The gender pay gap – as well as the methodology behind its calculation – has been widely discussed in public. But questions have been raised about reliability, quality and accessibility of data, as well as validity of corresponding results. Indeed, it is very difficult to obtain a comprehensive data set including relevant items regarding compensation, job value, degree of part-time employment, education level, children or parental leave. That lack of comprehensive data makes gender pay gap analyses rather challenging. In fact, it may produce contradictory results and misleading conclusions. We talk to hkp/// group experts Jennifer S. Schulz and Verena Vandervelt about the hkp/// approach to analytical gender pay gap analyses as well as insights on the magnitude of the gender pay gap in selected countries worldwide.
Ms. Schulz, Ms. Vandervelt, the results of gender pay gap analyses as well as the underlying methodology have been widely discussed. How does the respective hkp/// group approach ensure reliable results?
Jennifer S. Schulz: As the availability of quality data for gender pay gap analyses is quite limited, it becomes even more important to apply a robust analytical framework to the information that is available in order to draw robust conclusions. We have highly reliable data from our compensation surveys like the Global ExecuNet (GEN), which covers top executive data in 60 countries worldwide. The unique hkp/// group approach of collecting and matching compensation data for surveys provides a very high level of consistency and comparability of data across companies and countries.
Verena Vandervelt: In addition to a high-quality database, we developed a specific approach to conduct reliable fair pay analyses based on our hkp/// survey data. We use a regression analysis, being the method of choice in science, that allows us to isolate the effect of different influence factors on compensation levels. This approach enables us to conduct differentiated fair pay analyses, especially regarding compensation differentials attributable to gender.
And what factors influencing compensation levels do you consider when conducting fair pay analyses?
Verena Vandervelt: We conducted various pre-analyses to identify the factors in our data with the strongest impact on compensation levels. Apart from gender, we found that job grade, age, job family and company-specific characteristics like industry, location as well as compensation strategy have the highest impact on compensation levels. A stepwise regression approach enables us to isolate the effect of these different factors on differences in compensation levels between men and women. This enables us to calculate an adjusted gender pay gap, which is much more valid than just comparing the average pay differential between men and women without controlling for other factors.
Can you please explain in detail the difference between “unadjusted” and “adjusted” gender pay gaps?
Jennifer S. Schulz: When calculating the “unadjusted” gender pay gap, the average compensation levels of men and women are compared without considering additional factors that might explain the pay differential. Other explanatory factors for the gender pay gap can e.g. be that women might gain work experience more slowly due to parental leave and childcare or that on average women work in less well-paid jobs. By taking into account influence factors like job grade, age, job family or company-specific characteristics in our methodology, we can isolate effects gender has on the differences in compensation levels between men and women. This is called the “adjusted gender pay gap”.
And what are the findings if we look at the gender pay gap in Germany?
Verena Vandervelt: Well, if we calculate the unadjusted gender pay gap for Germany, we see that in terms of target direct compensation (base salary including short and long-term incentives), men earn 15% more than their female colleagues. However, we see that men are on average older and work in higher positions than women in our dataset. Thus, if we control for age, job grade, job family as well as company-specific characteristics, we get an adjusted gender pay gap of merely 2.5%.
That’s surprising! But how does the gender pay gap in Germany compare to other countries in Europe?
Jennifer S. Schulz: With an adjusted gender pay gap of 2.5%, pay differences in Germany are at a similar level to those in most other Western European countries, including the UK, Belgium, France and Switzerland – which all range between approximately 2% and 3%. In the Netherlands, where e.g. the responsibility for childcare seems to be split more equally between men and women, the gender pay gap is smaller: male managers only earn 1.2% more than female managers. In Italy, on the other hand, the gender pay gap of 5.7% appears to be quite high in the Western European context.
What about other countries worldwide?
Verena Vandervelt: Compared to Europe, the USA shows a slightly lower target direct compensation differential, with a mere 1.8% between men and women. This rather low gender pay gap might be due to the fact that the USA was the first country to put this issue on the political agenda and adopted the Equal Pay Act in 1963 - aimed at abolishing wage disparity based on gender. In Russia, as well as selected Asian countries, we see mixed results regarding the magnitude of the gender pay gap.
Jennifer S. Schulz: In the case of Russia, results of the analysis are not statistically significant, and do not allow us to verify the existence of a gender pay gap between male and female managers. This, however, does not imply that equal opportunities pervade in Russia, as the unadjusted gap is still a very high 33% in favor of males.
What is the most surprising result of your analysis?
Verena Vandervelt: A very interesting result is that China exhibited a negative gender pay gap in favor of females - women in leading positions earn 3.2% more than their male colleagues here. At the same time, with 43.6% China has the highest proportion of females in management roles among all countries in the data set.
What is the background? Are these results based on any strict legal or regulatory restrictions?
Verena Vandervelt: China implemented an explicit legislation with the Law on the Protection of Women's Rights and Interests, amended in 2005. This law promotes equal pay between women and men and may have contributed to the inversion of pay differentials between female and male employees. The unadjusted gender pay gap of 6.7% still favors males. However, a fact attributable primarily to the effects of the incumbents’ age.
You conducted gender pay gap analyses worldwide. What can we conclude from these results?
Jennifer S. Schulz: In all countries covered, except Russia, a significant adjusted gender pay gap could be identified. As of now, China is the only country where this pay differential runs in favor of females. The stepwise regression analysis reveals that the main drivers of pay inequality are not the same in all countries. They range from simple age differences to the proportion of female managers in higher management levels.
Verena Vandervelt: Another important finding is that there actually seem to be differences in pay levels between men and women that work in the same job with the same work experience in the same company. In order to avoid inconsistencies in pay levels between certain groups of employees, conducting a fair pay analysis can provide important insights for companies. By means of a fair pay analysis, companies can position themselves as fair and attractive employer and at the same time proactively prepare for requests from employees as well as increasingly sharper disclosure requirements regarding gender pay in the annual report.
Do you see that the corona crisis influences the discussion on fair pay?
Jennifer S. Schulz: In times of crisis, where bonus payouts are low and companies reduce working hours and base salary levels, the discussion about fair pay certainly becomes even more important – which we see in the public discussion about pay levels of people working in system critical jobs not being appropriate. But we see as well that we need equal opportunities for women in business rather than a one-time pay increase to close the gap - and this is also a political issue.
Verena Vandervelt: No doubt, the home office situation is especially challenging for families with younger kids, where we believe that in case of doubt the mother would reduce more working hours to ensure childcare and home schooling – possibly risking (again) to slow down her career – and linked to that setting limits for her compensation development.
Ms. Schulz, Ms. Vandervelt, thank you for your time.