Gender pay equity is not precisely an “executive compensation” issue because it applies far beyond the executive suite. However, the issue has become a subject of discussion in proxy statements and shareholder proposals and, in my experience, has been coming within the purview of the Compensation Committee, which are areas that we executive compensation practitioners indwell.
State and local lawmakers across the country have been proposing new pay equity bills aimed at reducing the gender wage disparity. And shareholder activists have taken up the quest in earnest. Quoting my friend and fellow blogger Liz Dunshee in Gender Pay Gap: More Companies Enhancing Disclosures:
Two activists recently announced progress in campaigns to close the gender pay gap. In this summary, the Interfaith Center on Corporate Responsibility describes engagements with seven companies—four of which agreed to enhance pay equity disclosure.
And the NYC Comptroller and NYC Pension Funds have continued a 2017 initiative with healthcare and insurance companies—proposing that they provide annual disclosure on gender and race/ethnicity pay gaps. Recently, they announced more progress from the resulting engagements. Since that initiative launched, a total of 15 companies have committed to improving pay equity and/or increasing transparency (e.g., by disclosing how they determine whether disparities exist).
Many companies have initiated or are considering a review of their pay practices. As you might expect, some of the compensation consulting firms specialize in extracting, analyzing and presenting relevant pay data in ways that are more statistically sound than any law firm could produce. But any company that undertakes such a review or study should take every precaution to ensure that the study and its results are protected by the attorney-client privilege. To gain this protection, it is essential that the consulting firm conduct their study under a special engagement letter from a law firm, which will then oversee the study, accept delivery of the study’s results, and communicate them to the company or board. Lawsuits over and government investigations of the gender wage disparity are beginning to proliferate. The last thing in the world you want to do is undertake a thorough study of your company—and then be forced to deliver it to plaintiffs’ lawyers and/or the government.
Although I believe that a few of the best-known firms are capable of this work, the one we have “seen in action,” so far is Willis Towers Watson. The process/project is not unlike collecting and comparing compensation data for the recent CEO Pay Ratio disclosure, although much harder and more complicated. And with much higher stakes.
Finally, Art Meyers, Takis Makridis, and I will be discussing this topic (among others) at the upcoming NASPP Conference in our session titled “Hot Topics in Equity Compensation.” The topic heading is deliberately vague to allow us to cover issues that have developed or evolved since the deadline for submitting topics and materials for the Conference (e.g., Section 162(m) transition rules).