I’m sure we would all like to think that our workplaces are meritocratic places, where success is treated equally. Alas, a recent report from the Federal Reserve Bank of New York suggests that is very far from the case, with male executives treated very differently to female ones.
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The report trawled through around ten years worth of data to try and get to the bottom of why women consistently earn less than men, even when they reach board level positions. The paper suggests that the key is performance related pay, which while it is meritocratic on the surface, actually is anything but.
The findings are hugely important because such pay structures are increasingly common throughout the enterprise, so it’s likely to be an issue that effects not just those at the very top.
“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,” the authors say. “These differences can be very, very persistent.”
The report saw compensation data from over 40,000 executives analysed over a 13 year period from 1992 to 2005. Of those 40,000 executives, just 3.2 percent were women, and the average pay for those women was around 14 percent lower than that of the average male executive.
The paper found that the biggest cause of this gap was the incentive pay structures used by organisations to link the performance of the company with the pay given to executives in bonuses and share options. The authors suggest that any disparity quickly accumulates over time, with the greater stock given to men becoming even more valuable as the company performs well, thus widening the gap still further. For instance, if a company gained $1 million in value, it was found to benefit a male executive by over $17,000 compared to just $1,670 for a typical female executive.
A Double Edged Sword
You might think that it would be only fair if male executives also bore the brunt of things when a company suffers. After all, they’ve gained more on the upside. Alas, the report found that wasn’t the case, and indeed, not only were female executives not rewarded as well during the good times, but they also suffered more when things turned sour.
For instance, if the stock value of a company drops by 1 percent, this represents a fall in women’s income of 63 percent, versus just 33 percent for their male peers.
Suffice to say, you may wonder how this can possibly be so, especially as the wealth accumulated by male executives is linked to company performance. Unfortunately, that isn’t really how performance pay usually works, with executives having various ways they can play the system, with women often at a disadvantage in this game.
“The fact that female top executives perceive limited access to informal networks, gender stereotyping, an inhospitable corporate culture, jointly with their younger age and lower tenure, suggests that they might be considerably less entrenched and exert lower control on their own compensation than their male counterparts on average,” the authors say.
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So, in other words, the way executive pay is structured is not only inefficient, but it’s inefficient in a way that seems to benefit male executives over their female peers.
Do you get paid less than your male peers despite doing the same or more work than them? How does this affect you? Your thoguhts and comments below please...