And the hits keep coming!
Just when it looked like salary disparities were the primary factor behind the gender wage gap, the ADP Research Institute has released a groundbreaking study that shows bonuses may be even worse offenders.
Not all jobs offer bonuses or incentive pay, but in those that do, bonuses can make up a hefty portion of an employee’s compensation package. Bonuses can also be one of the more challenging pieces of the compensation package to pin down. Because they ebb and flow with time, company performance, and the economy, bonuses don’t always follow a standardized formula. This lack of standardization can make bonuses highly subjective, opening up greater room for discrimination.
The danger with lower incentive pay is not just that it harms women’s earnings in the present. According to the ADP study, lower bonuses can also affect a woman’s promotion opportunities. The decision-makers behind those promotions often assume that higher incentive pay is a sign that one employee has better skills than another. So, a woman earning lower bonuses than her male colleagues is likely to be seen as less skilled.
The ADP Research Institute followed the careers of newly hired male and female exempt salaried workers who stayed with the same company from the third quarter of 2010 until the end of 2016. Here are some of the main takeaways:
- A larger proportion of women begin their careers at a lower wage compared to men.
- The average bonus amount for women was less than two-thirds of the average bonus amount for men of equivalent base pay, age, and tenure.
- Women, on average, are paid 17 percent less in base salary than men.
- When factoring in the gender pay gap for incentive pay, the total earnings pay gap widens to 19 percent, for an average disparity of $18,500.
- There is minimal evidence women are more likely to quit their jobs, compared to men.
What Women Can Do to Combat Pay Disparities
Some of the challenge when it comes to closing salary gaps is that the decision-making process is not typically not transparent to all employees. Salary negotiations are an example of information asymmetry — an imbalance of power — as all parties involved in the negotiation do not have access to the same information. For example, most managers do not disclose what other members of the company are being paid, how much they really have budgeted to spend on the position, and the factors involved in calculating an employee’s value in terms of base salary and incentive pay.
So, what can women do to bring more equity into their total compensation packages? Here are five tips to help women bring their base salaries and bonuses in line with their male counterparts:
- Set goals for the year with your boss: As part of your annual review process, or in a separate annual process, outline 3-5 goals to accomplish during the year. Be realistic in your goal-setting, and align your hoped-for accomplishments with the overall direction of your team or group.
- Keep track of and report the successes toward the goals: Break down your annual goals into the steps or individual projects that will be necessary for the achievement of your overall goals. Keep track of your progress in each of the steps, and report out the interim successes.
- Set up additional metrics for success: As part of your annual review process, discuss with your manager areas where you may need to improve. Get clarity on what successful improvement will look like, and track your progress in this endeavor as well.
- Have monthly or quarterly check-ins with your boss: Set up meetings with your boss to report the progress toward your goals. The course of your business or organization can change, so be sure to adjust your goals and other metrics as needed throughout the year.
- Understand the system for calculating bonuses: Discuss with your boss and your HR department the system for calculating bonuses. Ask if you can receive specific guidance on how to maximize your bonus potential.
Knowing your strengths and keeping track of your accomplishments is a key element in negotiating a salary or asking for a raise or a promotion. Articulating your worth and the value you bring to your company will go a long way during income discussions. This can be a challenge for women who are not comfortable talking about themselves. In school, good performance is clearly and automatically rewarded. In the workplace, however, performance and achievements may be less visible to the people who control salaries, so it is essential to learn how to describe your value and contributions in a systematic way, with clear metrics to back up your claims.
Melissa Donohue is the founder of Financial Nutrition and the author of Financial Nutrition for Young Women: How (and Why) to Teach Girls About Money.