New research suggests large gender pay gaps are directly associated with lower performance by big companies. 

A new study has assessed 539 ASX-listed firms across 10 years of data (2,095 observations in total) to identify the implications of gender pay disparity in top management teams.

It found that 80 per cent of the big firms are paying female executives 30-35 per cent less than their male counterparts, despite being of equal calibre, education, and achievement.

Researcher Dr Carol Kulik says Australian businesses are not compensating men and women equally, and are effectively self-sabotaging by doing so. 

“It might surprise people that gender pay gaps exist at very senior levels, but with senior performance criteria often vague and subjective – and gender stereotypes still rife – the resulting imbalance is commonplace,” Prof Kulik says.

“We hear a lot about the benefits of women in executive levels. 

“They provide different views and perspectives, reduce risks, improve decision-making, and promote performance, but if a firm has a large gender pay gap, promoting women to the top team will neither deliver benefits for the individual nor the organisation.

“Our research shows that gender pay disparities in top management teams negatively moderate the relationship between the women’s representation and subsequent firm performance.

“In dollar figures, if a male executive is paid 2.6 times that of their female counterpart, every woman added to the team will lower the firm’s annual return on assets by 2.2 per cent.

“The cause, we suspect, is that underpaying women sends a powerful signal that the organisation has low expectations about women’s contributions – that women executives have a lower status and less influence than their male counterparts.

“Women executives are then less forthright with their views; and men are more likely to discount their female colleagues’ opinions.

“Ultimately, a gender pay gap reduces the extent to which women’s voices can influence the executive’s actions and decisions, so the firm gets no value from the diversity within the team.”

Dr Yoshio Yanadori says the research is a warning for organisations that are driving gender diversity initiatives.

“Organisations pay a price for gender inequality,” Dr Yanadori says.

“Just because an organisation has a good representation of women at the top doesn’t mean that they are a gender equal firm. Women’s representation is only one indicator.

“Stakeholders must dig deeper to establish whether the organisation is best positioned to use its visible gender diversity effectively.

“Gender diversity must be matched with equal pay. If organisations have women in senior leadership roles but pay them less than their male counterparts, they’re simply shooting themselves in the foot.”

The industries with the largest gender pay gaps (high risk of gender pay gap effects) are:

  1. Energy (oil & gas drilling, but excluding mining)

  2. Information technology (technology hardware, software, semiconductor)

  3. Industrials (machinery, transportation)

The industries with the smallest gender pay gaps (low risk gender pay gap effects) are:

  1. Health care (both products and services, pharmaceuticals)

  2. Financials

  3. Consumer Staples (food, beverages, and personal products)

The full study is accessible here.