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Closing the Gender Pay Gap: A Fresh Approach

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In the global workplace, women often find their paychecks lighter than their male counterparts, even when qualifications and job roles match perfectly. The quest for gender pay equity isn't just a moral issue; it's a pressing economic one. Yet, the journey to bridge this gap seems endless.

Peeling back the layers on the persisting pay inequities, one must delve deep into the boardrooms and manager cabins where salary decisions unfold. In numerous organizations, salary decisions are flexible and partially at the discretion of the managers. These decisions don't just affect an employee's current paycheck but sculpt their financial trajectory over the years. The advantage? It allows managers to reward standout performances. The downside? It paves the way for unintentional bias, resulting in unexplained pay differences.

So, the central question our team dove into was: How do we ensure fair pay without tying the hands of our managers? Partnering with a tech giant, we rolled out an innovative approach: A gender-blind system of reallocating the salary increase budget, with the added twist of a decision-guiding tool for the managers. In simple terms, this system shifts the budget from high-earning teams to the not-so-fortunate ones. Managers, however, still held the reins of their budgets, having the final say on raises, with performance evaluations in clear focus.

The results? The revamped approach, paired with explicit guidelines, wiped out the existing gender pay gap in raises.  Beyond promoting pay equity across teams, the system fostered gender-balanced budget distribution within teams. A sigh of relief: there was zero evidence that this method compromised genuine salary hikes based on outstanding performances.

While this method is not a magic wand erasing pay disparities overnight, it certainly offers a beacon of hope, ensuring that pay gaps don't stretch wider as careers advance.


© Jakob Alfitian, Marvin Deversi, Dirk Sliwka

Jakob Alfitian is Research Assistant at the University of Cologne
Marvin Deversi is Director at Education y
Dirk Sliwka is Professor of Personnel Economics and Human Resource Management at the University of Cologne and IZA Research Fellow

Please note:
We recognize that IZA World of Labor articles may prompt discussion and possibly controversy. Opinion pieces, such as the one above, capture ideas and debates concisely, and anchor them with real-world examples. Opinions stated here do not necessarily reflect those of the IZA.

Related IZA World of Labor content: by Solmon W. Polashek by Mackenzie Alston by Antti Kauhanen

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