Oct 16, 2024
The Anatomy of a Pay Gap: What’s Really Driving It?
When most people think of pay gaps, their minds jump to unequal pay for equal work. That’s understandable, as employment law cases often revolve around this issue.
But here’s the thing: even in companies that ensure equal pay for equal work, pay gaps can still persist. Why? Because they’re driven by representation gaps at different job levels and across functions.
The core issue lies in who holds certain roles and how those roles are compensated. If you want to close the gender pay gap at your company, understanding these representation-related drivers is key.
Let’s break down the anatomy of a pay gap and explore specific steps your business can take to close it for good.
Representation Gaps at Senior Levels
The problem. Pay gaps are often heavily influenced by an under-representation of women in higher-paying senior roles. Despite some progress at the C Suite level - in 2024 women make up 29% of C-suite positions versus 17% in 2015 - headway has been much slower at manager level of the pipeline. In fact, only 89 women were promoted to managerial roles for every 100 men in 2024.
As you can see from the chart below, factor in ethnicity and the results are even worse. At the current rate of progress it will take 22 years for white women and 50 years for all women to achieve parity.
Source: McKinsey
The solution:
Talent Reviews & Succession Planning: Conduct regular talent reviews and succession planning to ensure diverse talent is being developed and promoted at every level.
Representation Data Tracking: Measure and track representation data over time to identify and fix broken rungs on the corporate ladder.
Leadership Accountability: Ensure leaders at all levels are held accountable for substantive gender parity progress across the business.
Occupational Segregation by Gender
The problem. Certain roles or industries are often gendered, with women more likely to work in lower-paid sectors - like caregiving or administrative work - with men in higher-paid technical fields. This is problematic for organisations as it contributes to the gender pay gap.
In the US, even in fields where women hold the majority of jobs, women still tend to be paid less than men. And, in the UK, the Office for National Statistics (ONS) shows more women (10.5%) than men (7.2%) worked low-paid jobs in 2023.
Source: Annual Survey of Hours and Earnings (ASHE) from the Office for National Statistics
The solution:
Targeted Recruitment Strategies: Implement targeted recruitment strategies to diversify talent pools and ensure gender parity in interview pools for every role.
Gender-Neutral Job Descriptions: Remove gendered perceptions of roles by creating gender-neutral job descriptions that use pronouns like "they/their" instead of "he/she."
Fair Shift Payments: Ensure that higher rates for specific shifts (e.g., unsociable hours) are distributed equitably and do not favour men over women.
The Part-time Work Penalty
The problem. Women are more likely to work part-time (28% of women work part-time versus 8% of men in the EU) or in flexible roles, often due to having the lions’ share of caring and housework responsibilities. In 2022, 60% of employed women with children in the EU worked part time.
This leads to an hourly wage penalty of 20% for part-time workers in comparison to the full-time counterparts. Data from the ONS also shows that in the UK, 22% of part-time employees were low paid in comparison to 4.2% of full-time employees.
The solution:
FTE-Based Pay Reviews: Ensure pay reviews are conducted based on full-time equivalent (FTE) salaries. This allows for fair comparison between full-time and part-time employees, ensuring that part-time roles are evaluated as if they were full-time for consistent pay equity.
Flexible Working Policies: Introduce or expand flexible working policies that are accessible to everyone and role-modelled at all organisational levels.
Training & Development for Part-Time Employees: Ensure part-time employees have access to, and are actively using, training and development opportunities to advance their careers.
Bonuses and Incentives
The problem. More senior roles, which are mostly occupied by men, typically attract higher bonuses and long-term incentives. This data from Willis Towers Watson shows the median pay mix for a CFO or top financial officer in 2023. With 200% of base pay accounted for by short and long-term bonuses, it’s easy to see how incentives significantly exacerbate the pay gap.
Source: 2023 Pay Trends in Executive Compensation, Willis Towers Watson
The solution:
Review and adjust bonus schemes to ensure they’re equitable across genders and job levels. This can be difficult due to the important role incentives play in attracting and retaining talent at different organisational levels. The key here is to get more women into senior roles that are eligible for high-value incentives.
Cultural and Structural Bias In Progression
The problem. Women can see the more senior roles they want to get to, but a glass ceiling - consisting of cultural and structural biases - stops them from getting there. Lean In is an organisation dedicated to helping women achieve their ambitions and creating an equal world. Their Women in the Workplace Report shows that women are just as ambitious as men. Yet, despite an increase in female representation in senior roles, women’s day-to-day experiences largely reflect those of a decade ago. For example, women are far more likely than men to deal with comments and actions that undermine their skills and expertise.
The solution:
There are lots of different angles to attack this issue from, including:
Boosting Allyship - this involves people in positions of privilege and power - including senior leaders - to actively and consistently support and advocate for those with less privilege.
Tackling bias - training plays a vital role in tackling conscious and unconscious bias. Take a look at the presentation materials available from Lean In. You can also send bias reminders before performance, pay and development reviews to nudge managers about the importance of taking a non-biased approach.
Creating Networks - when companies bring women together in small groups to talk about their experiences, build skills, share advice and celebrate each other’s wins, 73% of participants feel equipped to be better leaders.
Mentoring and Sponsorship - this doesn’t have to mean being sponsored or mentored by someone on the executive team to develop the skills and networks needed for more senior roles. Explore the idea of connecting women with someone in an appropriate role at the next organisational level.
Equality Impact Assessments - if you’re thinking of changing your HR policies, ensure they don’t contain structural biases. For example, consider your benefits policies through an equity lens and you might find that providing unequal benefits - like more maternity than paternity pay - are contributing to long-term inequalities. Research shows that making mothers the de facto caregiver from birth causes more women than men to reduce their hours, work flexibly, forgo training opportunities or move to a less intensive role. Mothers are also twice as likely as fathers to report childcare availability as having a big impact on their ability to work.
Intervention Tracking and Accountability
The problem. Without data, visibility and accountability, inequality initiatives falter.
The solution:
Set Clear Goals: Define clear, measurable goals for gender equity and pay parity. Track progress over time, and ensure leadership is held accountable for achieving these goals.
Pay Transparency: Implement pay transparency policies, so employees understand how pay decisions are made and how to progress.
Final Thoughts: Closing The Pay Gap
By addressing the elements in this article, you can identify the underlying causes of gender pay inequalities. Which is the first step towards implementing the interventions that will smash the glass ceiling and close the gap.
Pay equity is a key factor in ensuring your business is ready for the EU’s Pay Transparency Directive. Take a look at our pay transparency readiness checklist to identify any potential risks before the 2026 deadline and see how ready your business is for the upcoming legislation.
