One Way to Ensure Equal Pay for Men and Women
The private sector doesn’t compensate women fairly. Can it learn anything from the federal hiring process?
In the past few decades, the pay gap between male and female federal-government employees has been narrowing. This year, for the first time ever, the Office of Personnel Management released numbers showing that the gap had finally closed among senior executives. In fact, female executives’ $175,000 average salary is now slightly higher than the average male executive’s by about $400.
This doesn’t mean that women are equally represented in the highest ranks of government—they make up about 33 percent of senior executives. It also doesn’t mean they’re paid equally across the board—in lower-level white-collar positions, women in the federal government still make, on average, 90 cents for every dollar a man earns. Yet women working in the federal government seem to have a much better chance of moving up, both in terms of pay and promotions, than women in the private sector. In the corporate world, only 15 percent of senior executives at Fortune 500 companies are women, and a Wall Street Journal analysis shows that among workers with college degrees, women, on average, make 76 cents for every dollar a man earns. This leads to the question: What can the private sector learn from the federal government?
When employers come up with salaries, there are two different ways they think about how much a worker should earn. Jacque Simon, the public policy director for the American Federation of Government Employees (AFGE), a union, puts it this way: Should a salary be tied to the job itself, or to the individual hired to fill it? In the first scenario, employers decide what they are willing to pay for someone to carry out a certain role. In the second, the employer focuses more on the individual and what they are worth to an organization.
Federal employers fit into the first category, using a rigid pay scale similar to ones favored by labor unions. Labor unions view structured pay scales as a means of preventing discrimination based on gender, as well as age, race, and other categories. “Once you give supervisors in the federal government the ability to vary pay by individual, rather than job, they are going to reward the people they like the best,” says Simon.
In the federal government, most white-collar jobs are governed by the General Schedule, which includes 15 general pay levels that vary based on the experience, skills, and education needed for a position. Each job opening is posted at one of these levels, so candidates can only negotiate within the minimum or maximum pay range (there are 10 steps within each level). The pay system, which was launched 1949, was designed to ensure that people with the same skills got paid the same salaries. Limiting salary negotiations benefits women because research shows that they are less likely to negotiate salaries, and are more likely to be penalized if they do. Also, giving hiring managers more discretion may introduce inadvertent biases when putting together an offer.
This has been effective, but it still leaves room for some discretion, not all of it good. For example, some federal agencies base salary offers on what an applicant made at his or her previous job, which contributes to disparities in pay, according to the Office of Personnel Management, the federal agency that oversees hiring and payroll. So, this year, the office urged agencies to consider an applicant’s previous salary as only one of many factors in drawing up offers, because that number may be, as is often the case for female job candidates who left the workforce for several years, artificially depressed. (Though senior government executives are not paid within the General Schedule system, their pay scale is somewhat a continuation of it, with more discretion in pay negotiations.)
As a test of the effectiveness of a rigid pay structure in making pay more equal, Simon, of AFGE, points to an experiment at the Department of Defense, which in 2006 replaced the General Schedule with a system that rewarded employees based on performance, as assessed by supervisors who set goals for each employee. The Federal Times, an independent weekly magazine for government managers, later analyzed pay data under the new system and found that white employees received higher average performance ratings, bonuses, and raises than employees of other races. In 2009, President Obama signed legislation eliminating the system.
The Partnership for Public Service, a think tank in Washington, D.C. that does research on the federal workforce, cautions that the government’s reliance on the General Schedule system has other, negative outcomes, and they would rather see a system that tied compensation to an individual candidate and his or her value in the general labor market. Max Stier, the president of the organization, says that the General Schedule was created at a time when government employees did more-administrative tasks and needed fewer knowledge-based skills. He says this shift is most obvious in the growing field of information technology, in which young, tech-savvy graduates flock to high-paying jobs at private companies.
“You have a pay system so inflexible that it doesn’t enable [the federal government] to recruit effectively,” he tells me. “The scale is not connected to what the market is offering.” If the federal government had more discretion in paying top dollar to attract the best candidates, he says, that would be more beneficial to federal employees than the promise to reduce pay disparities. (While it’s true that the General Schedule system can assign employees less than their market rate, it is calibrated not to pay less than 95 percent of the standard salary for a similar job in the private sector, or in local or state government.)
Lately, some companies in the private sector have started adopting some of the government’s strategies, says Linda Babcock, a professor of economics at Carnegie Mellon University. For example, Google reportedly bases its salaries on the market rate for a specific job, rather than an employee’s previous salary. And Reddit recently announced that it will no longer allow job candidates to negotiate salaries.
Although limiting room for negotiation seems to have a huge impact on ensuring men and women are paid equally for the same job, it does nothing to make sure that women are well represented at all job levels, or that they are have an equal chance at career advancement. Many economists, including Babcock, argue that part of the pay gap comes from the fact that women tend to be segregated in lower-paying, lower-level positions. “Until we get more women moving into senior leadership, this is going to continue to be a problem,” says Babcock. Not only do executives make more money, she says, but they are often involved in hiring and salary decisions. Perhaps it’s no coincidence, then, that the CEO of Reddit—the one who decided to end salary negotiations—is a woman.