Published on: April 23, 2025 at 5:36 pm
Are pay-transparency laws the answer to fix the problem of women earning less than men? It’s complicated.
Academy of Management Scholar Carol Kulik of the University of South Australia said she would be reluctant to remove the discretionary part of executives’ pay packages, as performance bonuses have benefits and removing them wouldn’t necessarily close the gender pay gap.
“It is certainly true that in sectors that have less discretionary elements in pay packages, we tend to see smaller gender pay gaps,” Kulik said. “For example, in general, the pay gap in the public sector is smaller than pay gaps in the private sector.
“But I don’t think we want to say, ‘Just get rid of discretionary pay,’” she said. “Incentive pay is important for motivating effort and good performance, so we don’t want to remove that.”
Evidence does show that pay transparency narrows gender pay gaps. Several U.S. states and cities have pay-transparency laws, and in February 2024, the Australian government made information about individual companies’ gender pay gaps available for the first time. But rather than raising women’s pay, transparency often leads to compression of compensation toward the middle.
“Australia is getting on a bandwagon that we see in other countries, suggesting that one of the first steps you should take is find out how big the gap is, and to look at that requires pay transparency,” Kulik said. “But it’s really interesting to see what happens when countries have made pay gaps transparent; what we find is that, over time, pay gaps get narrower.
“But it doesn’t necessarily mean that women’s wages are getting higher; it often means that men’s wage growth is slowing,” she said. “If you’re an individual manager and you know that your pay decisions are going to get scrutinized, you become a little reluctant to pay anybody on the high end, so you start creating some compression at the top.
“Now, that’s not necessarily a bad thing, if you’ve got a pay system that’s really gotten out of whack, and you’ve got a few star performers who are really pulling the whole compensation system too far to the high end—on the other hand, you don’t want to eliminate all the motivating potential of your pay system because managers are reluctant to pay what it takes to recruit and retain top performers.”
A sample of Kulik’s AOM research findings:
- Keeping Older Workers Engaged
- Engage Me: The Mature-Age Worker and Stereotype Threat
- Aging Populations and Management
- Physical Environments and Employee Reactions: Effects of Stimulus-Screening Skills and Job Complexity
- Relations Between Situational Factors and the Comparative Referents Used by Employees
