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Gender Pay Gap is NOT the Same as Pay Equity… and Why the USA Chose not to Mandate Pay Reporting

The news headlines after UK companies reported their “gender pay gap” were highly sensationalized. Here are a few examples. 

  • How Can We Fix the Music Industry’s Shocking Gender Pay Gap? – Huffington Post UK 
  • American Companies such as Goldman Sachs Among UK’s Worst Gender Pay Gap Offenders – New York Daily News 
  • Science’s Vast Gender Pay Gap Revealed in UK Wage Data – nature.com 
  • Britain Aims to Close Gender Pay Gap with Transparency and Shame – New York Times 

The Gender Pay Gap is NOT the Same as Assessing Equal Pay 

Gender pay reporting legislation by Government Equalities Office (GEO) in the UK requires employers with 250 or more employees to publish statutory calculations every year showing how large the pay gap is between their male and female employees. 

Equal pay deals with the pay differences between men and women who carry out the same jobs, similar jobs or work of equal value. That’s not what the UK mandated that people report. 

What Did Companies Have to Report? 

The gender pay gap is defined to be the difference in the average pay between men and women. Averages tell us very little in the analytics world as there are so many factors that impact an average and lead the public to draw incorrect conclusions. Specifically, companies had to report the following for men and women: 

  • The mean pay 
  • The median pay 
  • The mean bonus pay 
  • The median bonus pay 
  • The proportion of males receiving a bonus payment 
  • The proportion of females receiving a bonus payment 
  • The proportion of males and females in each quartile pay band 

How to Make Excellent Companies Look Bad with Numbers 

Mathematically, we are dealing with averages and medians. If you’re not a math person, the median is just the “middle value” of a set of values. Let’s see how mandating these values can make excellent companies look horrible. 

Reporting averages does not take into account factors such as job specialization and gender variation among specializations. For example, a company that is highly engineering or science-based will likely have a much greater percentage of men in its workforce. Certain STEM-based professions (Science, Technology, Engineering and Math) are naturally male-dominated because the graduating classes are male-dominated. That’s the hiring pool, so through no fault of any company, these STEM companies will be “more male” in the specialized jobs. 

As a personal example, when I attended the University of Waterloo to study applied math and mechanical engineering, most of my math classes were 10 men for every woman. When I walked into my first engineering class, it was 200 men and me. So, since we know that these types of specializations are chosen by men more often than women, we can’t penalize STEM-based companies for choices that men and women made years before joining anyone’s workforce. 

As another example, it is not unusual in STEM-based companies for there to be a higher percentage of men in the upper levels. Since the UK mandated the reporting of the average value, having more men in the upper levels instantly puts a company in an unfavorable light by the larger impact they have over the average. 

Having a larger percentage of men in the upper levels is NOT necessarily an indication that the company has a bias against women. For example, I have examined  data across gender for several STEM-based companies who have gone to great lengths in trying to balance the gender in the management levels. However, sometimes what the data shows is that while the company has made these upper-level jobs available for anyone to apply to, women are choosing not to apply to positions in the management ranks. For example, if the pool of people that could apply was 50% female, we saw that the candidate pool of those that chose to apply was only 30% female. I’ll leave the WHY up to the audience, but since the gaps in multiple countries tend to be greatest between the ages of 32 and 40… 

So, by the math of the defined average that must be reported, merely having more men in the upper levels of your company will skew your average and widen your gender pay gap. But remember, this isn’t pay equity. Pay equity is ensuring that men and women at the same levels and performing similar jobs are being paid the same. It’s not reporting the average pay across the entire company. 

Why the US Chose not to Mandate Reporting of Pay 

The USA was heading down the path of mandating the reporting of pay on a company’s annual EEO-1 form. The deadline for reporting was March 2018. In August 2017, the OMB (Office of Management and Budget) halted this requirement. Here is a brief quote from the official memo. 

Among other things, OMB is concerned that some aspects of the revised collection of information lack practical utility, are unnecessarily burdensome, and do not adequately address privacy and confidentiality issues. 

Lacking practical utility means that the testimony provided to the EEOC from a corporate Vice President of Diversity of Inclusion proved that the proposed reporting requirement would not accurately report on what the EEOC was trying to measure. In short, measuring the pay gap would not be an indicator of pay equity. Reporting the proposed values then became an unnecessary burden since it didn’t serve the purpose that was originally intended when the reporting requirement was first conceived. 

Bio 

Tracey Smith is an internationally recognized analytics expert, speaker and author. Her hands-on consulting approach has helped organizations learn how to use data analytics to impact the bottom line. Tracey’s career spans the areas of engineering, supply chain and human resources. She is CPSM certified through the ISM.  If you would like to learn more, please visit www.numericalinsights.com or contact Tracey Smith through LinkedIn. You can check out her books on her Amazon Author Page.