November 3, 2021
Unintended Consequences of Benchmarking Pay: Female Executives Are Stuck At the Median
Public companies like peer benchmarking – benchmarking gives lots of great datapoints for compensation committees to use while setting executive pay. But benchmarking also leads to some interesting outcomes – Liz previously blogged on how variations in CEO pay have diminished, often for the CEO’s benefit as companies and boards try to beat the “median” pay. S&P Global argues that this benchmarking practice actually disadvantages female executives. Here are some interesting points from the S&P Global research report, which analyzed over 80,000 executives who held positions at Russell 3000 companies from 2006-2020:
– Compared to men, women in executive roles are more likely to receive compensation in a compressed range around the median of their peer group and are less likely to receive compensation outside this range. The practice of Gender-Based Compensation Management (GBCM) artificially addresses the gender pay gap by increasing the median woman’s compensation without providing women equal access to the full range of compensation. This work shows GBCM has exacerbated the ‘glass ceiling’ and, by extension, the gender disparity in compensation.
– Firms that have been defendants in federal court cases involving compensation disputes, discrimination, fraud, or other governance-related affairs exhibit more pronounced GBCM. This finding suggests GBCM is associated with poor governance.
– The percentage of women holding positions across the C-suite, board of directors, and executive positions grew from 15.4% to 19.2% from 2018 to 2020. While this progress is statistically meaningful, at this rate women have at least 1-2 more decades before they reach parity in their representation across senior roles. In positions where women’s progress has been slower, such as CEO, parity will likely take even longer.
As companies look to collecting employee data for pay equity analyses, they might want to be mindful of focusing less on the measured median pay metric and more on the ultimate goal of pay equity.
– Emily Sacks-Wilner