Natasha Lamb
Managing Partner
Arjuna Capital
There are gender pay gaps … and then there are median gender pay gaps. Understanding the difference between the two may determine just how much progress women make in terms of fairer compensation in the next decade.
So first, the definitions:
“Equal pay” gap: What women are paid versus their direct male peers, statistically adjusted for factors such as job, seniority, and geography. Often referred to in the context of “equal pay for equal work.”
“Median pay” gap: The median pay of women working full time versus men working full time. This is an unadjusted raw measure used by the Organization for Economic Cooperation and Development (OECD). Women in the US, for example, make 80 cents on the dollar versus men on this basis.
Equal pay gaps measure whether women are being paid commensurate with their peers for the work they are doing today. But median pay gaps measure whether or not women are holding as many high-paying jobs as men. Narrowing the median pay gap means putting more women in leadership (and reaping the performance benefits that diversity affords). And that’s where investors come in. Concerned shareholders in major US financial and tech companies want to make sure the pay gap difference is understood—and acted upon.
Consider the case of Citigroup. While it is true that women at Citi are paid 99% of what men are paid on an equal-pay basis when adjusting for job function, level, and geography, the median pay gap at the financial giant paints a very different picture: Women at Citigroup earn just 71% of what the men earn.
What accounts for the difference? Women are dramatically underrepresented in high-paying positions at Citigroup—and nearly all other major corporations. So, when more US companies begin disclosing their median pay gaps, the numbers are going to be shocking. In fact, Citi’s 29% median pay gap could very well end up being at the lower end for large US financial and tech companies.
This kind of disclosure is not going to happen on its own. But investors are intent on making headway, and establishing benchmarks from which to measure company progress. Between 2016 and 2018, shareholder proposals and concurrent dialogues led by my firm, Arjuna Capital, persuaded 22 companies, including Citi, JPMorgan, Wells Fargo, Bank of America, Bank of New York Mellon, Amex, Mastercard, Reinsurance Group, and Progressive Insurance to publish their gender pay gaps on an equal-pay basis.
Tech giants like Apple, Amazon, Microsoft, Google, and Facebook have been compelled to do the same. And commitments from leading companies often have a domino effect through an industry, putting pressure on more companies to act. The adjusted equal pay gap picture is, in many ways, the easy part of the gender equity story to tell. But it is only half the story. Now, shareholders like us want companies to follow Citigroup’s lead and disclose their median gender pay gaps.
Today, Arjuna Capital is announcing an important new phase of our work: a median pay gap shareholder resolution engaging a dozen major US companies across the banking, tech, and retail sectors, including: Adobe, Amazon, Intel, Facebook, Alphabet/Google, Bank of New York Mellon, Bank of America, Wells Fargo, AmEx, JPMorgan Chase, and Mastercard.
The 12th company we targeted with the shareholder proposal—Citigroup—opted to respond almost immediately, disclosing its median pay gap data through a blog, and pledging to narrow this wider gap. On Jan. 16, 2019, Citi became the first US company to reveal its global median pay gap.
The result was a bit of rough sledding for Citi. National and financial news outlets zeroed in on the shock factor in the data. Headlines read: “Citigroup Admits It Pays Women 29% Less Than Men;” and “Citgroup’s business is money, but not a lot of it goes to its female employees.” Others got it right with headlines focusing on the significance of Citi’s groundbreaking decision to release median figures: “Citigroup is revealing pay day data most companies won’t share” and, perhaps most bluntly, “Citigroup Bravely Announces It Pays Women Like S—t.”
Citi had the courage to break the mold and disclose median pay numbers, and that bravery will pay off in the long run, not only for the company but for its investors, by improving gender diversity throughout the company. A recent study cited in the Harvard Business Review found that wage transparency, in countries that mandate it, not only narrowed the wage gap but increased the number of women hired and promoted into leadership positions.
Citi also made it clear that it is taking the proactive steps needed to fix the median gender pay gap. Its goal is to increase representation at the assistant vice president through managing director levels, to at least 40% for women globally and 8% for black employees in the US by the end of 2021. (Yes, there is a minority pay gap and a minority median pay gap problem, too.)
Multinational companies, including Citi, that operate in the United Kingdom are now under regulatory mandate to disclose median gender pay gaps. In 2018, peer Bank of America revealed a 41% gap for its UK operations. Citigroup reported a 36% median gap for the UK, but prior to January’s announcement, the company had not published median information for its global operations, including the US.
Revealing the whole story of the gender and racial pay gap is essential to create change. Indeed, what gets measured (and disclosed) gets managed. As it stands, the World Economic Forum estimates the gender pay gap costs the economy $1.2 trillion annually. The 20% median income gap for all women working full time in the United States is a disparity that can equal nearly half a million dollars over a career. And the income gaps for African-American and Latina women are at 60% and 55% respectively. At the current rate, women will not reach pay parity until 2059. This depressing statistic is not only bad for women, it’s bad for the economy, and it’s bad for the companies that can benefit now from women’s leadership and talent.
It remains to be seen how many of the 12 companies targeted by Arjuna Capital will agree to the shareholder resolution in 2019. Our pledge is to continue to work with the companies’ leadership to find common ground on our resolution, and to educate the media and public about the median pay gap. We will applaud all good faith efforts to publish median pay numbers because the most effective shareholder activism is not about shunning; it is about casting light on a problem, calling companies to task, and nudging them through the sometimes difficult process of disclosure and reform.
Citi learned that disclosing its median gender pay gap meant a little PR pain in the near term. But it also established itself as the leading US institution on pay equity, doing the honest and real work to address inequity for women and minorities. Concerned shareholders will continue to press other companies to follow suit, because, unfortunately, there remains glaring inequality in the US workplace. And it is high time to tell the whole story.
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