Equal pay for equal work and what your company should know | Ep. 35

The year was 1963 when President John F. Kennedy and Congress passed the Equal Pay Act, prohibiting gender-based wage discrimination in the United States and mandating equal pay for equal work. Yet, research indicates that women are still being paid less than men for the same work. Why is this? What can organizations do to ensure they are not discriminating based on gender or race? Kelley School of Business Professor Kim Saxton explains in episode 35 of The ROI Podcast.

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Show Notes:

Shane: Before we start today’s episode I want to bring up something that’s no secret and is going to revolve around our discussion today and that’s the issue of equal pay. So I was online the other day and I read an interesting study that found 83 percent of women believe men are paid more than women for the same work – compared to 61 percent of men who believe that statement… So where are we today with equal pay in the workplace? Where did it all begin? That’s what we’ll be discussing today.

(ROI Podcast Music)

Shane: It’s time for episode 35 of The ROI Podcast presented by the Kelley School of Business on the IUPUI campus here in downtown Indianapolis… Of course, I’m one of your hosts, Shane Simmons. And I’ve got my friend, Phil Powell, who’s the associate dean of academic programs at the Kelley School, sitting beside me co-piloting the podcast. How are you today, Phil?

Phil: (Replies)

Shane: As our listeners heard in the opening of this show – we’re talking about a topic that’s hard to believe we’re still having to have this conversation and that’s pay equality. Phil, as a dean to a business school, as a scholar, and as a person in general, when people are paid unequally, doesn’t it hurt our economy?

Phil: (Replies)

Kim: Great question and I don’t know if the MeToo initiative is giving rise to this, but it’s something first, people need safe working conditions, but in addition, they ought to be the same people being paid for the same work, irrespective of gender or race. We know it’s an issue, so if I were talking to a man, the first thing I would say is just own up that it exists. There’s still some people who are debating whether in fact this gap exists – study after study, done as rigorously as possible, controlling for all different kinds of factors does show that there is a gap. We need to recognize that it’s there, first of all, and why has it gotten there? The other thing about the gap is that it’s not a new gap, it’s been around for a long time. If you pull up articles from the ‘60s, there were talking about equality of opportunity for women in 1961.

Phil: And if we go back to 1963, President Kennedy passed The Equal Pay Act which made it illegal to differentiate pay based on skills, effort, responsibility, or working conditions in the U.S.

Kim: And yet, we still have a big pay gap. How does that happen? Well, there are systematic differences that are occurring that are difficult to control for. First of all, one of the ways that pay does get differentiated is based on experience – remember I said skill, effort, responsibility, and working conditions. Experience is a valid reason to differentiate pay. Women tend to take time out of the workforce, therefore, they tend to have less experience – so that’s one thing that people can justify is, “I should pay him more because he’s been working at this longer”. The second thing is that women tend not to negotiate for their pay, while men do - women just don’t ask that question. Personally, with a group of women that I mentor, I encourage every one of them who is changing jobs to ask for something. It’s really shocking got me that many of them would say, “Oh, I love this offer, it’s exactly what I wanted!” - I said, “Now pretend you’re a man, what would you want?” One hundred percent of them have gotten more than what they were asking for at the start. That tells me that companies are used to people negotiating, and if women are negotiating, it must be the men who are. But some companies are trying to take these steps to fix this!

Phil: But before we get into what some companies are doing to combat this issue of gender pay equality, there are still the behavioral economics that some would argue are embedded within us – even if we don’t think we're biased…

Shane: Kim said something that I did not realize, and that plays into this whole conversation, and that’s when men and women are judged on their performance, both men AND women will evaluate the same performance from a man as better than the performance from a woman. And so when you have pay being based on performance, you can see how this causes an unfair reality for women.

Phil: You’re right, Shane. And Kim explains how some of these experiments worked to give us a better idea.

Kim: Some of it was looking at objective performance – maybe you would look at a group of people and say, “Subjectively, how do I evaluate their performance?”, and then we might look at some objective criteria like the time it took, number of errors, those kinds of things. There’s been some research where they had violin players play a piece, and when the audience could see what the gender was, they rated the men more highly - when they couldn’t see what the gender was, they rated them equally. Occasionally, some studies have actually found the women’s performance was better when you didn’t know who it was!

Phil: Harvard actually sets this test up in the classroom with a case and Kim discussed these eye-opening results.

Kim: Yeah, so this was an interesting case that they did where they took the profile of a really good networker - someone who created connections out in Silicon Valley, an actual real person - and had jobs that moved towards creating these connections with technology and venture-capital firms. They gave the case to half the students where it was a man, and the other half got a woman. Before they came into class, they had to fill out a survey about things like, “how much do you like this person”, “how much would you be willing to work for this person?” When the group that had the person as a woman was always significantly rated lower than the man. It was like, yes, they’re an effective networker, but no I wouldn’t want to work for them, and no, I don’t like them.

Kim: I think there are maybe three or four things we could do, or that I would think about doing if I was a male CEO looking at this situation. First of all, you need to have a periodic review - where are we? Let’s lay everything out by skill, effort, responsibility, and working condition, and let’s just see, are we paying people equally? Salesforce did this in 2016 and 2017, and each year, they had to adjust pay by $3M, women were being underpaid. Now, I would say on an annual basis, $3M out of $11B is probably not a bad investment, but it repeated the next year! Even in one year, they saw it creep back in, so you have to have a periodic inspection of it. The second thing is, we make assumptions about what people are interested [in] and willing to do. Maybe there’s an overseas assignment, and you look around and say, “Who should we give this overseas assignment to? Well, she’s a woman and she’s got kids, she’s not going to be able to travel.” Why are you making that choice for her? Instead of making assumptions as to who would be interested in what, open the playing field - give everybody a chance at all the promotions, let themselves select if they want that kind of responsibility or that work life. Being mindful that you are eliminating people is important. The third thing is you have to actually ask yourself who’s not at the table – the easiest thing is that we tend to support people who are like us: white men tend to support white men, white women tend to support white women. Ask yourself, do I have a diverse team? Who’s not been invited? Find those people – it’s not that they don’t exist, it’s that they don’t occur to you to invite them. Every time I step back and ask that question, I find somebody and I say, “Wow, that person is a great asset, I wish I had thought about that!” - those are little promotions that add up to bigger ones.

Phil: And lastly…

Kim: The last thing is, and back to that periodic thing, we know that the wisdom is that people respect what you inspect. Some people are really excited about the latest news out of Iceland about equal pay - and really, it wasn’t so much the equal pay, because they already had that in place, they knew it wasn’t working. What Iceland did is they put in an annual certification for employers with more than 25 employees that they have to prove that in fact, they’re paying them equally. In your own organization, set up annual inspection of the strategic outcomes that you want to accomplish, and people will perform to them!

Shane: So if we were to step back and explore what we can do is managers in an organization when it relates to these issues – we’ve talked about some different things to look out for… But where do you start?

Phil: Kim sums up some practical steps that an organization can take immediately.

Kim: The first thing is, look around and ask yourself, are we biased? If there are awards, who’s winning the awards? Are people of color or women winning awards at the same rate men are? Promotions? Leaving? Just observe! Many organizations and managers never ask the question, “Do we have a bias?” The first most important thing is to sit back and ask if we have a bias, maybe get some data and see if there are any. What helps for me is I have someone who keeps me accountable – because I know these biases are natural, my significant other will actually be objective and ask, “Now, are you saying that because of that person’s gender or race? Or is that what you’re really thinking?” So it causes me to step back and ask myself, “Am I being biased?” I don’t always like how I answer, but I like that the question got asked.

(The ROI Podcast Music)

Shane: We’d like to thank professor Kim Saxton for taking the time to chat with us about a topic that’s so important in our world… Of course, we’d be honored if you subscribed to The ROI Podcast and leave us a review on iTunes… That really helps us out and gives us some feedback on how we’re doing. And Phil, next week we’ll be continuing this conversation from a legal angle with professor Julie Manning-Magid so be sure to look out for that episode next week. Have a great day and thanks for listening!