What is the Median Pay Gap? (And Why Should You Care?)

Andrea Palmiter, Senior Manager, Advice & Analytics, August 29, 2022

It’s time to talk about the median pay gap. This is a familiar conversation around the globe, where companies in Europe — including the UK, Ireland, and France — face laws that hold them accountable for their median pay gap. But now this trend has arrived in the U.S. in the latest sign that companies need to get serious about a global movement towards opportunity equity.

If the California pay transparency and public pay reporting bill (SB 1162) is passed and signed by the Governor — and most expect it will be — in addition to the pay scale transparency requirements, California companies will also be required to disclose the mean and median pay of employees by job categories, including breakdowns by gender, race, and ethnicity. 

But legislation isn’t the only reason to put this on your company’s radar. Shareholders already recognize the impact of workplace equity on employee retention, capital expenditures, and brand reputation — and are demanding accountability — which is why we’re seeing some of the biggest corporations hit with proxy votes calling for median pay gap reporting, shifting the conversation from equal pay to equal access for opportunities – a much harder challenge for companies.

As the median pay gap emerges as a priority for lawmakers, investors, boards, and employees, leaders need to understand this: the pay gap is only marginally about pay. It’s really about opportunity. And this has major implications for how you analyze, report on, and communicate your data. 

Here’s what you need to know today to get prepared for pay gap reporting. Your brand reputation, employee loyalty, and bottom line depend on it.

 

What is the median pay gap? 

The median pay gap is a measure of overall differences in median earnings between two populations. It compares the earnings of the middle employee for one group (e.g., men) to the middle earner in another group (e.g., women). By treating those middle earners as “typical” and comparing their earnings, the median pay gap can reveal potential pay gaps between groups at a company. 

The California bill, for example, requires reporting within groups of jobs, like managers or sales reps. So, continuing the gender example, a California employer would need to file a report that shows how much it pays women, on average, and how much it pays men, on average, within these broad job categories. 

 

Why the median pay gap is about opportunity — not pay

To better understand the median pay gap, it’s helpful to look at it in comparison to pay equity

Pay equity means compensating people performing substantially similar work based on job-related factors like skill, accountability, and working conditions (not gender or race.) And it’s a relatively easy problem to fix: if two people aren’t being paid the same for comparable work, you can increase one person’s pay. To fix pay equity, you put money towards the problem. Our customers achieve pay equity through proactive analysis and the administration of pay adjustments.  

But a mix of more complicated issues contribute to the median pay gap, making it more difficult to solve. Even if every employee is paid the same for the same job, women may make less than men across the board. Consider:

  • What if you have fewer women and BIPOC leaders in higher-paying leadership roles? 
  • What if not all employees are given equal access to jobs, promotions, and opportunities to collaborate on high-profile projects? 
  • What if women’s careers (and salary, advancement opportunities, and tenure) are negatively impacted due to caregiving responsibilities?
  • What if roles traditionally held by women (like communications and HR) earn less on average than roles traditionally held by men (such as IT)? And what’s the impact to companies who aren’t able to build diverse pipelines to management positions? 

 

Remember, if women and BIPOC employees do not have the same opportunities to work in higher-paying roles and on higher-paying teams, your company’s opportunity gap will continue to grow — and in turn, so will your median pay gap.

 

How to tackle the median pay gap

Closing your median pay gap isn’t a quick fix, with steps you can simply apply from a listicle and succeed. Yet, there are some fundamental strategies you can adopt now to help you understand your gap, start to make improvements, and get ahead of imminent reporting requirements.

First, tackle pay equity. Forward-thinking companies often start by getting pay equity right. If you don’t have a foundation of pay equity, you won’t be able to close your pay gap. As long as you have the budget to increase compensation for underpaid employees, pay equity is entirely within your control to solve through statistical analysis and remediation.

Next, identify opportunity gaps. In addition to pay inequity, the other big driver of the median pay gap is opportunity inequity — when employees (regardless of gender, race, or other factors) don’t have equivalent access to opportunities for employment, advancement, and development. To improve opportunity equity, you need to understand the root causes of your pay gaps. That means analyzing your recruiting, hiring, onboarding, and promotion policies and ensuring they are enforced in a consistent, objective, and equitable way for all employees and job candidates. 

As you start to explore where the opportunity gaps exist, ask yourself: 

  • Are we creating diverse representation throughout all levels of the company? 
  • Are we making opportunities available to women and BIPOC employees who may be concentrated in lower-paid segments of the business?
  • What teams and departments are underperforming from a retention, promotion, and opportunity equity perspective?
  • Do you have a “leaky bucket,” with women and people of color leaving at higher rates
  • Where should we focus on recruiting and where should we focus on internal mobility to build a stronger promotion pipeline for our existing employees?

 

While closing statistically adjusted pay gaps can be done relatively quickly by making a handful of pay adjustments within certain employment categories, closing median pay gaps require… companies to evaluate their hiring, development, and promotion practices.” 

— Arjuna Capital, 2022 Racial Gender Pay Scorecard

 

Finally, prioritize comms. In this new era defined by rigorous pay transparency and reporting, how you communicate about pay equity and the pay gap at your company can make or break your brand. Performative commitments won’t cut it — especially if you don’t have a clear plan for how to get there. In the face of legislative mandates and demands from investors, boards, and employees, companies need real data, consistent action, and measurable progress to effectively communicate both internally and externally. Leading companies, including Microsoft, are already getting ahead of legislation by disclosing gaps, raising pay for their top performers, and showcasing transparency throughout the decision making progress.   

 

How Syndio can help

It takes dedication and consistency to achieve and maintain pay and opportunity equity. And in today’s data-driven world, it also takes technology. Leading brands are turning to technology solutions like Syndio’s Workplace Equity Platform to build a comprehensive approach to solving root causes of both pay inequities and opportunity inequities. 

With OppEQ™ , for example, you can look at a range of data — such as race, gender, start date, tenure, and other demographics — from your HRIS system, then analyze it next to hiring, promotions, performance scores, and retention rates to see where there are inequities. And in the coming weeks, Syndio will be rolling out additional tools to help companies adapt to these new changes and become pay transparency ready!

For more information, check out Syndio’s webinar on Moving Beyond Pay to Address the Pay Gap with Syndio Founder Zev Eigen and Andrea Palmiter, Senior Manager of Advice and Analytics. 

 

 

 

The information provided herein does not, and is not intended to, constitute legal advice. All information, content, and materials are provided for general informational purposes only. The links to third-party or government websites are offered for the convenience of the reader; Syndio is not responsible for the contents on linked pages.

 

Return to blog