In light of women’s history month, we examined 2018 data from over 1,000 employees and owners of Small and Mid-Sized Businesses (SMBs), defined as having 11-500 employees. The results of this nationwide survey found an alarming 34% gap in pay between men and women — about 18% greater than the national average. Women working at companies with fewer than 500 employees are self-reporting earnings that are 66 cents —vs a national average for women of 80 cents— on the dollar to men’s average pay. Why is the gap more dramatic in small businesses? Well, the pay gap starts with the perception gap.
The Perception Gap
Perhaps even more alarming than the gender wage gap is the extreme discrepancy in perception between what the owners and HR leaders of SMBs feel they are providing (in terms of compensation and workplace experience) versus what employees feel they are getting. This is a crucial factor adding to the wage gap.
It seems the better that small business employers think they are doing, the worse their employees judge their efforts. An overwhelming majority of employers believe their employees are satisfied with the company efforts at compensation, hiring, development, diversity, and culture. However, less than half of employees agree. In summary, employers think they are doing twice as satisfactory a job as their employees think they’re doing.
There is also a negative correlation between perceived success of equal pay and the reality of equal wage data. This means the higher employers rated themselves regarding fair pay of their employees, the worse they were actually doing in terms of equal wages.
For example, in the Midwest, 91% of small business owners give themselves a good rating for practicing equal pay practices. In reality, this region has the widest pay disparity in the country at 43%.
The Gender Wage Gap Lives On
The perpetuation of this wage gap happens for multiple reasons, but one of the largest problems is outlined in the graph below. Without funds to access large, robust sets of benchmarking data, small and midsize businesses often use a variety of unreliable sources and systems of guesswork that can leave room for inherent biases:
The good news is that almost a quarter of the participating companies use external, and therefore more objective, data for determining salaries.
However, one-third of the respondents primarily use the new hire’s current salary as a benchmark to determine the offer. Though this has been a long-standing practice, it’s quickly becoming obsolete. Ass of 2018 in many places, asking an applicant his or her current salary is actually illegal in many states and cities across the US.
As of February 2019, 13 state-wide salary history bans and 11 city-wide salary history bans have been instated (including the territory of Puerto Rico).
The reason? For those who have been long underpaid, there will be no objective standard to correct compensation, and this typically results in a minimal increase from the already-behind salary base.
These discrepancies are then muddled by the lack of internal communication regarding compensation, leading to further dissatisfied workers.
Though it is not the only factor, communication regarding salary and pay is crucial to solving the gender wage gap. Download our eBook below to learn more!
Note: this article was originally posted in April 2018 and has since been updated.