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Large gender pay gaps linked to lower business profits

Juliet Helmke
20 August 2021 2 minute readShare
gender pay gaps

Promoting women to leadership positions without compensating them in line with what their male colleagues earn hurts business profits, research from the University of South Australia has revealed.

Eighty per cent of Australian companies are paying their male executives 30% to 35% more than their female counterparts, a new study from the University of South Australia shows.

Moreover, the research discovered a clear relationship between large gender pay gaps and lower firm performance.

The study compiled 10 years of data from 539 ASX-listed firms to identify the implications of gender pay disparities among upper management.

Carol Kulik, a professor and researcher for the study at University of South Australia, said many people might be surprised to learn there’s still a significant pay gap in Australia. Their research confirmed Australian businesses are not compensating men and women equally, effectively self-sabotaging their own efforts to diversify leadership, as well as their overall profits.

“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,” Ms Kulik said.

Meaning that even when companies are aware of the benefits of having a gender-diverse leadership team and staff, if they fail to compensate female leaders equally, both the company and the women at the top will suffer.

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

The research showed that 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%.

“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,” Ms Kulik said.

The researchers identified a pattern wherein women executives, responding to an environment where they feel to be of lesser value, are then less forthright with their views. Men in these circumstances were 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,” Ms Kulik said.

The researchers controlled for executive quality, ensuring they were comparing leadership staff with similar education and tenure, who held comparable roles and board memberships. 

Co-researcher Yoshio Yanadori stated the study plainly showed that organisations pay a price for gender inequality.

“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,” Mr Yanadori said.

“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.”

Large gender pay gaps linked to lower business profits
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Juliet Helmke

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