Pay equity continues to be top of mind for leaders in 2019, many of whom struggle with how best to get pay right. The stakes are high for organizations as they stand to gain by attracting superior talent that will drive future success.

In Willis Towers Watson’s experience conducting fair pay analyses, most organizations are tackling equal pay — paying fairly for similar work — well. However, when one takes a closer look at the pay gap — the difference on average between the earnings of, for example, men vs. women — the numbers tell a different story.

In the case of gender pay equity, the pay gap is largely due to the lack of representation of women at executive levels. As part of our ongoing research into the pay practices of the S&P 1500, we revisited our database to explore the issue of gender pay equity among the named executive officers (NEOs) of the S&P 1500, and our findings show that while the lack of female representation is prevalent, it varies by industry. Further, lack of representation in larger organizations is also affecting equal pay: Even among comparable roles, we see pay differences between men and women emerging depending on the employee’s role and the organization’s size.

PREVALENCE OF WOMEN AMONG NEOs

We recently reported on women’s prevalence on S&P 1500 boards. Women account for about 20% of the board composition, at the median. See “Coming to the boardroom: gender diversity,” Executive Pay Matters, November 12, 2018, for more.

Our research  suggests an even lower prevalence of women among the NEO ranks of the S&P 1500:

  • 5% of CEOs are women
  • 11% of CFOs
  • 12% of “Other NEOs” (NEOs other than the CEO and CFO)

While there is some variation by sector (Figure 1), none shows women rising above 30%. The utilities sector shows the highest female representation in the NEO ranks, and the energy sector the lowest.

Figure 1. Female representation among NEO roles within the S&P 1500

Figure 1. Female representation among NEO roles within the S&P 1500

COMPENSATION OF FEMALE VERSUS MALE CEOs

While there are inherent challenges in comparing the small sample of female CEOs (50) versus the larger sample of male CEOs (1065), female CEOs tend to earn about the same as or more than their male counterparts. These findings are based on the regression of target total direct compensation (TTDC, defined as base salary plus annual incentive target, plus long-term incentive grant values) and enterprise value (sum of debt and market capitalization) as explained in more detail below.

Within smaller organizations, female CEOs tend to earn about the same as their male counterparts. But in larger companies, a slight premium in female CEO pay begins to emerge, as shown in Figure 2. While this diverges from the narrative around women earning less, the limited pool of female CEO candidates  and the high visibility of CEO compensation  likely account for these findings.

Figure 2. Female and male compensation trend lines among CEOs within the S&P 1500

Figure 2. Female and male compensation trend lines among CEOs within the S&P 1500

COMPENSATION OF FEMALE VERSUS MALE CFOs

Within smaller organizations, female CFOs tend to earn pay comparable to their male counterparts. But in larger companies, a slight discount in female CFO pay begins to emerge, as shown in Figure 3. Among companies with more than $50 billion in enterprise value, the discount is about 11% on average.

Figure 3. Female and male compensation trend lines among CFOs within the S&P 1500

Figure 3. Female and male compensation trend lines among CFOs within the S&P 1500

COMPENSATION OF FEMALE VERSUS MALE OTHER NEOs

When we move to Other NEO roles, a notable discount in female pay is evident across all organization sizes, as shown in Figure 4. We note that the correlations between pay and enterprise value are less robust among these roles for both women and males. This is understandable as there are a variety different line and staff roles among the Other NEO positions. While these findings may not be dispositive due to the role differences, they do begin to align with the narrative, and given the heightened focus on gender pay equity, they warrant further study.

Figure 4. Female and male compensation trend lines among Other NEOs within the S&P 1500

Figure 4. Female and male compensation trend lines among Other NEOs within the S&P 1500

CONSIDERATIONS

The limited representation of women in the C-suite is simply a fact. Below the CEO level, some disparities in pay between female NEOs and their male counterparts begin to emerge. While some of the disparities may reflect more detailed analytics that consider factors beyond the scope of this review, evidence suggests that pay disparity starts near the top and often extends deeper into the organization.

While our 2018 Getting Compensation Right Survey Pulse Survey showed that most companies are committed to (or initiating) processes to help promote greater fairness and inclusion, there is still far to go.  The complexity of pay equity in general requires companies to take a multifaceted approach:

- Examine pay practices at every level to ensure fairness across employee segments

  • Pay special attention to highly-populated roles, key business roles and top executive roles
  • Make adjustments where necessary and short-circuit policies and practices that perpetuate unintended pay differences (e.g., promotional increase limits, overemphasis on tenure or experience as a driver of higher pay)

- Examine the distribution of employee segments across all levels of the organization

  • Analyze the pipeline for midlevel and senior leaders
  • Ensure executive sponsorship of inclusive and diverse pools of talent across all parts of the business

- Measure and monitor efforts for a more inclusive and diverse workforce

  • Set goals, conduct workforce analytics and monitor key talent management metrics
  • Engage in employee listening strategies to understand what support employees need to increase their engagement and progress in their careers, as well as what unknown obstacles may exist
  • Commit to regular discussions regarding inclusion and diversity and talent management efforts and progress at compensation committee meetings

Gender pay equity is just one integral part of the larger talent management narrative. When companies focus on optimizing their talent, they build workforces that drive their organizations’ sustainability and continued success in the future.


ABOUT THE AUTHORS

Steve Kline 

Steve Kline

Willis Towers Watson
Pittrsburgh

Erik Nelson 

Erik Nelson

Willis Towers Watson
Houston

Nancy Romanyshyn 

Nancy Romanyshyn

Willis Towers Watson
New York


Steve Kline, CFA, is a senior director in Willis Towers Watson’s Pittsburgh office who leads the company’s efforts to develop innovative approaches to pay-for-performance measurement and analysis. Erik Nelson is a director in the Houston office who leads Willis Towers Watson’s Executive Compensation Analysis Team in the United States. Nancy Romanyshyn is a director in the rewards practice based in Willis Towers Watson’s New York office. Email steve.kline@willistowerswatson.com, erik.nelson@willistowerswatson.com, nancy.romanyshyn@willistowerswatson.com or executive.pay.matters@willistowerswatson.com.