Avoiding the pay gap in your startup is crucial for a number of reasons, not the least of which is its potential effect on your company’s reputation. A Glassdoor survey found that 63 percent of respondents wouldn’t even apply to work somewhere with a pay gap between genders for similar work. So, allowing a pay gap to flourish can prevent your organization from attracting and hiring top talent — not to mention erode your company’s culture from the inside if current employees find themselves unhappy with how compensation is handled.
How can startups address existing gender and racial pay gaps head on to work toward equity? Here are three ways to start addressing this challenge.
Equity: Going Beyond Pay
Would it surprise you to learn that the equity gap is even worse than the earnings gap in startups? A big incentive for employees to join startups rather than more established companies is the shares they can get for joining the company.
However, a recent analysis of more than 6,000 companies found that men own an astounding 91 percent of founder and employee equity in Silicon Valley — meaning women have just nine percent. As CNBC reports, founders who are women own 39 cents for every dollar owned by male founders. Meanwhile, female employees earn 47 cents to every dollar earned by their male counterparts.
This demonstrates that pay gaps go deeper than just salaries and bonuses in the startup world; they extend to equity in the company, too.
Audit all the ‘Pillars’ of Startup Compensation
As one expert writes for TechCrunch, it’s important to examine all the “pillars” of true equity: cash, benefits and stock.
It’s generally accepted that the first step toward correcting the pay gap in any company is auditing current data to identify where inequities are happening, then taking steps to remediate these issues.
While auditing employee job roles and corresponding salaries and benefits is imperative, it’s not the only area startups need to evaluate. Given the demonstrated disparity between equity held by women versus men, there’s a good chance startups also need to improve how they’re offering equity to employees as far back as the hiring process.
Eliminate Biases in Hiring and Negotiation Processes
As tempting as it can be to think that hiring and salary negotiations are already based on talent, research shows this isn’t the case. Consider the fact that internalized biases and socialization often contributes to women — and other groups — asking for and receiving less money when negotiating for something like compensation.
Another reason women may be less apt to negotiate their salaries? They are not always given the opportunity to do so at the same rate men are. About half of men in one survey reported having the opportunity to negotiate compensation (49 percent) compared to about one-third of women (35 percent).
One way startups can avoid perpetuating negotiation-fueled gaps is providing information about the bargaining range for a given role. This information about lower and upper limits can help candidates assess themselves on a scale and have a fair reference point for making requests. Ensuring all candidates have an equal opportunity to negotiate to the fullest extent, regardless of gender, race or other aspect of identity, is integral to fair hiring.
Failure to avoid the pay gap in your startup can lead to a host of negative outcomes: from poor reputation in the eyes of the public and potential new hires to employee dissatisfaction and turnover. Plus, pay equity is a major moral consideration now and in the future. Startups need to audit their approaches to paying workers — going beyond salary to look at shares, too — and revamp their hiring and promotional processes to eliminate biases.
