How SMBs Can Start Closing the Pay Gap Now
Here are steps small businesses can take to support fair pay for workers and reduce wage disparities.
No employer expects to pay every employee the same wage. Job type, job title, skills, education, credentials, training, experience, and even geography factor into pay differences.
But when employers pay workers with the same or similar qualifications stark differences in wages, they’re likely engaging in discriminatory pay practices. The results are pay gaps, which economists predict won’t close for White working women until 2069 and not until another 300 years for Black working women.
Salesforce and Citigroup decided not to wait that long for the pay gap to close. Between 2015 and 2017, Salesforce spent $6 million to raise their female employees’ pay to match their male counterparts’. Since then, the tech company also has been focusing on closing race-based pay disparities.
Citigroup took similar but less costly steps in 2018 to boost pay for non-White employees, as well as women.
It’s no surprise that mega corporations have millions to spend on closing the wage gap. But that doesn’t mean small businesses (SMBs) don’t have a role in ridding the workplace of unfair pay practices. Wage disparities aren’t just claims of unfairness by aggrieved workers. Hard data is evidence that the pay gap is real.
What do general statistics show about wage disparities?
Data for wage disparities is reported largely along racial and gender lines, with most of the emphasis on pay inequities between women and men. But statistics also break down pay differences among women, as well as among men.
The National Partnership for Women and Families even breaks down statistics by state.
Data also shows gains and losses in disparate earnings due to economic changes and natural disasters. For example, the pandemic caused many low-paid women to lose their jobs. The recovery from their pay losses could last a long time and slow the closing of the wage gap.
What does 2022 pay data show?
The latest 2022 pay data from the National Partnership for Women & Families, a nonprofit, nonpartisan organization, and the U.S. Bureau of Labor Statistics (BLS) show that for every dollar White, non-Hispanic men receive, employers pay:
- Asian American, Native Hawaiian, and Pacific Islander women 75 cents.
- White, non-Hispanic women, 73 cents.
- Black women 58 cents.
- Native American women 50 cents.
- Latina women 49 cents.
- Asian men $1.26.
- Black men 76 cents.
- Latino men 75 cents.
Members of the LGBTQIA+ community are up against all other wage earners when it comes to the pay gap. A Human Rights Campaign report shows that employers pay LGBTQIA+ workers 90 cents on each dollar everyone outside of their community receives.
Even when men and women’s qualifications match, data shows that the gender disparity continues.
In a new Payscale report, companies pay women whose credentials are comparable to men’s 99 cents on every dollar that their male counterparts receive. The report refers to a wage comparison between men and women with equivalent qualifications as a “controlled” gender pay gap.
Wage comparisons between women and men with unmatched credentials are an “uncontrolled” gender pay gap. But even when men and women’s qualifications match, data shows that the gender disparity continues.
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The shrinking wage gap: When is the pay gap expected to close?
Is the wage gap closing at all? Has there been any real progress on this front? The answer is yes. However, the changes are slow, incremental, and even regressive in some cases, according to the AAUW.
The organization tracked how women’s pay data compared to White, non-Hispanic men’s from 1988 to 2020. The data also shows when the pay gap is expected to close.
The AAUW found that from 1988 to 2020:
- Asian women earned 69% to 87%, or an 18% difference. The gap is projected to close in 2041 (19 years).
- White women earned 64% to 79%, or a 15% difference. The gap is forecast to close in 2069 (47 years).
- Black women earned 59% to 63%, or just a 4% difference. The gap isn’t projected to close until 2369 (347 years).
- Latina women earned 53% to 55%, or a 2% difference. The gap isn’t projected to close until 2451 (429 years).
Women’s pay levels based on education compared to White men
AAUW’s report also showed women’s pay level based on education compared to that of White, non-Hispanic men. The organization found that:
- Black women with a high school diploma earn 65.99%. However, the ratio drops to just 65.14% when they earn a bachelor’s degree.
- Latina women with a high school diploma earn 66.78%. However, the ratio drops to 62.73% when they earn a bachelor’s degree.
- Native American women with a high school diploma earn 66.7%. However, the ratio drops significantly to 59.2% when they earn a bachelor’s degree.
- White women with a high school diploma earn the same as White, non-Hispanic men, and their wage gap decreases with more education.
The data reveals that the more education Black, Latina, and Native American women gain, the larger the wage gap.
These statistics show both progress and setbacks in closing the wage gap. However, employers need to address its causes if they want to rid the workplace of pay inequality.
What are the reasons for the pay gap in the workplace?
People face pay inequality for any number of reasons. Those reasons can range from simply falling out of favor with a boss who denies them a raise to having their salaries frozen because of budget cuts.
But blatant racism and sexism can’t be discounted as fundamental causes of pay inequality, as in these examples:
- Authorized absences from the job due to caretaking responsibilities stifle customary salary increases, especially for working mothers.
- Researchers believe that pay gaps have roots in the discriminatory side of history. For instance, the American Association of University Women (AAUW) points to a correlation between pay inequality among Black, Hispanic, and non-White working women and the legacy that slavery, segregation, and the exploitation of immigrants have had on these communities.
- The AAUW also reports that barriers to education and upward mobility keep segments of workers in low-paying jobs, which reinforces and prolongs wage disparities.
- According to the 2021 Women in the Workplace report, White men account for 62% of C-suite posts, but just 35% of entry-level jobs. By contrast, equally qualified Black men hold 17% of entry-level jobs, but just 13% of C-suite posts. To employment specialists, this kind of disparity is a barrier to upward mobility.
- People with disabilities also face wage disparities. According to the American Institutes for Research (AIR), they earn just 64 cents on every dollar their colleagues earn.
- Equal Pay Today recognizes wage disparities for the LGBTQIA+ community, along with women of different racial backgrounds.
Employers are addressing these and other reasons for the wage gap by creating fair and inclusive workspaces. But more data shows that they’re slow to act on closing the wage gap dollar-for-dollar.
What are the barriers to reaching wage parity?
Although employers appear to be slow in closing the wage gap, a sizable majority of CEOs, 78%, in a new research report think pay equity is important. And 73% think pay equity has a positive effect on the way companies recruit and retain the best talent.
If so many company heads believe the wage gap is worth closing, why aren’t more employers onboard? The report by OpenComp, a provider of compensation benchmarking tools for startups, offers some answers.
In “The State of Startups’ Pay Equity in 2022: High-growth CEOs and founders are in the driver’s seat of change,” 500 business leaders, including CEOs, CFOs, and HR executives, said the top barriers to closing the gender wage gap were:
- Access to quality compensation data (19%)
- Leadership buy-in (15%)
- Time (13%)
- Money/funding (12%)
- Prioritization (12%)
- Insufficient knowledge (10%)
- Limited staffing (10%)
- Lack of transparency (9%)
According to the research, the need for access to compensation data — the report’s top barrier to closing the wage gap — is critical to achieving wage parity.
In March, OpenComp launched OPEN Imperative (Organizations for Pay Equity Now), a coalition of multiple startups and business leaders whose mission is closing the gender pay gap.
What are strategies SMBs can implement to close the wage gap?
Business leaders shared with Workest different strategies SMBs can take now to close the wage gap and make pay equity permanent in the workplace.
Using compensation data
“Market data is critical in determining the competitiveness of employee pay, but it can’t be just any data. It must be high-quality, reliable compensation data that can be broken out by company size and stage as well as geography,” said Emily Sweet, VP of Social Impact at OpenComp.
To avoid getting outdated, inaccurate data, and information from a hodgepodge of misaligned companies, she recommended against using:
- Free benchmark data off the internet
- Legacy survey providers
- Unvetted platforms
- Data from noncompetitors
“Accessing data that only includes companies you consider competitors gives you a more accurate picture of the market and can help you avoid underpaying or overpaying employees based on poor job matches,” said Sweet.
Standardizing wage rates
Teambuilding.com reduces the pay gap for its diverse 100+ employees through standardization.
“We have a set rate for each role, and do not deviate from this rate for individuals,” said Michael Alexis, CEO of TeamBuilding. “For example, our event hosts all start at the same pay rate, and we do not even adjust this rate for location — whether they are based in NYC, rural Ohio, Mumbai, or Sydney — the pay stays the same.”
To allow for progression, Alexis said the company established a senior rate that’s merit-based. “We follow similar systems for marketing, sales, and other operational roles,” Alexis added.
SMBs that haven’t thought about supplementing employees’ income as a way to help close the pay gap may want to think about including this strategy in their plans. Supplementing income through flat rates not only raises workers’ earning potential, but it also “levels the playing field” for everyone involved.
Workers normally supplement their income on their own. However, employers can help through sales gamification, said Andrew Duffy, CEO and co-founder of SparkPlug.
“Simply put, sales gamification is when an employer turns tasks such as selling particular products or securing sales leads, into a game and rewards the employees who reach their goals,” explained Duffy. “Incentives manufacture enthusiasm, so by [gamification], employers are motivating their teams to repeat the behaviors that helped them succeed. If a commission model is implemented, paid for by either the manufacturing brand or the store, that extra pay can supplement the worker’s income.”
Making pay data transparent
Keeping silent about employees’ wage rates and discouraging discussions about pay in the workplace — a violation of the National Labor Relations Act (NLRA) — is how employers have hidden discriminatory pay practices for so long.
Duffy thinks offering pay transparency is the most effective way to eliminate wage gaps. He said that when workers can see where gaps are, they’ll see that those gaps are closed.
Ten states, with possibly more to come, have already passed pay transparency legislation.
According to Sweet, being transparent about pay actually helps, rather than hurts, employers.
“Inclusive businesses are 70% more likely to capture new markets and outperform competitors by 35%. They also experience 87% less attrition, which directly impacts cash runway and option dilution,” Sweet explained.
She added that by using pay ranges, employers can share compensation information without revealing individual salaries, and limit bias in the salary negotiation process, which she said often disproportionately works against women and people of color.
“Transparency is also a way to win talent in a competitive market where workers are sharing salaries on Twitter and shared public spreadsheets,” said Sweet.
She noted that 10 states, with possibly more to come, have already passed pay transparency legislation and that businesses should get ready for the change.
Accepting and supporting unions
Duffy thinks that second to transparency, accepting and supporting unions can have the most impact on closing the wage gap.
“Collective bargaining is the most effective tool workers can use to enforce well-structured, equitable pay across employees,” said Duffy. “If small businesses want to eliminate wage gaps, they’ll have to do the hard work of really bringing employees into the fold, even when it flies in the face of the hyper-capitalist business logic they’ve had pounded into their heads for the past 50 years.”
Auditing pay practices
Employers can’t close pay gaps if they don’t know where or how extensive they are, said Sweet. Therefore, she recommends that they periodically assess their pay practices to ensure that wages are fair across the organization.
She also recommends using a pay equity audit tool. “Instead of suddenly discovering months or even years later that you have race and gender pay inequities in your organization, having access to real-time compensation intelligence gives you an accurate picture of where there may be issues so you can quickly take action.”
Communicating pay criteria
Sweet recommends 3 strategies for communicating pay:
- Communicate the criteria for benefits, pay increases, and promotions, since fairness in compensation extends beyond the initial pay offer.
- Document compensation criteria and processes. This provides managers and other team leaders with a framework for making compensation decisions and clearly shows employees how they can advance in a company.
- Avoid asking candidates for their salary history. Basing compensation on past earnings perpetuates pay inequality, especially for women and non-White people, and is against the law in some states and municipalities.
The takeaway: SMBs can start closing the pay gap now
SMBs don’t have to put off closing the wage gap. Armed with compensation information and auditing tools, they can start the process now.
Also, they shouldn’t be put off by far-off predictions on closing the wage gap. Duffy said that although social and economic equality in the U.S. has been delayed longer than he expected, he’s optimistic that wage parity will be achieved before 2059.
“The converging zeitgeists of frontline worker empowerment in the wake of COVID, racial and gender parity in the wake of social movements like Black Lives Matter, and economic empowerment for hourly workers in the face of mounting income inequality, and rapidly rising costs of living will force businesses and governments to address a growing pressure to achieve fairer outcomes for all workers, hopefully before 2040,” said Duffy.
Sweet, who has worked with startups for more than 20 years, said she finds it mind-boggling that discussions about closing the wage gap continue. She said this problem is solvable, now that there are tools, resources, and data available to help businesses understand where pay gaps are and how to fix them.
“Frankly, waiting another 37 years to close the gap isn’t good enough,” said Sweet, adding that OPEN Imperative set an Equal Pay Moonshot to close the gender pay gap among startups by 2027. “This goal is achievable, and we hope that the tech industry can push the rest of the country forward with this entrepreneurial spirit.”