the leadership gender pay gap

a case study: profit-to-member superannuation segment

The following article provides some highlights from a new research report launched today titled the Strategic Gender Agenda - leadership gender & remuneration equity in the profit-to-member super segment. The case study uses data from the profit-to-member (PTM) super segment in 21/22.

The outline of the article covers:

1. components of the gender pay gap
2. strategic importance of non-financial objectives
3. super-sized industry
4. gender and remuneration in the profit-to-member (PTM) super segment

1. components of the gender gap.

diversity, equity, inclusion and belonging:

The Diversity Council Australia Ltd defines diversity as “the mix of people in your organisation” and inclusion as “creating a workplace environment that enables that mix to work.”(1)

These work together for the benefit of both organisations and its people and create an equitable sense of belonging through purpose.

Gender is the tip of the infinite intersectional inclusion iceberg. As the largest demographic, gender is where the journey towards equity must start, but certainly not end.

the gender remuneration equation:

The gender pay gap in any system, is a function of:

• resourcing - the number of people employed.
• remuneration - the total remuneration expense, and?
• relativity - the variation between the gender based average remuneration (remuneration/resourcing).

The variation between the average remunerations of males and females is the gender pay gap.

Historically, many organisations focus gender equity solely on resourcing but may not even publicly report their gender employment equilibrium across all levels of the organisation. Even fewer have incorporated gender-based remuneration and relativity within their compensation decision-making frameworks, ignoring potential inherent biases within, and placing gender as a resource-based after-thought, separated from remuneration.

Only through understanding the data and information of the variables and historical biases influencing the gender pay gap, can we hope to gain the knowledge of the drivers, enablers and the wisdom of making strategic change through tactics, actions, and measurements to make a (shrink the) difference.

2. strategic importance of non-financial objectives

Research proves that many organisations struggle to achieve some of their strategic objectives.(2) A commonality amongst these is the lack of strategic inclusion, exemplified by an over-reliance on historically outdated traditional top-down exclusive strategy formation and implementation. This problem drives the burgeoning theory of open strategy which attempts to address such historical limitations, through an increased focus on both inclusion and transparency.(3)

• the financial benefits of non-financial objectives

Inclusion is traditionally considered as a non-financial objective. Whilst the social benefits are widely accepted, there is growing evidence of the bottom-line economic benefits of strategic gender inclusion, diversity, and equity.(2) Support of the strategic importance of non-financial objectives such as gender diversity and risks associated with the objectives are increasing from from regulators and governance bodies both domestically [e.g. ASIC (4), Australian Prudential Regulation Authority (5), Australian Institute of Company Directors (6)] and internationally [e.g. Financial Conduct Authority (7)].

• increased gender and remuneration disclosure transparency and risks

The disclosure required for both gender equity and remuneration practices are entering a new realm of openness largely influenced by legislated workplace reforms and regulatory oversight. This includes the Fair Work Commission - Secure Jobs Better Pay Act, the compulsory Workplace Gender Equality Agency reporting, and in superannuation, APRA's prudential standards including CPS 511 - Remuneration and the proposed enhancements of SPS 515 - Strategic Planning and Member Outcomes, an the increased focus on significant expenses.(8) This new transparency combined with increased stakeholder interest in both gender and remuneration, can produce both regulatory and incongruence reputational risk for those organisations claiming to support inclusion through their purpose statements but failing to demonstrate it within their strategy, tactics and actions.

• the strategic inclusion solution

It seems to be uncommon sense that organisations that include those non-financial objectives - such as gender inclusion, equity, and diversity - with proven potential to influence financial objectives, are not only more likely to reduce potential incongruence risks, but also are more likely to reap both the economic and social benefits of sustainability.

• gender and remuneration transparency

With gender and remuneration transparency moving from being in the spotlight to now moving under the microscope organisations have an opportunity to incorporate gender-based objectives and metrics with measurability, reportability and accountability into strategic objectives through an organisational analysis of their resourcing, remuneration and relativity.?

3. the super-sized industry

Superannuation in Australia now represents the retirement savings of 16.6 million Australians and has grown from $148 billion in assets (funds under management) back in 1992 to $3.5 trillion. ?That is an increase of well over 2000% in thirty years.(9)

Despite, the importance, growth and ranking in size within the total domestic financial system, macro analysis is not without its challenges, given that our beloved superannuation system is technically not considered as an industry.? Instead, it is viewed as a fragmented collection of segments defined by the multiple agencies responsible for their regulatory oversight including the Australian Taxation Office , ASIC , Australian Prudential Regulation Authority and a number of government bodies, who separately regulate the $150 billion plus Exempt Public Sector Super Schemes (EPSSSs), who have not elected to be part of the APRA regulatory disclosure framework.

Given our case study focuses on the profit-to-member (PTM) segment of superannuation, the graphic below demonstrates where the PTM segment fits within the industry.

?Who are the PTM super funds.

At the time of the research the list of funds included (but was not limited to) the following funds: Active Super , Australian Food Super (ex-AMIST), Australian Retirement Trust , AvSuper , AustralianSuper , Aware Super , Brighter Super , BUSSQ Super , CareSuper , Cbus Super Fund , Commonwealth Superannuation Corporation , Equip Super , First Super , HESTA , Hostplus , legalsuper , Mine Super , NESS Super , NGS Super , Prime Super , REI Super , Rest , Spirit Super , TelstraSuper , UniSuper , and Vision Super .

4. gender and remuneration in the PTM super segment

As discussed, the wisdom to effect strategic change on the gender pay gap, requires knowledge of the relationship between resourcing, remuneration and its relativity from a gender perspective.? The case study considers both the total employment (all fund staff) and leadership perspectives, although unfortunately, the data for all fund staff is limited to resourcing at a macro system level, a reality that we challenge the regulator to change.

total employment (all fund staff)

When considering the total employment of staff at all levels employed within the super funds of the profit-to-member super segment, it is delightful to report that an overall gender employment equilibrium exists.?

The gender ratio of 50:50 (when rounded) makes the PTM super segment one of the most non-biased gender-neutral segments within Australian industry, compared to the all industry data from Workplace Gender Equality Agency .(10)

In the full report, we’ve proposed a few simple solutions to rectify the current lack of data in remuneration and relativity at this macro level.

leadership - board, executive and combined teams

The leadership team gender and remuneration will be viewed at a team level, from the ?perspectives of resourcing, remuneration and relativity.? Thereafter, it will provide some key highlights into the major variables of influence from within including scale and function.

resourcing:

The graphic below summarises the gender equity in resourcing across the board, executive and combined leadership teams.

Unfortunately, the promising gender resourcing equilibrium shown in overall employment with the PTM super segment, did not translate across into the leadership of the segment. All teams are dominated by male employment with the combined leadership team having a resourcing ratio of 62:38.

remuneration

The graphic below summarises the gender equity in remuneration across the board, executive and combined leadership teams.

Almost two-thirds (65%) of Total $REM is allocated to males within the combined team, (60:40) at the board level and (66:34) within the executive teams.

With almost twice as much total remuneration allocated towards Male executives as their female counterparts, the variation between the board and executive gender equity is evident.

Remuneration is commonly a combination of both fixed and variable components. In the PTM system, 47% of organisations used variable but for only 20% of the combined leadership but 49% of executives. 90% of the variable was short-term. 3.5% of leaders and 9% of executives had deferred components.

relativity:

The below graphic demonstrates the nominal gender based average remuneration of the combined leadership team, and the separate board and executive teams.? In addition, it highlights the gender pay gap, both nominally and in percentage difference.

At the combined team level, the average remuneration is $260,430 for males in the leadership team and $226,257 for females, with a gander pay gap of $34,173 less for females and a percentage difference of 14.0%.?

Within the board, the average remuneration is $78,344 for males and $82,271 for females, with a gender pay gap of $3,927 less for males and a percentage difference of 4.9%.? Further investigation into this gender pay revealed that it was largely influenced by the substantially higher proportion of males in voluntary board positions, particularly as alternate director roles in the system. When this was factored into the calculations, the gender pay gap, whilst still in favour of females, was reduced to a nominal difference of just $50, or 0.1%. We are comfortable with taking the position that there was no substantial overall gender gap at the board level within the PTM system.

At the executive level, the average remuneration is $525,818 for males and $450,507 for females, with a gender pay gap of $75,312 less for females with a percentage difference of 15.4%.? Whilst the PTM super system should be congratulated on the achievement of overall gender equity at the board level, it is clear that transformational strategic change is required at the executive level.

The graphic below summarises the gender equity within the resourcing, remuneration and relativity within the PTM super system across the board, executive and combined leadership teams.

major variables of influence

In addition to gender bias there are a number of bias covered in the full report. These include both scale and functional biases.

scale bias

Total (and average) leadership remuneration expense generally increases with larger organisations, although not as uniformly as you may expect.

The graphic below, demonstrates how total remuneration for the combined leadership increases with the size of the parent entities, from the smallest "8" to largest "1" scale octile, which are scale-based groupings of PTM parent entities. This scale bias plays a major role within the system influencing the remuneration of the leadership, particularly the executive team.

Many organisations use scale-based percentile ranges from ‘industry’ data for competitive remuneration offerings. If the benchmarking system used, however, does not actually consider your competition for leadership resources then by definition it is neither competitive nor strategic.?It is also this size matters philosophical bias that can stifle mobility within the leadership system for leaders of smaller funds, despite other achievements (e.g. strategic and governance outcomes) and executive experience including support for the board.

Next we review how scale specifically effects gender based employment. The graphic below looks at female employment (as a %) across the scale octiles.

Whilst gender resourcing is affected by scale it shows neither a consistent overall pattern, nor was it uniform between the board and executive teams. The greatest concentration of female leaders occurred within the 4th (board) and 3rd (executive) octiles.

A few examples of scale bias within the PTM system

• In the last few years over 150 leaders (20%) have left the PTM super system, largely due to mergers. With turnover of (13.2%), the average organisation will lose 2.5 leaders per annum, with the average cost of turnover for each remaining fund estimated at between $1.5m-$3m per annum.
• Executives who left their organisation for another role within the system, received an average increase in remuneration of 34%, or 66% if you include those accepting external promotions as new CEOs.

Functional bias

Functional bias is evident throughout resourcing, remuneration and relativity within the combined, leadership, board and executive teams in the full report. In this article we will focus on the relativity component showing the nominal gender gaps within the key functions of the board and executive.

The most obvious differences occur within the representation of the board, where the gender gap for female independent directors is $29,800. This is largely influenced by total remuneration of the male independent chairs. The next most noticeable difference is within the chair role and the co/deputy chair. Within the non-chair (f), the largest nominal gender pay gap is for male alternate directors, which as previously discussed was largely influenced by the number of male vs female alternate directors in voluntary roles, not receiving remuneration.

The most obvious nominal differences within the executive team occur within the CEO function, where both the CEO role itself and the overall CEO function demonstrate a substantial nominal gender pay gap, in favour of females.

This is largely influenced by the placement of the female CEOs across the scale of the funds. Despite the proportion (25%) of female CEOs, over three quarters of them, are placed within the 4 largest scale octiles, which dramatically influences the average $REM for female CEOs.

As above, the placement of male Deputy CEOs within the scale compared to the females, has a dramatic effect on the gender gap.

?Examples of functional bias in the system.

• The average investment executive earned more than the average CEO, in a year when investment returns (average balanced fund) were negative.
• One type of occupational executive on average earned more than twice another type of executive.
• The number of executives with the functional specialisation of “strategy” itself, was one of the least resourced of all occupations within the system.

The POISE Factor:

With increased transparency, and disclosure requirements for both gender and remuneration, we conducted our own research experiment, based on the principles of strategic inclusion. The objective was to identify how well the current parent entities within the PTM super segment, demonstrated a commitment to the principles of open strategy, transparency, inclusion, diversity, equity and belonging towards multiple stakeholders. The content of their annual reports, were assessed including other fund documentation referenced within.?

We call this the POISE factor, using the idea of organisational balance or equilibrium, with an acronym of how well an organisation is a Perceived, Open, Inclusive & Strategic Entity. The rating system works from 0 to 100, with the best POISE factor score being 100. The graphic below shows the research results.

The the average POISE factor scores for the scale Octile are the plot points, with the size of the bubbles representing the total number of fund staff. The black dotted line shows the average score across all parent entities within the system, which was below 50% at 49.7. The white line is a linear trend line, that demonstrates that when the organisations are collectively grouped into scale-based octiles, that the overall POISE factor does increase with scale. (For stat lovers the R2 or coefficient of determination was just under 0.85).

However, linear trend lines can oversimply matters. It must be noted that the increase from one scale octile to the next is not uniform. More importantly, within each octile, the individual organisations displayed sizeable variations in their own POISE factor scores. Within the PTM super system, individual organisational scores were recorded across the complete continuum of potentials scores from 0 to 100.

In fairness, this experiment was conducted from a best-practice perspective without being privy to the strategy work of each organisation, which would be required to understand purposeful priorities and develop a best-fit approach. As a result, stakeholder groups were treated on an equal basis. However, it did reveal the wide variation of approaches and effectiveness of purposeful stakeholder strategic inclusion, even within organisations of similar scale.?

Conclusion

Despite not technically being considered an ‘industry’, nor the super funds ‘businesses’, by the Australian Bureau of Statistics , superannuation represents the retirement savings of 16.6 million citizens and has grown to $3.5 trillion in assets, now the second largest component of the financial system in Australia.

Although the overall total staff employment within the profit-to-member super segment displays gender resourcing equilibrium, there is no reliable gender-based remuneration nor relativity metrics. This could be easily rectified, with handful of data from the super funds, collected, collated, and shared by APRA.

Unfortunately, the employment resourcing equilibrium demonstrated for all superannuation staff, does not translate to the same level of gender equity within the leadership teams. A gender bias towards males is evident through most resourcing, remuneration and relativity across the combined leadership, board, and executive teams. The only exception is the relativity of average remuneration at the board level, with a slight bias towards females, with a board level gender pay gap almost negligible once voluntary roles are considered.

Organisations - many not meeting all financial objectives - are now under pressure from stakeholders (such as legislators and regulators) to also include non-financial objectives. It appears to be uncommon sense to incorporate those non-financial objectives (e.g., gender inclusion, diversity, and equity) that have proven potential to assist achieving financial objectives, mitigate emerging risks, and help societal sustainability.?

For gender inclusion to be strategic-ally successful, it must be visibly integrated into the core strategic objectives, evident within the strategy process and clearly backed by leadership, allyship, accountability, measurement, and reporting. Those organisations purporting to support gender inclusion through purpose statements without backing it up in their strategy and tactics face an increasing incongruence risk. The results of the POISE factor analysis - which looked at strategic transparency, inclusion, diversity, equity and belonging towards multiple stakeholders - were a little unexpectedly disappointing across system.

Remuneration and the gender pay gap are intertwined and are best both understood together through organisational analysis that encompasses resourcing, remuneration and relativity. To comprehend the strategic enablers to drive gender equity, biases within the system (including both scale and function) must be understood and traditional assumptions challenged to find a new understanding of equity given the variations between functional specialisation and changes to executive responsibilities.

The profit-to-member superannuation funds are in such a unique position to continue contributing towards gender inclusion, diversity, and equity both within the superannuation industry through connections to organisations such the Super Members Council of Australia (ex Australian Institute of Superannuation Trustees ), Australian Council of Superannuation Investors and Fund Executives Association Limited but also far wider through their large network of connections within Women in Super and many other women in industry groups. ?

Algorithmic-friendly references:

Please Note:

For link to the full report including all reference links - see comments.

(1) Diversity Council Australia Ltd ,?Diversity & Inclusion Definition, Sydney, Diversity Council Australia, 2017.

https://www.dhirubhai.net/posts/diversity-council-australia-ltd_inclusionatworkweek-diversity-inclusion-activity-7127150416542269440-bB8X

(2) Perple Stratistics (Strategic Inclusion Statistics) Why Strategies (don’t have to) fail. perple - people performance pty ltd

https://www.dhirubhai.net/posts/john-myers-people-purpose-performance_inclusion-diversity-diversityandinclusion-activity-7084323193590579200-4SFs

(3) Stadler, C., Hautz, J., Matzler, K., & von den Eichen, S. F. (2023) Open Strategy Mastering Disruption from Outside the C-Suite. The MIT Press . April 2023. Christian Stadler , Julia Hautz Prof. Dr. Stephan Friedrich von den Eichen (SFvdE)

https://www.dhirubhai.net/posts/julia-hautz-307504114_open-strategy-mastering-disruption-from-activity-7023575116819120128-lWKe ?

(4)?ASIC - What is non-financial risk and why does it matter to ASIC? Journal: Governance Directions. Volume 71 — Number 10, November 2019.

(5) Australian Prudential Regulation Authority. (APRA). Media Release: APRA shares international report on diversity, equity and inclusion practices in the insurance sector.

(6) AICD - Australian Institute of Company Directors. (2020). Australian Institute of Company Directors: BOARD - Role of the Board.

(7)??(FCA) John Davidson of the Financial Conduct Authority (FCA) stated an inclusive culture is “necessary to enable the benefits of diversity to flourish in thought and practice.”

(8) John Myers - APRA putting fund expenses under the spotlight.

https://www.dhirubhai.net/posts/john-myers-people-purpose-performance_supersuper-apra-superannuation-activity-7117351354762723328-06TW

(9) Perple - Super Facts & Fiction (episode #1, #2 and #3)

https://www.dhirubhai.net/posts/john-myers-people-purpose-performance_supersuper-activity-7090182044235825152-0IhW

(10) Introducing Perple SHIRTS.

https://www.dhirubhai.net/posts/john-myers-people-purpose-performance_strategicinclusion-openstrategy-remuneration-activity-7117320337976938496-81hl

(11) Workplace Gender Equality Agency (WGEA) – Australia’s Gender Equality Scorecard.

Other resources:

For more information on Inclusion, Diversity & Equity see: Australian HR Institute (AHRI) , Workplace Gender Equality Agency , Diversity Council Australia Ltd , Australian Human Rights Commission , and United Nations .

John Myers

founding director

perple - people performance pty ltd

tomorrow's strategy today