Finance

Gender pay gaps lead to loss in profits for Aussie businesses

- August 31, 2021 2 MIN READ
the gender pay gap is impacting business profits

New research from the University of South Australia shows the gender pay gap is alive and (un)well in most Australian businesses, with 80 per cent of them paying female leaders 30-35 per cent less than their male counterparts, despite being of equal calibre, education, and achievement.

The research reveals the impact of this pay gap goes beyond women’s livelihoods and impacts business performance as well – with larger gender pay gaps associated with lower business performance.

The world-first study assessed 539 ASX-listed firms across 10 years of data (2095 observations) to identify the implications of gender pay disparity in top management teams.

UniSA researcher, Professor Carol Kulik, says the study confirms that Australian businesses that are not compensating men and women equally, are effectively self-sabotaging their diversity efforts and overall firm profitability.

“It might surprise people that gender pay gaps exist at very senior levels, but with senior performance criteria often vague and subjective – and gender stereotypes still rife – the resulting imbalance* is commonplace,” Prof Kulik says.

“We hear a lot about the benefits of women in executive levels. They provide different views and perspectives, reduce risks, improve decision-making, and promote performance, but if a firm has a large gender pay gap, promoting women to the top team will neither deliver benefits for the individual nor the organisation.

“Our research shows that gender pay disparities in top management teams negatively moderate the relationship between the women’s representation and subsequent firm performance.

“In dollar figures, if a male executive is paid 2.6 times that of their female counterpart, every woman added to the team will lower the firm’s annual return on assets by 2.2 per cent.

“The cause, we suspect, is that underpaying women sends a powerful signal that the organisation has low expectations about women’s contributions – that women executives have a lower status and less influence than their male counterparts.

“Women executives are then less forthright with their views; and men are more likely to discount their female colleagues’ opinions.

“Ultimately, a gender pay gap reduces the extent to which women’s voices can influence the executive’s actions and decisions, so the firm gets no value from the diversity within the team.”

The study controlled for executive quality, ensuring comparable education, executive role, tenure, and board memberships, to ensure women were not being discounted because they had less to contribute.

Co-researchers, Dr Yoshio Yanadori and Dr Jill Gould say that the research is a warning for organisations that are driving gender diversity initiatives.

“Organisations pay a price for gender inequality,” Dr Yanadori says.

“Just because an organisation has a good representation of women at the top doesn’t mean that they are a gender equal firm. Women’s representation is only one indicator.

“Stakeholders must dig deeper to establish whether the organisation is best positioned to use its visible gender diversity effectively.

“Gender diversity must be matched with equal pay. If organisations have women in senior leadership roles but pay them less than their male counterparts, they’re simply shooting themselves in the foot.”

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