Corporate wage inequity, or the unequal access to opportunity for women in corporate environments, presents a prevalent issue. Research shows that a person’s network and referrals have an impact on pay.
According to researchers Herbert Dawid and Simon Gemkow, “an increase in network density leads to a polarization of firms and a concentration of workers with high specific skills at firms with high productivity (and wages) thereby enlarging within group wage inequality.” Essentially, “the average wage of workers who obtain their job through referrals is higher than that for the other workers.”
Dawid and Gemkow are signifying a prominent but overlooked determinant of wage inequality between men and women of the same skill level. Men, on average, are earning more as a result of stronger and broader social networks.
The networking issue: navigating a boys club
When comparing the social networks of a sample of male and female board-members, researchers found that “not only were the male boardroom aspirants adept at keeping in contact with former peers and superiors, they were also adept at maintaining contact with other senior individuals with whom they had worked… many of whom had progressed to board-level roles, and also with powerful individuals they had not previously worked with but had met at networking events.”
“The female boardroom aspirants only dealt with head-hunters in an ad hoc functional manner, engaging with them only when they were seeking a new role, rather than looking to develop lasting long-term relationships with them.”
Overall, men were found to have a larger and more meaningful strategic network of powerful former peers and superiors than women. Given the correlation between wage and social networks, affirmed by Dawid and Gemkow, it is likely that women’s poor networks relative to men is a strong determinant of wage inequality between the genders.
Research suggests that traditional networking opportunities are less lucrative for women than men. According to Kiser, women are invited to networking events less frequently than men. They are also further disadvantaged at these events due to the similarity principle — white wealthy men will favor other white wealthy men. There’s evidence that women may have better results from attending networking and leadership events specifically for women.
A recent study measuring the impact that a Conference for Women had on attendees the following year showed positive outcomes; the likelihood of receiving a promotion doubled and the likelihood of a 10% pay increase tripled. Networking opportunities can build a strong foundation for social networks, which can translate to referrals and higher pay for women.
In addition to building professional networks, these events and programs can have important outcomes for the women who attend, such as improving workplace confidence. Evidence suggests that the confidence gap predicts the gender pay gap among STEM graduates after study results showed that “1) degree holders with lower levels of self-efficacy earn less in their initial jobs and 2) women have lower levels of self-efficacy than men.”
By having exclusive networking opportunities for women, we may see a positive psychological impact that inspires motivation and confidence. Women’s networks can be helpful in presenting opportunities for career development, improving leadership, enhancing identity confidence, and decreasing feelings of isolation. Alternatively, some research suggests that the problem of equity and opportunity does not exclusively stem from lack of female confidence, but rather is a response to the reactionary structures in place in corporate environments.
Women have been conditioned to take fewer risks, are less likely to have female role models, and more likely to receive a negative response to confidence. Simply encouraging and building confidence for women in the workplace could be a baseless tactic if it is met with opposition from corporate culture. Rather than focusing exclusively on female leadership initiatives, corporations committed to equity need to take a research-based approach and work to dismantle unequal systems.
The effect of female leadership
Evidence suggests that male overconfidence can have negative effects on financial service performance. Men’s overconfidence can be demonstrated. Acquisitions made by firms with male executives have announcement returns approximately 2% lower than those made by female executive firms. If women are not holding corporate leadership positions, financial companies may perform worse than what is optimal.
“Men are more likely to hold stock options that are deep in the money, more likely to hold options until expiration, and more likely to buy stock in the company… Male executives are more likely to execute value-destroying acquisitions, and male executives are more likely to be removed from their positions”
Stronger initiatives to promote women to leadership positions could potentially solve some of these oversights. Women continuously show positive contributions to a firm’s financial performance and boardrooms. For example, McKinsey found that “89 European-listed companies with the highest proportions of women in senior leadership positions and at least two women on their boards outperformed industry averages for the Stoxx Europe 600, with 10 percent higher return on equity, 48 percent higher EBIT (operating result), and 1.7 times the stock price growth.”
Corporations with women in leadership positions are positively correlated with lower risk and solvency. In fact, “a study that examined more than 900,000 private limited UK companies found that even after controlling for industry- and company-specific characteristics as well as the background and experience of directors, companies with women directors had a lower risk of insolvency than other companies.” In terms of board performance, Adams and Ferrerira found that “overall attendance behavior of directors improves the more women are on the board.” Essentially, women are influencing board behaviors in ways that are consistent with better governance.
Lack of female executives can have negative impacts on decision-making and contributes to a conformist team environment. Since male executives are generally affected by overconfidence more than women, women in the board room could result in more conservative and improved decision making.
“CEOs of firms with female board representation appear to be less affected by and adjust their personal portfolios less substantially in response to the crisis. We also find that female board representation reduces the negative impact of the crisis on firm performance, consistent with CEOs of firms with female board representation adopting less aggressive strategies that make their firms less vulnerable to the crisis.”
Women prevent male-dominant environments from becoming conformist: “female directors tend to be less conformist and are more likely to exhibit activism and express their independent views than male directors because they do not belong to ‘old-boy’ networks.”
What does equality look like?
Researchers caution against attributing representation to equality. For example, just because women are present in high-ranking positions, does not always mean they are being treated and paid fairly.
“Any tracking must capture the experiences and influence that awards and positions bestow. Do those given to women bring the same visibility, recognition and resources as those given to men? The proportion of women achieving authorships and professorships matters less if these are concentrated in sub-optimal, low-influence or temporary roles.”
Often, women are given leadership positions in projects that are short term, or even destined to fail. Ryan refers to this phenomenon as the “glass-cliff phenomenon”.
Based on these findings, it is clear that position and wage discrimination is not only having a detrimental effect on women’s careers, but could also be negatively impacting corporate performance. The implementation of stronger initiatives for female development is one step in the right direction, but research suggests it may be a Band-Aid fix for a bullet-hole problem. Promoting equality in the corporate work place will call for a commitment to a cultural restructuring of the work place.
CMAC research assistant Tazwar Ferdous has researched corporate inequities across racial and gender lines and across regions in the U.S. These are Tazwar’s insights and recommendations for future policy opportunities. This blog was edited and expanded by CMAC communications assistant Lila Norris.