It’s International Women’s Day and again we lament the pay gap between men and women. In Australia, the gender pay gap stands at 18.2 per cent. In other words, women must work an extra 66 days each year to earn the same amount as men. Disturbingly, the gender pay gap is getting worse. Back in 2004, it was 14.9 percent. What’s going on?
Occupational choice, part-time employment, and underrepresentation in management are regularly rolled out to explain why women are paid less. An often overlooked cause is pay secrecy.
Pay secrecy is the practice of prohibiting employees from sharing pay information. In Australia, more than half of all employers enforce pay secrecy policies. The Workplace Gender Equality Agency analysis shows the pay gap is largest when pay is secret, in an individual agreement (20.6 per cent) and almost non-existent when pay is transparent via an award (-2.5 per cent). In between awards and individual agreements are collective agreements. Under a collective agreement the gender pay gap is 16.9 per cent.
Employers use pay secrecy to compartmentalise pay intelligence: each employee knows what he or she is paid, but not what anyone else in their workplace is paid. Through pay secrecy, employers control pay information and keep employees in the dark.
Pay secrecy allows conscious or unconscious bias and stereotyping when making pay allocation decisions. This means managers are free to apply criteria that disadvantage women, such as using lack of “face time” (that is, arguing men spend more time in the workplace than women), or “perceived similarity” (that is, with most managers being male, they rate other men as having greater value to their organisation than women).
Unequal access to information makes it difficult for women to detect when they are underpaid. Take the famous case of Lilly Ledbetter in the US. For 20 years, Ledbetter was the only female supervisor among 16 male supervisors for Goodyear Tire in Alabama. She earned less than all her male colleagues, including those with less seniority, yet she did not know that she was underpaid because her workplace prohibited employees from discussing their pay. It was only after she received an anonymous note that revealed the earnings of her male colleagues that she realised she was underpaid.
Unfortunately, Ledbetter’s case is not unique. Ask most women and they will recount stories of gender pay discrimination. Without relative pay information, women such as Ledbetter cannot identify and challenge illegal practices such as pay discrimination or seek better pay elsewhere.
Pay secrecy also places women in a precarious position whenever they do suspect pay discrimination. They are hamstrung: they cannot present evidence of discrimination to their employer without revealing that they have also breached pay secrecy policy. In Australia, penalties for employees caught breaching these policies range from informal warnings to dismissal.
Unfortunately, it is not simply a case of women negotiating their way to fairer pay. Under pay secrecy, employers control pay information and with it, enjoy an imbalance of power. Without pay data, women occupy a weak bargaining position. They must rely on other negotiating tactics. But pay negotiations can be a minefield for women. Effective negotiating tactics such as self-promotion (widely used by men) are shown to backfire for women.
Women are socialised not to negotiate – they assume they will be recognised and rewarded for good performance. Managers, believing that women will accept less than men, typically make lower opening offers to women.
Pay decisions go unchecked as organisations do not need to justify their decisions. Decision-making quality and ethical behaviour deteriorates when transparency is low. In the absence of accountability, the incentive to correct existing pay inequity also diminishes. Certainly, our research indicates many organisations are aware of pay inequities but lack the urgency to correct them.
So, how do we combat the effects of pay secrecy? Abolish pay secrecy and give employees control over their own pay information. Unless we make employers accountable, we cannot expect gender pay equality to improve. If history is a judge, we cannot rely on employers to self-regulate pay parity.
The law changes behaviour. Right now legislation is before the Senate aimed at ending pay secrecy. It safeguards employees’ right to share pay information and prevents employers from punishing those who do.
The legislation marks an important step towards improving gender pay parity. If passed, women will be able to use pay data to negotiate better pay outcomes. Employers will also become more accountable as they relinquish control of the flow of pay information. Greater pay transparency provides the best hope for reducing gender pay inequality driven by bias, discrimination and nepotism.
Opponents of the bill argue that pay secrecy promotes workplace harmony and provides organisations with greater wage flexibility. They forget that performance-based pay is already well established in Australia. It is widely understood that individuals are rewarded differently for good and bad performance. Increasing pay transparency should only enhance organisational productivity, since pay secrecy blocks pay signals that stimulate job performance.
The tide is turning on pay secrecy. Governments in Britain and the United States have recognised the link between pay secrecy and gender pay inequity. Both countries have already legislated against this practice. Pay secrecy laws do make a difference.
Eleven states in the US have legal provisions covering pay secrecy. According to Marlene Kim at the University of Massachusetts, compared women’s pay in states that prohibit pay secrecy compared with those that do not. She found that women’s wages are higher (between 4 and 12 per cent depending on how the data was analysed) in those states with pay secrecy laws compared to the non-pay secrecy law states.
Pay parity is urgently needed. We all stand to gain. The traditional notion of the male bread winner is folklore as more women return to the workforce or never leave it. All Australians would benefit from earning “a fair day’s pay for a fair day’s work”.
Professor Michelle Brown and Leanne Griffin are researching pay secrecy at the University of Melbourne.