Turning #PayGaps Into Potential

In April, the U.K. became the latest country to require companies to publish their gender pay gaps. These numbers, and the corporate names attached to them have captured the front pages of the global media – usually not in a flattering way. Given what Pew Research Center has just published about persistent gender imbalances in America’s corporate leadership, the U.S. may want to introduce something similar, though this currently seems unlikely.

The Pew Report points not only to the existing reality of male-dominated CEO ranks (95% male) among the Standard & Poor’s 1500 Stock Index, but also to tomorrow’s talent pipeline. Of the 5,688 executives listed in corporate proxy statements, 88.5% of them are men. This means gender balance in executive roles in corporate America is unlikely to shift any time soon. The report also points to the fact that the 651 women who made it to these levels are usually in staff roles (like HR or Legal Counsel) that rarely make it through to the CEO’s chair. The streaming of women into staff instead of line jobs starts many years, even decades, earlier. This is also something I have been flagging in my own company’s Gender Balance Scorecards of the world’s top 100 companies.

It is impatience with these stalled realities that is pushing countries to legislate. A decade after Norway launched the idea of gender quotas on corporate boards, governments are now getting interested in the more relevant metric of the reality inside companies – and their executive teams. Six countries before the U.K. have proposed or implemented policies compelling companies to disclose gender pay gaps. Australia, Japan, Germany, Lithuania, Sweden and Switzerland came before.

The U.K.’s smart pay gap legislation is a bit of a misnomer. It requires companies with more than 250 employees to publish the average and median salary and bonuses of the aggregate of all their male and female employees. But it’s not really about pay at all. It’s about promotion. The simple, one-number pay gap transparency requirement is a short-hand summary of what companies have (or haven’t) done over decades to gender balance their businesses. The gap is biggest in companies that have male-dominated executive levels with big bonuses, and female-dominated staffs at the bottom. This is still the norm in many sectors. This simple KPI makes it instantly visible which companies are addressing the issue, and which haven’t. Transparency allows everyone – including customers and potential talent to compare companies. The ensuing competition, year in, year out, will be interesting to watch.

This isn’t about comparing whether male managers and female managers get paid the same thing. The pay gap in comparable jobs is actually, albeit slowly, shrinking with the generations. This metric has broader ambitions. It shows whether companies are actually using – and promoting - today’s more gender-balanced talent pool, where the majority of educated graduates are women (and have been since 1981 in the U.S.).

The issues surrounding gender in business are complex, and many leaders don’t feel entirely equipped to lead through this kind of publicity, comfortably or competently. Some aspects of the pay gap may be defensible - though it is all too easy to sound defensive as you explain them. But other underlying reasons for the gap are much more difficult to tease out and may be deeply uncomfortable, especially if you believe your organization is fundamentally meritocratic.

In the U.K., organizations will be scrutinized based on how they respond, both internally by employees and externally by pressure groups and other stakeholders. In the U.S., even without the legislation on pay gaps, the #MeToo movement rolling out to the business world will lead smart corporate leaders to minimize the risk to their brands and reputations as a result of this brave new world of transparency.

The risk of both these movements is that companies may try to address a short-term crisis – in pay levels or harassment cases, without fixing the underlying gender imbalance that causes them. Getting to the root of the gender issue takes will and skill. Having worked with hundreds of executive teams in companies around the globe, I am familiar with the roadmap – and the potholes – to better gender balance. Typically, the starting point is ensuring your management team are fully prepared. This involves leaders being:

1. Aware: They know and understand the current situation and its causes, and accept accountability for balance.
2. Strategic: They align on why and how to frame the gender issue as a strategic business opportunity that benefits the bottom line.
3. Skilled: They are convinced and convincing when communicating about gender issues – both internally and externally – and confident with know how to implement change.

Today’s numbers may not look good, but what really counts as the pressure mounts is to get them moving in the right direction. This won’t happen without serious, focused attention.

Ready?