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How You Perpetuate Gender Pay Inequity With Your Merit Program


Yes, you heard me correctly, your “bona fide” merit program perpetuates gender pay inequity.   It is not hard to figure out… if women take time out from the workforce, they will have fewer years of your 3% average merit increases, and given enough time, there will be a gap — even if you started them out at a fair and equitable wage.

Here’s an example.  Tom and Mary are hired as Accountants on January 1, 2000 at a salary of $36,000 each (the minimum of the then current range, with a midpoint of $43,200). We’ll assume both learn at about the same rate, and eventually perform at the same level. The current rate for a fully performing accountant is now about $58,000, which means the market has increased just over 34% over the last sixteen years, or an average of 1.9%/year.

Assuming the typical average merit increase of 3%, after 16 years, Tom will have just reached about $58,000 — now, taking 16 years to be fully compensated for a job that takes at most 4-5 years to learn is absurd itself, but we’ve talked about that in other posts.  Mary, on the other hand, has taken two 18 month breaks to have children.  Depending on the timing, this may have affected as many as four of her merit increases.  If that’s the case, Mary will get a 2016 increase that puts her pay at to just over $51,300.

Here’s the actual, undeniable, gap – Mary earns 88% of what Tom earns.  You might say, “that’s okay, because Tom’s more valuable because of those extra three years of experience.”  No, it is not okay. If we really believe in equal pay for equal work, using your “bona fide merit program” has just put the stamp of approval on pay inequity.  There is simply no way that it takes 13 years to learn to become an accountant…. let alone 16 (I do still feel a little sorry for Tom, who just now earned what he’s worth). At most, after, say, the first five years, all that Mary and Tom have been doing is repeating the same year, over and over.  Tom’s extra three years, in the grand scheme of things, mean nothing to the value of the services he is providing as compared to Mary.

At this point, if we were really talking about paying employees what they were worth, a good business practice regardless of the gender issue, both Tom and Mary should be earning at least $58,000.

Our merit pay program has caused gender pay inequity, where there wasn’t one in 2000 when they were hired.

It’s time to acknowledging that historical merit pay practices actually perpetuate the gender pay equity problem.  It isn’t that we should not pay for performance, but we should be very careful that our pay for performance model doesn’t do more harm than it does good.