The Role of Shareholder Engagement in Achieving Pay Equity

Widespread gender pay inequality remains a component of the global gender gap. In the movement for gender pay equity, mandates on pay gap reporting are driving progress in some countries, while in the US, progress has come largely thanks to shareholder engagement.

Measuring and Reporting Gender and Racial Pay Gaps

As a leader in shareholder engagement on pay gap disclosure, Arjuna Capital began introducing proposals to large publicly traded companies in 2014. Natasha Lamb, managing partner at Arjuna and a well-known advocate for pay equality, says the movement is growing. “The campaign for gender and racial pay gap reporting has gained momentum over the last several years. After initial resistance, more companies are sharing adjusted pay gap data.”

Adjusted pay data compares direct peers doing the same work, accounting for factors such as job title, location, and years of experience. It measures whether all employees are being paid the same for the work they are currently doing. Lamb notes that disclosure of adjusted pay by gender is moving toward standard practice for US companies.

However, the more 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, while adjusted pay data masks differences in opportunities for higher-paying work.

Lamb argues that concerned shareholders need data on both pay gaps in order to get a complete picture. “We have been repeatedly asking companies for median gap disclosure,” she says. “Other shareholders are also campaigning. There is much more resistance. The data is not flattering.” Adjusted pay gaps are typically smaller than median gaps and can be narrowed in one or two pay cycles, according to Lamb. Median gaps indicate structural barriers that require long-term changes. Glassdoor reports that the 2019 US median gender pay gap was 21.4%.

Key Developments in Pay Gap Reporting

Arjuna’s 2020 Gender Pay Scorecard examined pay disclosure and equality commitment data for 50 large US companies. Most scored a failing grade, indicating slow progress. A breakthrough in this slow pace occurred in 2018, when Citigroup disclosed its adjusted pay gap data following shareholder pressure in previous years. According to Arjuna’s Scorecard, the next year Citigroup became the first major US company to disclose both median and adjusted pay data by gender and race for its global operations. Its 2018 median gender pay gap of 29% declined slightly to 27% in 2019, while its median racial pay gap declined from 7% to 6%. Of note, a low racial pay gap may be influenced by a low number of racially diverse individuals in a company altogether.

Lamb, who had petitioned Citigroup for several years, believes the company underwent a cultural shift. Following the median pay gap disclosure, the bank launched an advertising campaign to highlight the importance of facing up to its uncomfortable median pay gap. Citi’s ongoing shift includes recently appointing a female CEO, a first for a major Wall Street bank. Among large US corporations, only Starbucks and Mastercard have followed Citi’s lead in disclosure of median pay gap data, according to the Scorecard.

At the forefront of pay reporting is the UK, where companies of over 250 employees have been required to disclose median pay gaps since 2017. According to Lamb, this was a boon for the campaign for disclosure. US firms with operations in the UK are also covered by the mandate. A number of European countries have adopted gender pay disclosure mandates, and the EU is exploring a unified approach.

In the US, regulatory and legislative progress is stalled. Companies with more than 100 employees are currently required to report pay data by gender, race, and ethnicity to the Equal Employment Opportunity Commission. Yet the data is not publicly available, and petitions to make it public are under legal challenge. In addition, bills to advance pay equality with various measures, the Paycheck Fairness Act and the Pay Equity for All Act have been passed by the House and introduced in it, respectively.

Continued advocacy is important because pay gap reporting illuminates and can narrow the divide.

How Can Gender Lens Investors Help Move the Dial on Pay Equity?

What role can gender lens investing play in moving pay equality forward? As gender lens offerings in the global equity and fixed-income markets have grown in size and scope, they are poised to move beyond a focus on women in leadership to the practice and disclosure of pay equality, which can increase opportunities for women at higher levels. Thus gender lens funds could advance—and benefit from—pay equity through shareholder engagement. In addition to Arjuna Capital, Pax World Funds has been active on this issue.

In Lamb’s view, it may be a stretch to call these funds true gender lens investing at this stage, as the investment universe of companies with meaningful diversity in leadership is small. “Focusing on women in leadership is a good starting point,” she says, “But these funds need to practice a greater depth of engagement on pay equity and other measures of diversity. More bold action is required.”

Continued advocacy is important because pay gap reporting illumniates and can lead to a narrowing of the divide. A recent study of Denmark’s required pay reporting showed that gender pay disclosure reduced the pay gap and increased the number of women hired and promoted. An examination of US employers demonstrated that the gap closed for those firms practicing pay transparency.

Shareholder Engagement and Pay Equity: Looking Ahead

Last month the US Securities and Exchange Commission raised the stock ownership threshold for submitting shareholder proposals and toughened requirements for resubmitting proposals. The ruling has been criticized by some for reducing opportunities to participate, and praised by others for reducing corporate costs.

Despite this setback in thresholds for participation, shareholders can still engage, and Lamb believes they will. She laments that the ruling makes engagement less fair for all investors but remains hopeful. “The global pandemic has exposed the most vulnerable in our population in a different way, across gender and race. Between this and the racial justice activism happening, these forces could boost pay disclosure progress as companies seek to prove themselves.” Lamb emphasizes that pay equity puts more money into more people’s pockets, countering economic inequalities. Sustained progress requires employers, regulators, and other stakeholders to see pay equality as a win-win.

The above is a piece by Marypat Thenell Smucker originally featured on