Is transparency the right path to equal pay?

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A research team led by an Arizona State University professor has discovered that naming and shaming a company alone won't close the gender pay gap.

Since 1963, the United States government has tried to narrow the discrepancy in wages between men and women, even instituting legislation to enforce the issue. For six decades they've chipped away at the inconsistency, as women now earn 82 cents for every dollar a man does, according to 2020 data from the Bureau of Labor Statistics.

They're now hoping that more transparent legislation will help. But a new study by ASU's Amanda Sharkey and co-authors Elizabeth Pontikes and Greta Hsu of the University of California-Davis demonstrates that naming and shaming is not enough, and more nuance is needed.

Sharkey, who is an associate professor in the Department of Management and Entrepreneurship at the W. P. Carey School of Business, has been working on this issue for years. Her new study, "The Impact of Mandated Pay Gap Transparency on Firms' Reputations as Employers," published in Administrative Science Quarterly, looked at how employee reviews on the website Glassdoor changed in the wake of pay gap disclosures prompted by new regulations in the United Kingdom.

ASU News spoke to Sharkey about her findings and how they could potentially impact firms in the United States.

Question: Can you explain why you chose to study this issue, and why in the United Kingdom as opposed to the United States?

Answer: The gender wage gap is stubborn. Although the gap has gotten a lot smaller over the last century, there has been almost no change over the last 15 years. In fact, forecasters project that the pay gap won't be eliminated until 2059, if we (keep) up at the same pace as we have since 1985. The slow pace of change, combined with to the issue, has intensified the search for effective remedies. Transparency is one promising solution, and it is intuitively appealing in many ways. But, given the costs involved in disclosure and what's at stake here, we'd ideally have hard evidence of transparency's effects, rather than just intuitions.

We chose to study this in the U.K. for a couple of reasons. First, when we started working on this paper, a national initiative that would have required companies in the U.S. to disclose pay gap information had just fallen by the wayside. So the data simply did not exist in the U.S. At the same time, a lot of other countries were just starting to implement transparency regulations. These requirements have a different flavor in each country. The one in the U.K. was especially attractive to us because it is very far-reaching—all organizations with 250 employees or more had to disclose. Other studies have been done on pay disclosure, but they focus on specific industries or on companies that have voluntarily disclosed. It wasn't clear whether the findings from those studies would hold more broadly across a wide range of organizations. Because the law in the U.K. affects such a broad swathe of organizations, it can help us get a sense of how transparency operates more generally.

What were some interesting findings?

Well, when mandatory disclosure laws were being considered, most of the arguments in favor of them centered around "naming and shaming" firms with large pay gaps. The idea was that word would get out about the size of these pay gaps, people would complain either to their bosses or to one another, and these firms would take steps to narrow the gap in order to avoid these negative reputational consequences. But we actually did not find any evidence of reputational penalties on Glassdoor for these firms. In other words, when we looked at how ratings changed from before to after disclosure for firms with a large gender wage gap (more than 20%), as compared to firms that had a more modest (2 to 20%), the ratings for firms with a large pay gap didn't show a decline.

Frankly, we were surprised by this. So we looked into several possible explanations. For example, we thought maybe employees just weren't aware of the information. Or maybe there are industries, like tech or finance, where everyone kind of knows that there is a large pay gap, and employees only react to a large pay gap in other industries where this information is more surprising. But none of these seemed to account for our results. Our best intuition—and we have some suggestive evidence to support this—is that employees who stay at firms with large pay gaps have come to accept the disparity as part of their workplace.

On a more positive note, we also looked at what happened to firms that disclosed that they were paying men and women relatively equally. There is good news for these firms. We found that these firms got a reputational boost from disclosure. Their ratings improved, and people started talking more about gender in their reviews of the company, which helps us be more certain that the improvement was due to disclosure.

How will firms in the U.S. potentially use your information and make it meaningful to them?

Many firms in the U.S. have looked at their own pay gap numbers, although not a lot have voluntarily disclosed them. Our research suggests that firms that have a low pay gap could benefit from making this information public. Since Glassdoor is widely used by job seekers, putting this information out there for people to discuss could potentially help them attract a bigger or better pool of job candidates. Our research shows that people do care about and react favorably to this information.

Pay gap reporting is being considered or being implemented in some U.S. cities and states. How might these governments use your findings?

Well, collecting this information and making it public entails some costs, both for firms and for the government. Our findings suggest some ways that governments can get the most bang for their buck if they require reporting. For example, we find that the positive reaction to firms with a small pay gap is bigger during periods when people are paying more attention, such as when this issue is in the news a lot. This suggests that government efforts should not just be about collecting this information, but they also need to engage in heavy publicity efforts if they want it to have an impact. We also find that the positive reaction is bigger when it is easier for people to interpret this information, such as when the information is more comparable across people in different jobs. In the U.K., firms were required to report only an overall firm-level number, but our findings suggest reporting information at a more granular level makes the information more powerful—at least in the case of firms with only a small pay gap.

Is transparency legislation the right path forward to close the gender pay gap?

You may be asking the wrong person. This is a tough question—especially for someone who chose a career that centers around analyzing data. I wouldn't have been able to do this research if this data wasn't publicly available, and I don't want to put myself out of a job!

More seriously, transparency is logically an important starting point for taking steps toward closing the gap. But our research suggests that it isn't a panacea. Information has the potential to empower people, but whether it ultimately impacts anyone depends on whether people can and do use it. In the case of the gender wage gap, understanding the size of the gap can certainly be useful for employees. For example, when this information is made public, job seekers can have a better sense of which firms are more egalitarian and they can incorporate that as a criteria in their search. Our research suggests that employees do pay attention to this information, at least in the case of firms with a small pay gap.

Although we didn't find evidence of a negative effect on the reputations of firms with large pay gaps, it is possible that job seekers' positive reactions to firms that are paying their employees equally will have an indirect effect on firms with a large pay gap, as look for those firms that report small wage gaps. But this could take a while. As a result, more direct interventions may be needed to prompt these firms to address the issue. There are examples of transparency policies that are more heavy-handed, such as the one in Iceland, where companies must conduct a pay gap audit and pay a daily fine if it reveals a disparity.

Aside from transparency, what else can managers do to close the gap?

There is research indicating the power of changes to hiring and promotion processes, such as evaluating candidates simultaneously rather than sequentially, or formally posting jobs rather than filling them through word of mouth. We may be at the point where there is not a lot of low-hanging fruit in terms of ways to make big gains in closing the gap. But many of these seemingly smaller changes in organizational policies can really add up. And while my research here is focused on the , many of these interventions show promise for promoting greater equality for other underrepresented groups as well.

More information: Amanda Sharkey et al, The Impact of Mandated Pay Gap Transparency on Firms' Reputations as Employers, Administrative Science Quarterly (2022). DOI: 10.1177/00018392221124614

Citation: Is transparency the right path to equal pay? (2022, November 2) retrieved 27 January 2023 from https://phys.org/news/2022-11-transparency-path-equal.html
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