Pay equity, diversity and inclusion
Customers React Negatively to Wage Gap Disclosures, HBR Study Finds
Lawmakers across the globe are finding that pay data reporting requirements for employers are critical for helping to close the gender wage gap.
As recently seen in the U.K. and states throughout the U.S., mandatory public disclosure of wage gaps lays bare the integrity of an organization’s pay practices. This increasing visibility into companies’ compensation systems has serious implications for employers.
A study conducted by Harvard Business Review (HBR) measures the impact of these disclosures, finding that wage gaps shape both consumer sentiment and buying behavior: “[…] after learning about a company’s gender pay gap, consumers posted more negative content about the company on social media, they reported that they valued that company’s products less, and they were less likely to buy those products at all.”
If employers aren’t diligent about maintaining pay equity, public backlash will inevitably follow. Fortunately, organizations can take proactive steps and implement tools to conduct ongoing measurement to ensure all employees are compensated fairly.
How did HBR come to its conclusions?
HBR used several tactics to conduct its research. First, researchers performed a sentiment analysis on social media trends by looking at more than 90,000 tweets mentioning U.K. companies that had disclosed gender pay gaps. More people spoke negatively of companies that had disclosed pay gaps than companies with narrower gaps, suggesting that public access to wage gap data can influence how consumers feel about a company.
Researchers then ran a series of randomized experiments (using both real and made-up brand names) to gauge participants’ reactions after finding out about a company’s gender pay gap. This involved creating interactive mockups of the Google News website and randomly assigning participants to see two versions (one with news articles highlighting the company’s pay inequity, and another with unrelated news about the company.)
Following the randomized experiments, researchers then created focus groups with the participants to determine their sentiments. Participants consistently reported valuing a company (and its products) less after learning of a pay gap.
Specifically, when asked about their feelings after reading about the companies’ gender wage gaps, participants “expressed a sense of unfairness and outrage.”
Gender, urgency, and presentation were the three primary factors that contributed to customers’ negative reactions to the pay gap disclosures. Both women and men had negative responses to the pay gaps, but women reacted stronger. Female participants’ interest in buying a company’s products fell by twice as much as that of male participants in one experiment.
In terms of urgency, gender pay gap disclosures had significantly less impact on participants’ purchasing behavior if contextual factors increased the immediacy of their need for a product.
The framing of discussions around pay gaps proved to be important as well, the study notes: “People are more likely to understand and respond to a gender pay gap disclosure when framed in terms of money (i.e., ‘women make 82 cents for every dollar men make’), as opposed to percentages (i.e., ‘women’s hourly wage is 18% lower than men’s’), potentially because this framing is clearer and more intuitive to a general audience.”
Universal pay data reporting on the horizon
Countries around the world are enacting diversity, equity, and inclusion (DEI) initiatives, including pay data reporting as a measure to achieve pay equity. California and Illinois are just two U.S. states that have recently passed laws mandating pay data reporting. On the federal level, experts presume the return of EEO-1 Component 2 pay data reporting is imminent, especially now that the Office of Federal Contract Compliance Programs (OFCCP) is using the pay data to enforce pay equity.
In the U.K. as well, lawmakers passed a regulation in 2018 requiring all companies to publicly disclose pay gap data.
Even if a company tried, there’s no avoiding pay transparency, HBR notes. With regulations around pay data and employee demographics expanding rapidly, there is nowhere to hide.
Organizations must put in the work upfront to reduce gender pay gaps if they want to avoid customer backlash. If pay equity issues exist, it’s not an overnight fix – the solution takes time and requires ongoing commitment. And as the study finds, it’s incredibly important how the messaging about pay equity and DEI-related goals are communicated to stakeholders.
If you decide to make a commitment to pay equity, make sure you choose a solution that enables you to promote pay transparency, honestly and consistently.
Trusaic’s comprehensive PayParity solution includes always-on pay equity analytics and ongoing DEI monitoring, allowing you to review your progress towards goals in real-time. The solution captures holistic information on your workforce by analyzing employee compensation at the intersections of gender and race/ethnicity. In addition, we can help you tailor your disclosures to effectively communicate the steps your organization is taking to achieve pay equity.
To learn more about how to build an inclusive and supportive work environment, download our research report conducted by HBR Analytic Services, Creating a Culture of Diversity, Equity, and Inclusion.
Organizations that conduct a pay equity audit must communicate their progress and achievement along the way. To help you faciliate discussions around compensation, we created the Pay Equity Communications Planner.