For public sector GLI equity and fixed income offerings to meaningfully reflect – and capture the benefits of – gender diversity at the company level, investment criteria should encompass inclusive gender equality metrics beyond WIL. Women’s representation at all managerial levels is the key to the leadership pipeline. Investors need to be able to measure inclusive gender equality across a range of data points, including pay parity, a company’s commitment to supplier diversity, the provision of corporate benefits in support of caregivers, and true inclusivity in the work environment. The inclusiveness and safety of products and services also needs to be assessed. Increased data availability is key to investing in companies making progress on broad-based inclusive gender equality, with the glaring need for pay data leading the charge.

Gender Pay Gaps and Reporting

Widespread gender pay inequality is a component of the stubborn global gender gap, which the WEF estimates will take 135 years to close. In the movement for gender pay equity, progress in some countries is being driven by mandates on pay gap reporting. In contrast, progress in the U.S. has been largely driven by shareholder engagement, a process through which a company’s shareholders raise proposals to the board and management. Research shows that disclosure of pay gaps, whether voluntary or required, helps to narrow them.

There are two pay gap metrics. Adjusted pay data compares direct peers doing the same work, accounting for factors such as job title, location, and years of experience. Disclosure of adjusted pay by gender is moving toward standard practice for U.S. companies. But the meaningful pay divide is the median pay gap. This is the median pay of women who are working full time versus the median pay of men working full time, providing a raw look at the earnings of women in full-time work compared to men. Median pay gaps measure whether different groups are holding the same number of high-paying jobs, whereas adjusted pay data masks differences in opportunities for higher paying work.

Q4 2020 update

Activism is a key tool in advancing inclusive gender equality and has been utilized to push for gender pay parity, a central focus of corporate gender disparity. Arjuna Capital is a leader in shareholder advocacy, including for disclosure of pay gap data. Arjuna’s 2020 Gender Pay Scorecard examined pay disclosure and equality commitment levels for 50 large U.S. companies. Slow progress has meant that most are still failing. In a 2018 breakthrough, Citigroup disclosed its adjusted pay gap data after several years of shareholder pressure. The next year Citigroup became the first major U.S. company to disclose both median and adjusted pay data by gender and minority for its global operations. Citi’s shocking 2018 median gender pay gap of 29% declined slightly to 27% in 2019 and 26% in 2020, with its minority median pay gap improving from 7% to 6% in 2019, where it remained in 2020. Table 1 summarizes pay gap data for the countries where gender lens equity funds are primarily invested. Progress is uneven, particularly in Europe, where the EU’s Citizen’s Assembly announced an effort to prioritize the reintroduction and adoption of stalled pay gap disclosure legislation.

The U.K. leads the way in required reporting, with employers of over 250 required to publicly disclose their median pay gaps. The Nordic countries, where required reporting has the longest history, have registered the smallest average gender pay gaps. Japan and the U.S. are among the worst performers, and neither requires reporting yet. The U.S., where public pay gap reporting regulations are currently under legal challenges, pay gaps for minority women are well behind the average.

Q1 2021 update

Arjuna Capital and Proxy Impact published its fourth pay gap scorecard, the Racial and Gender Pay Scorecard. Only five of 51 major U.S. companies earned “A” grades on racial and gender pay gap reporting: Mastercard, Starbucks, Pfizer, Citi, and BNY Mellon. Research shows that disclosure of pay gaps, whether voluntary or required, helps to narrow them.

According to Equileap’s 2020 annual report, 85% of the dataset did not publish any pay gap data. Only 15 companies have closed their gender pay gaps. Spain, the U.K., and Italy lead the way on pay gap reporting. Japan, Hong Kong, the U.S., and Germany lag. The final annual report of the Hampton-Alexander Review was issued in late February 2021. The Review is the government-supported five-year initiative in the U.K. to achieve 33% women in leadership for all FTSE 350 listed companies, including board and executive levels. While 65% of the companies achieved the 33% target for board representation, only 30% reached the goal at the executive committee and direct report level. The board goal was met on average by the FTSE 350, and the executive level representation increased 20%. Disappointingly, the executive level appointment rate for women has been stagnant for three years, with two-thirds of all available leadership roles going to men. Those companies who addressed their shortfalls early in the project achieved the most progress. In the FTSE 100, there are now 37 companies at or above the 33% target for executive roles, and board representation has reached 36.2%.

Q3 2021 Update

The annual deadline for the U.K.’s mandate for firms with over 250 employees to publish their unadjusted gender pay gap data was pushed from April to October this year to accommodate the disruptions of the pandemic. With 2020 results now in just after the third-quarter bell, the overall gender pay gap widened a notch over 2019, which also saw a slight worsening from 2018. In some sectors, including finance, technology, and energy, the pay gap worsened notably from 2018 to 2020. With fewer women in higher roles, banks and law firms had the widest U.K. gaps. HSBC had a gap of 48%, Goldman Sachs International had a steadily worsening gap of 37%, and Lloyd’s reported a gap of 34%. Barclays was one of the worst performers at 38%, but it eked out modest improvement since 2018. Many law firms had pay gaps above 40%.

Research on pay gap reporting by the Global Institute for Women’s Leadership at King’s College London recently pointed to the lack of mandated action plans in the U.K.’s reporting mandate, which earned good marks for transparency and compliance. In comparing the reporting systems of six countries, Spain and France were the highest scorers, followed by Sweden and South Africa, while the U.K. and Australia came in last. The key differences were found in mandated action plans and enforcement measures.

A stubborn gender pay gap persists in the U.S. As we have previously highlighted, some U.S. states are enacting measures for reporting and addressing gender pay gaps. The National Women’s Law Center recently published a summary of various measures. These include prohibiting the use of past salary information in hiring. Also, some states now require transparency on the salary ranges for a prospective position. Other provisions of pay equity laws are centered on expanding equal pay beyond gender to other characteristics, moving toward fairer comparisons of jobs, and closing employer defense loopholes. Only Illinois and California have enacted pay gap disclosure legislation.

Q2 2022

A persistent gender pay gap hampers corporate equality for women and widens the gender wealth gap. Payscale’s 2022 report shows very slow progress on the unadjusted gender pay gap (the median pay for men and women) regardless of job title, industry, location, and other factors. Women in the U.S. make $0.82 for every $1 made by men, an 18% pay gap. This figure has moved upward in very small increments from $0.73 in 2014. An unrelenting roadblock in the unadjusted pay gap, women with children earn $0.74 for every $1 earned by male parents. The data also shows that women who experience a period of unemployment for more than 24 months earn $0.70 for every dollar earned by men who experience the same.

Corporate Policies Are Needed to Support Gender Equity

Corporate benefits policies have a role to play in boosting workforce participation by women in the U.S. and globally, particularly following the pandemic-related losses. If the U.S. is to unfold a women-focused recovery, caregiving benefits for employees must be a part of the national and company policy landscape. Primary policies are centered on caregiving benefits and flexible work. A number of U.S. employers have announced that flexible work policies will remain in place in the post-pandemic work environment.

In the U.S., the federal Family and Medical Leave Act requires employers over a certain size to provide unpaid family leave. But national paid leave has been a policy battleground, while local and state initiatives on paid sick leave and paid family leave vary. States with paid-leave policies for new parents have seen reductions in women leaving the workforce in both the one- and five-year periods following the arrival of a child. Before the pandemic, the majority of U.S. employees did not have paid parental leave.

Anti-sexual harassment policies also make a notable difference in retaining and promoting women. Mandatory arbitration forces employees to accept dispute resolution via the arbitration chosen by the employer, barring the employee from addressing disputes and violations in court. The policy has come under increasing criticism for allowing employers to conceal employee allegations of misconduct, including sexual harassment and gender and racial discrimination. Sexual harassment often results in women leaving their jobs, which dampens equality in all workforce and leadership ranks. The latest release of Adasina Social Capital’s Force the Issue database captured data for 3,500 companies on their policies around the use of forced arbitration for sexual harassment matters. Nearly 400 companies now report they do not use forced arbitration. This represents over 10 million employees.

The Equileap results for 2020 indicated that only 12 companies out of its dataset offer six months of parental leave to primary and secondary caregivers. Where there is no state-sponsored leave, companies are more likely to disclose their own policies. In examining flexible work, only 38% publish a policy. 24% of those have a regular policy not related to the COVID-19 pandemic. Half of all companies in the dataset do not publish anti-sexual harassment policies.

Q3 2021 Update

All eyes are on the prospects for paid leave legislation in the U.S., the only OECD country without some provision for it. The FMLA of 1993 requires those who employ more than 50 people to provide up to 12 weeks of unpaid time off for caregiving or illness. That coverage excludes more than 40% of the total workforce. The Build Back Better bill passed by the House in November 2021 would provide a federal benefit for employees to take paid leave due to illness or caregiving.

Gender Equity in External Relationships: Supplier Diversity

Research shows that companies with diverse suppliers experience no loss of efficiency and often achieve access to new markets. According to a recent Harvard Business Review analysis, companies with diverse supply chains benefit from new product opportunities, increased competition, market knowledge and innovation from multiple corners, and enhanced brand recognition. Commitments to supplier diversity among large corporations is one end of a two-sided challenge and investment opportunity. The other end is small and medium enterprises (SMEs) in both developed and developing markets. Recent research by Boston Consulting Group estimated that global GDP could rise by 3-6% if women and men participated equally as entrepreneurs. In addition to funding gaps, women-led startups face sustainability and growth gaps. Narrowing this entrepreneurial gender gap requires investment in supply-diverse companies and increased impact investment in early- and growth-stage WOEs. In seeking to support and capture the benefits of diversity, it is important for all segments of gender-lens investing to incorporate a focus on women-owned SMEs and the companies who do business with them.

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 Excerpts of this piece first appeared in Enterprising Investor and The Impactivate.

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