Research: Customers Will Reward Companies for Smaller Gender Pay Gaps

Research: Customers Will Reward Companies for Smaller Gender Pay Gaps

by Bloomberg Stocks
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Over the last several years, new regulations have been passed in countries and regions around the world mandating that companies disclose salary information broken down by gender and other demographic data. How will consumers react as they gain visibility into the wage gaps of the companies they patronize? In this piece, the authors discuss new research suggesting that after a pay gap disclosure, consumers are more likely to post negative comments about a company on social media, and they’re less likely to buy the company’s products. Their studies further found that this effect is especially strong for female consumers: after learning about a wage gap disclosure, female participants’ interest in buying a company’s products fell by twice as much as that of male participants. Based on these findings, the authors offer several strategies to help companies get ahead of potential backlash after disclosing a wage gap, including both proactively addressing inequities (a good idea regardless), and crafting an open, honest communication plan that outlines a clear roadmap for improvement.

It’s well-known that on average, male employees earn more than female ones, even when controlling for employees’ job titles and qualifications. But thanks to new regulations, the public may soon have access not just to general gender pay gap statistics, but to granular pay data for individual companies. Back in 2018, the UK passed a regulation requiring all companies to disclose pay gap data on a publicly-searchable website, and earlier this year Illinois became the latest U.S. state to mandate that firms with over 100 employees must report employee pay statistics broken down by gender and race, also for publication on a state website. How will this increased visibility into firms’ pay equity impact both companies and their customers?

While there are plenty of examples of consumers reacting negatively and even boycotting companies in response to egregious displays of gender or racial inequality, our recent research explored the effects of simply disclosing pay gap information to consumers. Given how well-known the pay gap issue is, we considered that it was possible people might not pay much attention to this new information, and that it would therefore have minimal impact. However, we found instead that after learning about a company’s gender pay gap, consumers posted more negative content about the company on social media, they reported that they valued that company’s products less, and they were less likely to buy those products at all. We also found that while both men and women reacted negatively to learning about a pay gap, women were even more likely than men to shift away from a firm after its pay gap was revealed.

In the first part of our study, we conducted a sentiment analysis (that is, we used an automated tool to measure how positively or negatively consumers felt) on more than 90,000 tweets that mentioned UK companies which had disclosed their gender pay gaps in accordance with the 2018 regulation. Before the disclosures, there was no correlation between consumer sentiment and companies’ wage gaps. But after the public disclosures, we found that posts mentioning companies which had disclosed a greater wage gap exhibited much more negative sentiment than posts about companies which had disclosed smaller wage gaps. This suggests that public access to wage gap data can have a significant impact on how consumers feel about a company, at least as far as their social media activity.

Next, we ran a series of randomized experiments using both real and fictitious brand names in which we measured participants’ reactions to finding out about a company’s gender pay gap. We created interactive mockups of the Google News website to subtly provide participants with information about a company without making it obvious that we were sharing gender pay gap data (we designed the study in this way to reflect how consumers are likely to get their news in the real world). Participants were shown one of two versions of the mockup website: One with news articles that emphasized the company’s pay inequality, and the other with unrelated news about the company. Building our own websites for the experiment allowed us to randomly assign participants to see one of the two versions.

We then asked the participants a variety of questions focused on how much they valued the company, and we consistently found that after reading about a company’s gender pay gap, consumers reported that they valued the company and its products less. For instance, in one experiment, we held an auction for a company’s gift card and found that people bid about 12% less after learning about the company’s gender pay gap. In another experiment, participants could choose between gift cards that could be used at the company they had just read about, or at a competitor. Participants were 32% more likely to choose a competitor’s gift card if they had just read about the company’s wage gap than if they had read about unrelated company news.

Of course, measuring the impact of wage gap disclosures is only one piece of the puzzle. The second is to understand the underlying psychology that drives this behavior. To explore this question, we asked participants to describe how they felt after reading about the companies. Over and over, participants expressed a sense of unfairness and outrage after reading about the companies’ gender pay gaps, suggesting that these emotions could be a key part of what shaped their changed sentiment and buying behavior.

In addition, as with any psychological trend, we found that different participants reacted differently to the same information. While the results described above were consistent across all our experiments, we identified three main factors that influenced the intensity of consumers’ negative reactions to gender pay gap disclosures:

  • Gender: First, while both male and female participants reacted negatively when companies disclosed a pay gap, the effect was much stronger for women. For instance, in one experiment, we found that after a wage gap disclosure, female participants’ interest in buying the company’s products fell by twice as much as that of male participants. Our analysis suggested that this was because men were less likely than women to view the gender pay gap as unfair, which in turn made them less likely to change their purchasing behavior. We further found that this gender discrepancy held regardless of the participant’s age, or of whether they reported having a daughter.
  • Urgency: We found that a gender pay gap had a lot less impact on participants’ purchasing behavior if contextual factors increased the urgency of their need for the product. For example, in one experiment, we asked participants to imagine that they were deciding whether to walk or use a ride-hail app, and we varied whether we told them it was sunny or rainy. Consumers were more likely to choose the ride-hail app if it was raining, even if they had just learned about its gender wage gap.
  • Presentation: Finally, in a previous study, we found that how you talk about a gender pay gap matters. Our analysis suggested that people are more likely to understand and respond to a gender pay gap disclosure when framed in terms of money (i.e., “women make 82 cents for every dollar men make”), as opposed to percentages (i.e., “women’s hourly wage is 18% lower than men’s”), potentially because this framing is clearer and more intuitive to a general audience.

So, what does this mean for companies? Of course, the best way to avoid customer backlash (not to mention to build an inclusive and supportive work environment) is to put in the work upfront to reduce your firm’s gender pay gap. That means formulating a strategy to ensure women and men are paid equally for the same work, as well as instituting policies and procedures to decrease gender bias in hiring, mentorship, promotions, and other structures and processes in which gender-based disparities are still deeply entrenched for many organizations.

But even if you’re doing everything you can to combat the gender pay gap at your company, the problem won’t disappear overnight. To mitigate the negative impact on consumer sentiment and purchasing behavior if and when your company’s gender pay gap is exposed, consider the following strategies:

  1. Be proactive. Even if your country or region hasn’t yet instituted (or fully enforced) a legal mandate to disclose wage gaps, expect that one could be coming soon. Don’t wait until you’re forced to disclose your gender pay gap to start addressing the issue and preparing a communication plan.
  2. Communicate your competitive strengths. If your company has invested more in gender equity than your competitors have, don’t hide it! Our studies found that the negative impact of disclosing a gender pay gap was attenuated when presented in contrast to a company with a larger wage gap. If you’re doing better than your competitors, it can be effective to emphasize that when discussing your own pay gap (of course, you should also be careful when considering any sort of negative advertising campaigns, as they can easily backfire and come across as bullying).
  3. Emphasize your progress. Even if you’ve still got a long way to go in eradicating your company’s gender pay gap, articulating a commitment and a clear roadmap outlining how you will improve the situation — and the progress you’ve made so far — can help retain your customers.
  4. Know your customer base. While all organizations should strive for equal pay, our research suggests that companies with more female customers will likely be especially negatively impacted by a gender pay gap disclosure. If you have reason to think your customers will react particularly negatively when they learn about your pay gap, that’s one more reason to prioritize addressing gender inequities in your organization.

Even if you wanted to, there’s no avoiding pay transparency. Between the rising popularity of sites like Glassdoor and Payscale that enable employees to share their salaries publicly, and expanding regulatory initiatives mandating greater visibility into salary and demographic data, your organization’s gender wage gap will soon be public knowledge — if it isn’t already. And our research suggests that your customers are likely to react negatively when they discover your pay gap, both when it comes to their sentiment on social media and their actual purchasing decisions. The good news is, if you start today, you can get ahead of the inevitable disclosure backlash both by proactively improving your internal pay policies, and by crafting an honest communication strategy that highlights your company’s commitment to addressing inequity.

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