the coronavirus pandemic only exacerbated racial, and gender pay gaps, underlining the need for action, as women and minorities were most impacted”. 

What is the current gender pay gap status? 

The report specified that pay inequity persists “across race and gender and no industries or geographies are immune”.

“In the US, Black workers’ median earnings represented 81% of white wages in 2023,” it said. “Women working full time earned 84% the wages of men last year, a 1% increase from 2022. This approximately $10,000 per year gap can add up about half a million dollars throughout a career. When part-time workers are included in this analysis, women earn 78% of men’s wages.” 

The rates of women in lower positions, which contributes to the pay gap, was also improving, but not as much as other industries. The rates currently in North America show the finance industry had a female participation rate of 30% of entry-level positions in 2021. “In contrast, women only made up 17% of C-suite roles within firms, showing a decline in progress across the hierarchy in the industry,” said training and consultancy firm Zoe Talent Solutions, which focuses on helping women in the industry. 

“Transparent pay disclosures are essential to address gender pay inequity across corporate America. Investors have used shareholder dialogues to move this process forward.” 

The Scorecard also provided recommendations for best practice quantitative disclosure and goals. “Transparent pay disclosures are essential to address racial and gender pay inequity across corporate America,” it said. “Investors have effectively used shareholder dialogues and proposals to move this process forward.” 

Their pay equity has been shown to lead to more diverse leadership, which is correlated with multiple performance benefits—from radical innovation to better risk management, higher profit margins, stronger return on equity (ROE), and better stock price performance.

What does it mean for firms? 

The effect that the gender pay gap can have has been demonstrable in firms. It can create hostility and affect the ability of a company to attract and retain the best candidates for positions if a poor score is publicised or if women at the company feel they have been underpaid. For example, according to the report, 70% of Gen Z employees state they would consider switching jobs for greater pay transparency.

According to Royal London Asset Management, gender pay gap data is used as an indicator of overall gender equality (equal access to opportunity regardless of gender). All the factors that could affect differences in gender representation throughout the workforce influence the gender pay gap: company culture, recruiting practices, and progression and development, for example. 

“There are benefits for businesses such as improved profitability and better talent attraction and retention,” the report added. An EHCR survey of employees working in firms that had published their gender pay gap data revealed that over 60% of women would be more likely to apply for a job with an employer with a lower pay gap. In addition, over half (56%) of women said that working at an organisation with a gender pay gap would reduce how motivated they felt in their role. 

Royal London Asset Management also added that in countries such as the UK where it is a legal requirement for companies of a certain size to report their gender pay gap, this practice can be an operational headache. “There are challenges for individual companies, particularly with complicated structures or those operating in multiple countries. But for an asset manager, calculating and reporting the overall pay gap across all the companies in a fund is actually very difficult.” 

“Companies are embracing a more transparent, comprehensive approach to pay gap reporting – a shift that goes beyond lip service to create real and lasting change."

Others said that to truly tackle the gender pay gap, it needed to be treated as a business priority rather than silo-ed as a diversity and inclusion issue. “Firms that are serious about making lasting progress on D&I, don’t just say D&I is a business priority – they also treat it like any other business priority, for example, by measuring their progress and giving senior leaders accountability for progress,” said Sarah Kaiser, Head of Employee Experience, Fidelity International in a 2022 interview with Fund Operator. “Most leaders and firms will now say that diversity and inclusion are critical to their business success – but the important thing is whether their actions match their words.” 

The report highlighted where work was needed and gave several areas where firms could create operational positives by focusing on the issue. 

“Companies are embracing a more transparent, comprehensive approach to pay gap reporting – a shift that goes beyond lip service to create real and lasting change,” said Natasha Lamb, Lead Author, and Chief Investment Officer at Arjuna Capital on the report’s findings.

“Through their equal pay ambitions, smart companies are capitalising on performance benefits – gaining a competitive advantage in recruiting and retaining top talent and improving leadership diversity.” 


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