Gender equality: the bonus gap and why it matters
On 2020's Equal Pay Day, when women effectively start to work for free for the rest of the year, we explore the critical need to not only focus on the salary gender pay gap, but also the bonus gap problem, to achieve equality.
Much has been said about how little change has been made with the gender pay gap. But the truth is that the minimal change is unsurprising, because even the easy changes that would close large portions of the salary gap haven’t been made.
For example, many organisations, both in the UK and around the world, still lack transparent and consistent pay and reward frameworks. It’s often not clear what will lead to promotions or raises, and those decisions are often mired in secrecy.
What the press hasn’t been focusing on though is that this problem is even worse when looking at the gender bonus gap.
A widening chasm
In 2019, we analysed the data from the companies that often get highlighted as the best places to work for women in the UK through awards or lists of the most gender equal organisations.
What we found is that for many companies, while their salary gaps are closing somewhat, their bonus gaps are actually increasing.
Even for those companies that are closing their salary gaps, many are just shifting those gaps over to bonuses.
One example is JP Morgan, which did close its salary gap by 25%, but its bonus gap widened by 11%.
Similarly, CMS’ salary gap reduced by 5%, but its bonus gap climbed by 25%.
In fact, of the Times Top 50 Places to Work for Women (one of the groups we analysed), only 76% of firms got worse or remained static on either the salary gap, bonus gap, or both.
Diversity ‘blind spots’
We know that those who are often making salary, bonus, or promotion decisions (those at the top of the firm) often lack diversity themselves.
We also know from social psychology research that humans tend to like and trust people who look like them more than ‘others’.
The lack of diversity among decision-makers therefore, begets a lack of diversity in promotions and remuneration increases.
This also leads to blind spots on issues that often relate more to women than to men, like working flexibility to take care of children or ailing elderly family members, or returners programmes for women coming back from parental leave.
Shifting the problem
It seems that even for those companies that are closing their salary gaps, many are just shifting those gaps over to bonuses.
This is even more problematic because bonuses are typically awarded by an even smaller and more senior (i.e. less diverse) group. Their decision-making processes are even less regulated, and therefore more prone to bias than salary decisions.
Even in the case of more explicit and apparently ‘objective’ processes, like the clear performance-based pay in banks or brokerage firms that use commissions, studies show that women earn less - not because they have poorer sales or returns, but because accounts are assigned in a biased way.
The fact that women’s bonuses are unaffected by company performance indicates organisational apathy towards women.
For example, a study of more than 17,000 US stockbrokers published by Janice Fanning Madden from the University of Pennsylvania found that female stockbrokers were significantly less likely to be given high-value accounts, despite having the same performance history as male counterparts, leading to 18%-20% lower pay for women on average.
This is a common problem that we have seen in many organisations, and it is one that we have been aware of for a long time.
We are concerned that employers are taking steps to tackle their gender salary gap on one hand, but then compensating male senior leaders through increased bonuses on the other, whilst leaving out their female counterparts.
The data seems to support this assertion. A study published in 2010 by researchers at the University of Exeter showed that even when companies show strong corporate performance, male leaders have received increased bonuses but female leaders do not.
In fact, across all the companies studied in the UK from 1998 to 2004, women’s bonuses tended to stay flat regardless of how well the company was doing, while bonuses increased exponentially for men as company performance increased.
Clara Kulich, one of the authors of the study states, “The term ‘performance-based pay’ is a misnomer when it comes to female leaders. The fact that women’s bonuses are unaffected by company performance indicates organisational apathy towards women”.
Kulich’s claim about her own data seems to really hit the nail on the head as it is in line with all the other data we’ve seen.
As much as we might like to think that we’re solving the problem by working on the salary gap, without embedding a culture of inclusiveness and equity throughout the organisation it’ll just be window dressing as those gaps will just be shifted to bonuses.
While we may not be able to solve the unequal distribution of household labour and childcare at the source of some of these problems anytime soon, organisations do have it in their power to institute policies and procedures that reduce the opportunity for bias in how decisions are made for promotions, salaries, bonuses, or accounts.
Many of these are policies that can easily be instituted in a short time frame. The lack of change in the gender bonus gap is not due to a lack of ability or time, but more to a lack of will.
If organisations truly want to be equitable, they need to focus on solutions that will solve both the salary and bonus gaps.