New Business Reporting Rule Promotes Equal Pay for Women
Pay equity — the concept that equal work should be rewarded with equal pay, regardless of gender, race, or nationality — has proven to be a difficult principle to enforce. The Equal Employment Opportunities Commission (EEOC), which is responsible for enforcing federal civil rights laws that mandate pay equity, rarely becomes aware of violations unless an employee reports them. Employees, in turn, rarely know what other employees in comparable positions are earning, because employers caution or require them to keep their salaries confidential.
A proposed change in the law is designed to make it easier for the EEOC to discover pay equity violations. The White House announced that it will issue an executive order requiring companies with more than one hundred employees to add salary information to a required report that lists the sex and age of employees in the company’s various job groups. Federal contractors have been required to provide similar information since 2014.
A half century after President Kennedy signed the Equal Pay Act, mandating equal pay for equal work, a significant gap continues to separate the income earned by men and the income earned by women for the same employment. According to The Institute for Women’s Policy Research (IWPR), female workers in 2014 “made only 79 cents for every dollar earned by men, a gender wage gap of 21 percent.” Women earn less than men in every occupation for which the IWPR has been able to obtain sufficient data to permit a comparison.
While the gap has been narrowing, progress has come at an alarmingly slow rate. If the gender gap continues to close at its present rate, the pay that women earn will not equal the pay that men earn for the same employment until 2059. The Equal Pay Act alone may be an inadequate remedy for disparate wages based on gender.
Making salaries transparent by requiring their publication might be one way to reduce the gender gap. If female workers have access to evidence that they are earning less than male workers, they might take steps to demand enforcement of equal pay laws. That approach has had some success in city governments, where payrolls are generally regarded as public information, although the gaps have typically been narrowed by lowering salaries paid to males rather than raising salaries paid to females. In the private sector, it is unclear that employees of either gender would necessarily want their salaries to be disclosed to the general public.
Some state laws prohibit employers from conditioning employment on the employee’s agreement to keep his or her salary confidential. Allowing employees to compare salaries makes it easier for them to discover violations of equal pay laws. A proposed federal law that would enact a similar nationwide ban has stalled in Congress.
An approach that some companies have adopted voluntarily is to set a salary based on each position and to pay that salary to each new hire regardless of the new employee’s qualifications or job history. When companies negotiate salaries with prospective employees, men typically fare better than women. When companies base compensation on an employee’s salary history, women are penalized because they typically have a history of earning less than men. Companies that pay fixed, nonnegotiable salaries reduce inequities. Whether that approach can be mandated by legislation, however, is questionable. Freedom to contract (including freedom to negotiate wages) is an entrenched value that cannot easily be brushed aside.
California recently enacted a law that prohibits an employer “from paying any of its employees at wage rates less than those paid to employees of the opposite sex for substantially similar work, when viewed as a composite of skill, effort, and responsibility.” The bill allows employers to base pay differentials on merit, seniority, or other nondiscriminatory factors, but places the burden on the employer to demonstrate that wage inequities are the result of those factors rather than gender. California’s burden-shifting approach may encourage employers to assure that salaries are based on appropriate factors.
In addition to prohibiting employers from conditioning employment on the nondisclosure of compensation, the Paycheck Fairness Act would close loopholes in the Equal Pay Act. It would also amend federal law to make broader damages available to victims of sex discrimination, including discrimination in pay and other terms of employment. Congress seems unlikely to enact that law this term, which may have prompted the administration’s recent decision to use an executive order to gather wage information that the Paycheck Fairness Act would have required employers to supply.