New Developments in Shareholders’ Gender Pay Gap Proposals

Investors’ growing interest in the median gender pay gap (i.e., the wage difference between the median male employee and the median female employee) is the latest expression of a more granular approach to environmental, social and governance (ESG) investing. They are not only more focused on granularity, building on an initial call for public companies to disclose their gender pay gap, but are also casting a wider net to include more industries and companies. This trend continues in 2019. Arjuna Capital has once again issued shareholder proposals. What’s different from prior years is that the firm has asked 12 large, publicly-traded financial services and technology companies to disclose the median gender pay gap.

This is an interesting new development in gender pay-related shareholder proposals, as it specifically focuses on demographic representation. Previous shareholder proposals asked for information on the wage gap between male and female workers with directly comparable jobs, factoring in function, job level, geography and more (generally referred to as equal pay for work of equal value). Arjuna’s latest filings ask for the median wage gap, which is a statistically unadjusted figure. Simply put, a gap indicates that male employees as a group are occupying higher-paying positions than female employees, which does not allow female employees’ pay levels to trend upward. The gap is especially troublesome if there is a fair representation of female workers across the company, but not at the higher levels.

These proposals indicate ESG investors are interested in a new level of detail. The 2019 proposals follow reports from a few of the target companies that their pay equity reviews showed little to no wage gap between men and women performing comparable jobs. This failed to satisfy Arjuna. Citi, the sole company that to date has responded to the investor’s 2019 proposal with specific information, announced in a recent blog post that its analysis shows a material median wage gap.

Shareholders are raising these broader inclusion and diversity issues as part of their ongoing dialogue with issuers and as part of their voting policies. Gender diversity is increasingly cited as a key interest. In 2018, companies in financial services and technology continued to remain the primary targeted industries. However, shareholder proposals were also filed at some insurance and retail companies, suggesting ESG investors are taking a broader approach. It’s reasonable to assume that they will target other companies in the same or different industries. It’s also possible that the responses will establish a new standard for how inclusion and diversity is made part of compensation and talent programs.

We anticipate the combined forces of legislation such as U.K. gender pay reporting rules and stakeholders’ higher expectations will accelerate companies’ overall pay transparency and gender pay reporting. This more granular reporting is pressuring companies to increase the number of female employees at senior management and board levels and ensure males and females in similar roles have pay equality. By increasing female representation in higher paid jobs, companies can meaningfully reduce gender pay gaps. It’s really a broader talent development issue rather than simply a pay issue.

Compensation committees are proactively preparing for shareholder discussions by taking a more expansive view of inclusion and diversity matters, including gender pay and the fairness of their compensation and talent programs. While the boards of U.S. public companies have a fiduciary responsibility to address shareholder value creation, there is an emerging debate about what to consider. Do they need to also consider the interests of other stakeholders (i.e., serve a social purpose) as part of their oversight responsibilities? This typically includes a focus on sustainable human capital management that supports long-term value creation and risk mitigation. Negative press can cause significant reputational risk and damage a company’s brand. Forward-thinking companies will want to develop a plan that delivers a clear message that all employees are valued and treated fairly and then act on it.