Big US pension funds and impact investors will this month step up pressure on companies to reduce the gender pay gap by trying to compel them to disclose the difference in how they treat men and women.
The states of Connecticut, Minnesota and Oregon are among the investors that are pressing companies to disclose more information about how women are recruited, promoted and paid.
The investors want new disclosures about the promotion gap between men and women as well as information about how women are compensated as they climb the corporate ladder.
“Gender equality, if we are not paying attention to that as a risk, we are not living up to our fiduciary responsibilities,” said Tobias Read, treasurer of Oregon. He oversees about $106bn of assets under management and is one of the investors who have aligned with non-profit As You Sow, which in July sent a letter to 31 companies calling on them to disclose information about how women are recruited and promoted.
“As much as we all share a values-based position on these things, we are investors with fiduciary responsibilities,” he said. “One of the ways we can do our job the best is making sure that there is gender equality at every level.”
The number of shareholder pay gap proposals voted on at S&P 500 companies in the tech and financial sector increased to 13 in the first half of 2019, up from six in all of 2018, according to an analysis by the law firm Sullivan & Cromwell. The average percentage of votes cast in favour of pay gap proposals was 32 per cent in 2019, up from 19 per cent last year, the law firm said.
In the 2020 proxy season, shareholders will again be forced to slug it out with companies over gender pay disclosures because Congress and the Securities and Exchange Commission show little interest in requiring businesses to publish gender pay gap information — reporting that is mandatory in the UK.
Research published by Morgan Stanley on August 12 showed that equal representation of women and men in the workplace is closest at the employee level. But at the management level, the ratio of women to men drops to about 3 in 10, Morgan Stanley said.
“As we continue to move up the ladder to the per cent of women executives, we see this number drop to between 15-23 per cent with similar drops in representation levels in both Europe and North America,” the report said.
Investors say gender equality disclosures are essential to equalising the number of men and women in senior positions. Company nominating committees have said there are not enough women in high-paying executive roles to populate candidate pools for board seats. With promotion gaps and pay ratios disclosed, companies will feel pressure to elevate women into higher-paying jobs, the investor advocates argue.
Natasha Lamb, a managing partner at Arjuna Capital, said that of the 12 companies her firm had pressed to publish a gender pay gap ratio, only one had consented: Citigroup. This year, Citigroup said its median pay for women globally was 71 per cent of the median for men.
“The next step is to publish median pay data, which reflects who is holding the high-paying jobs within an organisation,” Ms Lamb said. “We will continue to go back to those companies to press them to change their practices and disclosures.”
The #MeToo movement has proven to be a catalyst for shareholder action on gender equality. Arjuna, which has about $250m of assets under management, has partnered with Time’s Up, the pressure group that formed in the wake of allegations about Harvey Weinstein’s treatment of women in Hollywood. The Time’s Up group, whose supporters include Natalie Portman, Eva Longoria and Jessica Chastain, has partnered with the US Women’s National Soccer Team Players Association to raise cash to fight for pay equity at businesses.
“If shareholder pressure alone is not effective, we need to up our game and involve advocacy groups like Time’s Up,” Ms Lamb said. Time’s Up represented Arjuna at Alphabet’s annual meeting in June to advocate for a median pay gap disclosure proposal at the company.
Sullivan & Cromwell said that given the shareholder support for many of Arjuna’s proposals and its efforts to increase pay disparity transparency, “Arjuna Capital is likely to continue requesting companies to disclose unadjusted figures and is unlikely to accept a compromise short of the requested disclosure.”
Companies with diverse boards, combined with a high percentage of female executives, have higher return on equity (ROE) ratios, according to a March 2019 report by Bank of America Merrill Lynch. When companies add women to the board, there is evidence that more women are selected for management positions, said Savita Subramanian, head of US equity and quantitative strategy at Bank of America Merrill Lynch.
“There was a positive correlation between the percentage of women on management teams versus the percentage of women on the board,” Ms Subramanian said.
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