How to close the gender pay gap in three steps

This article is brought to you thanks to the collaboration of The European Sting with the World Economic Forum. Author: Steve Kline, Senior Director , Willis Towers Watson, Pittsburgh & Nancy Romanyshyn, Director, Rewards Practice , Willis Towers Watson, New York & Erik Nelson, Director, Willis Towers Watson, Houston

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In the high-stakes race for talent, a gender pay gap can leave you sidelined. Understanding this gap requires a little sleuthing, and named executive officer (NEO) pay is a good place to start.

Recently, we revisited our global executive compensation practices database to explore NEO gender pay equity for the S&P 1500. We found that the lack of women at executive levels is creating a pay gap and hurting potential advances in gender pay equity. Women account for about 20% of board composition at the median for the S&P 1500, and the dearth is even more pronounced among NEOs of the S&P 1500.

Women represent:

5% of CEOs

11% of CFOs

12% of “other” NEOs (NEOs other than the CEO and CFO)

While there is some variation by sector – see Figure 1 below – none shows women rising above 30%. The utilities sector has the highest female representation in the NEO ranks, and the energy sector the lowest.

Here’s where the clues become more nuanced.

CEO compensation

In general, female CEOs earn about the same as or more than their male counterparts, although there are inherent challenges in comparing the small sample of female CEOs with the larger sample of male CEOs.

These findings are based on the regression of target total direct compensation (TTDC) — defined as base salary plus annual incentive target, plus long-term incentive grant values, and enterprise value — the sum of debt and market capitalisation.

Female CEOs in smaller organizations earn about the same as their male counterparts, but in larger companies, a slight premium is paid to women. This diverges from the narrative around women earning less, but the limited pool of female CEO candidates and the high visibility of CEO compensation are the likely causes. While surprising, our findings for the rest of the NEO population comport more with the traditional narrative around gender pay disparity.

CFO compensation

Although female CFOs in smaller organizations tend to earn pay comparable to their male counterparts, among larger companies a gap starts to emerge – and this gap grows larger with company size, as shown in Figure 2 (below). Among companies with more than $50 billion in enterprise value, the gap is about 11% on average.

Other NEO compensation

The deficit in female pay becomes palpable across organizations of all sizes when we look at other NEOs, as shown in Figure 3 (below). Although NEO roles may vary among organizations, the narrative around a gender pay gap becomes clearer, and warrants further study.

Three important steps

The lack of female NEOs contributes to pay disparities with their male counterparts, but companies can start to address this by taking the following steps.

Step 1: Examine pay practices at every level to ensure fairness across employee segments.

Pay special attention to highly-populated roles, key business roles and top executive roles.Make adjustments where necessary and short-circuit policies and practices that perpetuate unintended pay differences (e.g., promotional increase limits, overemphasis on tenure or experience as a driver of higher pay).

Step 2: Examine the distribution of employee segments across all levels of the organization.

Analyze the pipeline for midlevel and senior leaders.Ensure executive sponsorship of inclusive and diverse pools of talent across all parts of the business.

Step 3: Measure and monitor efforts for a more inclusive and diverse workforce.

Set goals, conduct workforce analytics and monitor key talent management metrics.Engage in employee listening strategies to understand what support employees need to increase their engagement and progress in their careers, as well as identify unknown obstacles may exist.Commit to regular discussions regarding inclusion and diversity and talent management efforts and progress at compensation committee meetings.

Gender pay equity is a complex but integral piece of the larger talent management narrative. If organizations want to compete effectively for the best talent, they will need to step up their efforts to recruit more women to executive positions. Organizations that are able to do this will help drive future success.