Closing the Gender Pay Gap Through Compensation Strategies

Abstract The purpose of this research assignment is to identify the causes of the gender wage gap and how to combat them using compensation strategies. Currently women make less than men for doing equally comparable work in many industries. In order to design a fair and transparent structure we can follow a pay for performance pay structure. This incorporates values that are important to a companies HR strategy and business strategy that untimely reflect the business to the public and possible talent.

In today’s market, organizations are facing a gender pay gap issue. Currently women in the labor market can make less than a man for a number of different reasons. Through research and investigation we determine how we got into the situation we are in today, concerning demographics and historical changes; and what actions we take from here to ensure equality within the workforce across each gender concerning pay structure. The demographics of today’s workforce are significantly different than those of the early 1920’s. Our massive industrial boom caused the need for employees to skyrocket. The products that came into the market made everyday life easier such as radios and the finely tuned automobile. However, at this time, women were often contributors to other industries where they could use their knowledge of household items and techniques. The United States Department Of Labor states, “Prior to World War I, of all women employed in the manufacturing industries, three-fourths were making wearing apparel or its materials, food, or tobacco products” (2015). With World War II in full effect in the coming years many women stepped up to fill the open roles that were previously filled by men but were fairly limited to service roles. Since this period in history, women have been a constant factor in the workforce, “In 1920, women were 21 percent of all gainfully occupied persons. In 2010, they were 47% of employed persons”(2015). Even though more women have entered the workforce, gaining equity and respect has been a consistent challenge. Age is another important demographic that has shaped our workforce into its current state. However, this factor is changing quickly and causing organizations to rethink their norms and values considering pay structures and benefits. The BLS speaks to the rate of change within our workforce age demographics, “Although only a modest reduction will take place in the overall growth in the workforce (from 1.3 percent per year to 1.1 percent per year), the composition of growth will generate rising shares of young (under 25) and older (45 and over) workers and a decline in the share of middle-age workers”(2015). These numbers predict that the millennial generation (under 25) will become the major demographic causing a change in norms and values of organizations. In an article titled How Millennial Are Breaching Norms at Work and Home Ira Wolfe states that millennials are often seen as narcissistic and money driven. Although he suggests to take a different approach, “But compare that to what millennials say they want: exciting work, a good mentor and enjoyable coworkers. Managers who want to retain their millenials employees must appeal to their needs for transparency, regular feedback and fairness”(2015). By using transparency, regular feedback and fairness in a pay strategy organization’s can attract and retain this young demographic. On the other side of the spectrum the baby boomer generation is making a significant impact on how managers communicate their decisions and keeping this demographic engaged. Sorensen and Garman state, “Employees in this generation respond to managers who make an extra effort to show they care. Managers should keep this in mind during day-to-day interactions and find ways to communicate interest in these employees by inquiring about their work and other important aspects of their lives” (2013). Each generation brings different qualities to organizations that make it functional. The younger generations are eager to be innovative but also want to learn from those with more experience. The aging generations have paved the way for organizations to become successful but also want their managers to be influential in their lives. By designing a pay schedule that is fair and transparent businesses can attract and retain the best talent. In the 1920’s the work place was almost unrecognizable to what it is today, many situations were unsafe and landing a job where all were treated equally was a rare occurrence. The department of labor added the Womens’ Bureau on June 5th 1920’s. The DOL states, “The law gave the Bureau the duty to “formulate standards and policies which shall promote the welfare of wage-earning women, improve their working conditions, increase their efficiency, and advance their opportunities for profitable employment.” It also gave the Bureau the authority to investigate and report to the U.S. Department of Labor upon all matters pertaining to the welfare of women in industry”(2015). This addition kick started a movement to promote safety and equality in the workplace it also gave women a needed voice in the workplace. In the 1950’s many women were entering the workforce, however women were also focused on their home life and having children. This generation became known as our baby boomers that are very active in the workplace today. The BLS states, “The significant increase in the number of births between 1946 and 1964, with the peak birth year being 1957”(2015). According to the Library Of Congress, In 1964 the Civil Rights Act prohibited, “Fail or refuse to hire or to discharge any individual, or otherwise to discriminate against any individual with respect to his compensation, terms, conditions, or privileges of employment, because of such individual's race, color, religion, sex, or national origin” This clause of the Civil rights act opened opportunities for all to find jobs that fit their needs. The second section of the Civil Rights Act relates more to the argument for equal pay, “To limit, segregate, or classify his employees in any way which would deprive or tend to deprive any individual of employment opportunities or otherwise adversely affect his status as an employee, because of such individual's race, color, religion, sex, or national origin”(2015). This act prohibits organizations discriminating based on sex, if a manager decides to hire a young educated family free man over a woman children because he believes that the woman will not be as devoted they would violating the Civil Rights Act of 1964. This situation may seem uncommon but during this time women were being influenced by television and Hollywood. Popular shows such as Leave it to Beaver often portrayed the perfect American family and their daily “struggles”. Whether they knew it or not Hollywood was hammering in the idea of a women’s place. In a book titled Culture and Media they speak of the media influence during this time “White middle-class families with traditional nuclear roles (mother in the home, father in the office) and implied that most domestic problems could be solved within a 30-minute time slot, always ending with a strong moral lesson”. (Culture and Media). The lifestyles depicted in Leave it to Beaver and other shows during this time portrayed women as homemakers and not the breadwinners. Another Hollywood personality that was popular in the 1960’s was The Mary Tyler Moore Show. Unlike Leave It To Beaver this program featured a different kind of woman. In an article titled, Dress, Dialogue, And Gender In The Mary Tyler Moore Show by Ashley Hayes she speaks to Mary’s role and influence during this time, “Mary Richards stands apart from other female lead characters of the time because her character was subjected to issues involving gender roles in the workplace (2010). Although The Mary Tyler Moore Show brought a new perspective to television programming, the producers were careful not to overwhelm the audience with a radical and progressive way of thinking” (2010). By portraying a woman as career focused and independent women not saw that cultural norms were changing and it was possible to be successful, but they saw the daily struggles Mary went through to be a part of the workforce. As more women were entering the workforce and succeeding at their jobs they were in need of assistance when it came to their family lives and health considerations. Two other laws that also influenced pay dynamics among women are the Family Medical Leave act of 1993. This was crucial for women in the workforce because it took into consideration the idea of work life balance. Women were now able to have children and come back to their positions. Men were also able to benefit from this act if they had a medical issue or family crisis. In Employee Benefits Martocchio defines FMLA ,“It provides protection in cases of family emergencies FMLA permits eligible employees to take up to a total of 12 work weeks of unpaid leave during any 12 month period for family or medical emergencies” (2014). With the implementation of FMLA organizations were taking work life balance more seriously when it came to attracting and retaining. Organizations today are going beyond FMLA and offering paid time off for both mothers and fathers after their birth of a child. This acts as a benchmarking tool in the competition for talent. As the discussion for equal pay continues managers can look at why this gap exists and how to design a structure that is fair and transparent. In an article titled, “The Complex Causes of the Gender Pay Gap” Barbara Wanger states, “Economic research on the gender pay gap has found many reasons for the differences in pay between men and women, including different career and education choices, differences in work experience, and discrimination. Employers, women, their families, and their co-workers all desire and deserve lair and equitable treatment”. (2015). To avoid these issues managers can pair their knowledge of the particular industry they are in and common situations where this discrimination happens. Managers can design a fair pay structure taking a look at each employees qualifications including education level, experience and opportunity for growth within the organization. By ignoring stereotypes and placing individuals in a pay range that aligns with their talents and responsibilities managers can shrink the pay gap. Salary history is also a factor that should be ignored when it comes to hiring and pay placement. If an employee is applying for a job managers often base pay off of their previous amounts. This can be misleading because that employee may have been discriminated at a previous position or left that position because they felt they were not able to grow from their position. In an article titled Your peers offer their opinions & solutions for gender-based pay gaps, they speak to possible solutions for this tough issue “At one company, a 3,000-employee financial organization in the Northeast, low starting pay is precisely what has created a gender-based pay gap. "We have been making some progress but not much. The gender bias resulted from entry salaries, and our current procedures don't allow for wholesale adjustments," said the HR division chief” (2003). According to Michovich, Newman, and, Gerhart, A successful pay structure strives to meet key objectives such as efficiency, fairness, compliance and ethics. They state, “Efficiency can also be stated more specifically: improving performance, increasing quality, delighting customers and stockholders, and controlling labor costs (2015). When speaking specifically to a pay per performance plan efficiency involves three parts. First is strategy, managers are to asked if a pay per performance plan aligns with the companies HR strategy and business strategy. Behaviors and actions that the company plans to reward should align with each strategy. If a company wants to project their organization as being a place full of equal opportunity for all their pay structure should also do so. Another component managers need to take into consideration what amount their employees will be motivated. According to Michovich, Newman, and Gerhart, “While there are few hard data on this question, most experts agree that employees don’t notice payouts unless they are at least 10 percent, with 15 to 20 percent more likely to evoke the desired response”(2015). The second part of efficiency is structure. Structure describes how the performance is measured. For example a call center that uses a pay for performance strategy measures the number of calls per day and how long it took the person to come to a solution it rewards employees with commission if they get over 10 happy customers in a shift. The final part of efficiency is standards. Michovich, Newman and Gerhart suggest that in order for a pay per performance system to be successful they need to have certain standards such as objectives, measures, eligibility, and funding. During this time managers will ask themselves a series of questions to see how the pay for performance plan is going to collaborate with their organization. One question they may ask concerning their objectives is “Can employees see that their behavior influences their ability to achieve objectives”(2015). This question and others, concerning where funds for above and beyond performance would come from and what employees are going to be motivated in this manner are important in planning a pay for performance strategy. The second design objective is equity and fairness. Earlier we saw that transparency and fairness were two qualities in an organization that millenials valued highly. Michovich Newman and Gerhart speak about fairness and equity in this pay model and an employees individual pay amount, “It is influenced more by external market conditions, pay policy decisions of the organizations, and occupational choice made by the employee”(2015). This model makes it possible for the employee to take control of their paycheck and not only depend on hours worked. If an employee wants to generate a larger paycheck then they have opportunity to excel in their day to day. Speaking specifically to equity, managers who distribute rewards need to use procedural justice. Procedural justice is “concept concerned with the process used to make and implement decisions about pay. It suggests that the way pay decisions are made and implemented may be as important to employees as results of decisions (2015). By using this practice employees will feel as if their pay is determined on their performance and not stereotypes or misconceptions. Another key element is fairness and equity is communication. If an employee is aware of what is expected of them in their position and the opportunities for them are clearly defined they are able to excel without confusion. They will also be motivated knowing that if any issues arise they will be dealt with in a clear and fair manner. The last objective of a pay per performance structure is to be compliant with existing laws. This is key because the laws that are set in place act as a starting point for organization’s compensation and benefit offerings. Michovich, Newman and Gerhart state, “Because of reputation. We tend to undervalue the reward value of a good reputation “(2015). Organizations care about their reputation with the public and possible applicants, if they are complying with employment laws they are keeping their good reputation in the light. Overall, if managers are using this pay model they will experience competition among their employees; and are able to motivate them with fair monetary rewards that are based off of knowledge, skill, and performance. Through investigation and research we have found possible reasons for the gender pay gap and how to combat this issue. The demographics of the workforce have changed significantly from a highly male dominated environment were women were often found only in service type industries that aligned with their homemaking skills. Age is another demographic that needs to be taken into consideration, appealing to all generations and tailoring techniques to preferences can make for happy and devoted employees. Today, many women hold powerful positions and are able to make a difference in industries that they were formally not seen in. By sticking to researched practices, following a pay for performance and ignoring gender stereotypes women and men are able to be successful in today’s workplace and reach new heights.

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