This scenario is familiar to many global companies on US Equal Pay Day. Despite longstanding efforts to reduce the differences in male vs. female salaries, firms saw many women’s career paths obstructed by the pandemic. According to Korn Ferry numbers from 2020, the US gender pay gap is at 25.3%, though other figures put it closer to 17%. Companies are worried. “I’m spending a good chunk of my time on this,” says Tom McMullen, a leader in the Total Rewards group at Korn Ferry. “Organizations are very concerned and moving beyond their comfort zones,” McMullen says, as they face more burden of proof around transparency and pay raises.
To be sure, significant steps have been taken. A half-dozen states mandate that job postings include salary ranges; New York City will join that club this spring. And approximately half of all states have banned employers from inquiring about compensation history. “That should help level the playing field,” says McMullen, along with programs such as strong mentoring and succession planning. Some regions have made great strides in their pipelines. These include Canada, New Zealand, the United States, and Hong Kong, all of which boast more than 40% to 42% female managers. Others are stumbling: fewer than 5% of Japan’s executives are female, a rate that rises only to 11% in India and 13% in Argentina, according to Korn Ferry data. Even when women do make it to the C-suite, they earn 75 cents for every dollar earned by men, concludes a Morningstar report released last month. This is because even at the top of the org chart, men are in higher-paying—often CEO-track—roles, often with enormous stock compensation.
The sluggish timeline of change can be chalked up to employee turnover. “Even if a company commits to hiring 50-50, they’re at the mercy of the turnover and attrition rates,” says Benjamin Frost, a London-based solutions architect in Korn Ferry’s products practice. What he means is that with equitable hiring, gender ratios often improve only by 2% to 3% per year. For example, envision a company with a 10% churn rate and 100 global executives who are 80% female and 20% male. After one year, those 100 executives would be 77% female and 23% male.
As a result, experts say that firms need to sustain a multi-pronged, long-term effort when it comes to gender pay equity Many firms have found success with initiatives to broaden talent pools and mentorship programs. Also pivotal are strong succession programs that include gender-equitable pipelines and efforts to avoid leaky pipelines, where talented women drop out. “Companies need to be putting in place a 10-to-20 year plan,” says Frost.
But experts say there’s also a new possible solution emerging. A new study offers an exciting and cost-free way to speed up the effort. Three female economists—themselves a rare group among tenured economists, who are 85% male—joined forces on a study in Leadership Quarterly that looked at how employees enter top roles at their companies. Nearly all companies require employees to apply for leadership roles, a step that women are much less likely take than men are. In a series of experiments, the researchers, from Australia’s Monash University and the University of Melbourne, found that by simply assuming that all high performers are interested in higher roles, most of the gender gap in leadership selection disappears.
This is called an “opt out” mechanism, in which employees must state that they are uninterested in a role to be disqualified from consideration. The concept is similar to the successful efforts to embed retirement saving into the US workforce, a scheme in which full-time employees are automatically enrolled in 401(k) plans unless they opt out. Applying such a program to pay equity would mean that the gender breakdown of the internal applicant pool would match the gender breakdown of the pipeline, and this could expedite the process of reaching equity by more than 50%. “It’s still going to take time,” says McMullen, “but the aspiration of equity continues.”