Mind the gap

The best way to close the gender pay gap is to make salaries public

May 15, 2014
May 15, 2014

In the weeks before her ouster as New York Times executive editor, Jill Abramson found out that she was making “considerably” less than her male predecessor, Bill Keller, the New Yorker’s Ken Auletta reports. A Times spokesman pushed back against Auletta’s assertion, telling Business Insider that Abramson’s compensation was “not meaningfully less” than Keller’s.

Regardless of exactly what happened, the uproar is a reminder of the consequences of keeping pay a secret, especially at a high level.  More broadly, opaque pay—especially in the executive suite—might also contribute to the gender gap because it allows companies to pay different salaries without having to justify them (a point also made by Felix Salmon at Vox). Making pay more transparent won’t close the gap on its own, but it puts a burden on companies to at least explain any disparity, and begin to resolve them.

Radical transparency, as practiced by certain startups, isn’t a likely solution at the New York Times. But an executive shouldn’t have to find out about a pay gap from a third party.

Now, it’s easy to understand why companies like to keep pay secret. It puts all the power in the hands of employers. They can pay people of similar experience different amounts, and pay them below market rate without having to explain it. But secrecy also contributes to misunderstanding, and it puts a burden on employees to confront their superiors, because that kind of information is difficult to keep quiet.

The predicament that Auletta described for Abramson is far from unique. Chadwick Matlin at FiveThirtyEight points out that the average pay gap between male and female editors is around $8,000. There’s a large gender gap in CEO pay as well.

Particularly at the top, transparency would create pressure to eliminate any gaps that aren’t justifiable based on market comparisons, experience, or tenure. The level of response to the Abramson situation, and to GM CEO Mary Barra’s initially lower salary, shows that there is significant public pressure when gaps at the top are revealed, and such revelations can have consequences.

If pay secrecy is problematic, is radical transparency the answer? An increasing number of companies are trying out that idea, of releasing all salary information to the public. Buffer even publishes the formula it uses to calculate pay and stock options. The startup SumAll makes all compensation and its cap table freely available to employees. But such policies have costs, as they require a lot of effort and time to keep things equitable and explain any differences between functions and individuals.

Still, the extra effort might be worth it, at least in the executive suite where conflict, bitterness, and misunderstanding arguably have some of the largest repercussions for a company. That’s why companies looking to avoid a situation like the one alleged at the Times might want to consider at least being transparent with their executives.

Radical transparency is probably too much to ask of most companies in the near term. But honesty with the people leading those companies isn’t.

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