Generation XX: Uncovering the Truth about Women and Equity. Emily Cervino, CEP, Fidelity Stock Plan Services Stefan Gaertner, PhD, Aon Radford

Transcription

1 Generation XX: Uncovering the Truth about Women and Equity Emily Cervino, CEP, Fidelity Stock Plan Services Stefan Gaertner, PhD, Aon Radford

2 What We Will Cover Today Why does pay equity matter? A brief history of pay equity What are the key laws around pay equity? What are employers doing to assess pay equity and what do they find? What s different about long-term incentives? Do women perceive equity compensation differently than men? Is there a gender gap with respect to long term incentives? For your company: How should pay equity issues around long-term incentives be handled? What is a pay equity analysis? Conclusion

3 Why Does Pay Equity Matter? Pay inequality is a global issue Closing the gap is for business good There have been marginal improvements But more needs to be done In addition to maintaining compliance, employers have other motivations to close the gap, including financial incentives, better technology and infrastructure, economic opportunity, capability building, and protecting their reputation Out of 23 OECD countries, the U.S. has the 7 th largest gender pay gap The U.S. is 1 of 3 countries that does NOT guarantee paid maternity leave Women still earn 80 cents for every dollar that men earn At this rate of progress, it will take women decades to close the wage gap

4 Legislative Landscape: Three Examples

5 What Are Employers Doing?

6 and What Do They Find? Gender pay gap is quite common and ranges from 1-5% in most situations Grade structure is a critical factor because most organizations tend to employ male and white employees in higher grade levels Functional employment is another critical factor as many tech related jobs tend to pay more and are male dominated Starting salary can explain as much as half of the pay gap Other factors that occasionally drive or explain pay gaps include Leaves of absence Performance ratings Sales revenue generated Tenure Supervisory biases but direct evidence for these is hard to detect As a rule of thumb, most of our clients can fix the gender pay gap with an investment of ~1% of payroll

7 What s Different About Equity Grants? 1) They are clearly covered under pay equity laws that refer to total compensation 2) It is a bit harder to fix equity pay problems retroactively 3) Often there are lots of rules guiding who gets what, when; there tends to be less managerial discretion 4) Often managers are asked to use different criteria for setting equity pay such as potential and turnover risk both being factors that are very hard to measure Bottom line: Equity is usually a secondary concern when it comes to pay equity. Rightly so?

8 DO WOMEN FEEL DIFFERENTLY ABOUT EQUITY COMPENSATION THAN MEN?

9 Men vs. Women Perceptions of LTI More loyal Work harder Prefer stock over cash More knowledgeable Source: Fidelity participant research 2016.

10 Men vs. Women Reasons for participating in ESPP Discount Friends, Advisors, Employer Source: Fidelity participant research 2016.

11 IS THERE A GENDER GAP WITH RESPECT TO EQUITY COMPENSATION?

12 Stock Option Exercises Total option exercises heavily weighted toward men, reflecting grant patterns Women execute options at a higher gain than the average on a client by client basis Mean average of gain for women is 6% higher than the mean average of gain for men Source: Fidelity data analysis for 2016 and 2017 option exercises.

13 Automatic Exercises When automatic exercise is provided, automatic exercises for men are greater than for women However, total exercises for women are lower, so as a percent of total executions, women are more likely to have options automatically exercised Automatic exercise remains a very small subset of total exercises Source: Fidelity data analysis for 2016 and 2017 option exercises.

14 Companies Favoring Gender in Number of Cash Units With outliers removed and 80% of the population remaining, many companies are at parity (within 5%) for cash awards, but more companies have a gender bias towards men than companies who have a gender bias towards women, and even more when measuring mean over median. Median Mean Source: Fidelity data analysis for cash awards.

15 Companies Favoring Gender in Number of RSUs With outliers removed and 80% of the population remaining, many companies are at parity (within 5%) for RSUs, but more companies have a gender bias towards men than companies who have a gender bias towards women, and even more when measuring mean over median. There is greater gender bias towards men for RSU grants Median Mean Source: Fidelity data analysis for RSU grants.

16 Companies Favoring Gender in Number of Cash Units by Estimated Salary Band When adding salary bands, there is a more equal distribution across the results for cash awards, but where a gender bias remains, it favors grants to men over women, and even more when measuring mean over median. Male Within 5% Female Mean Median Source: Fidelity data analysis for cash awards.

17 Companies Favoring Gender in Number of Restricted Stock Units by Estimated Salary Band When adding salary bands, there is a stronger gender bias for men with RSUs, and it is more pronounced when measuring mean over median. Male Within 5% Female Mean Median Source: Fidelity data analysis for RSU grants.

18 Selling Behavior by Gender Women are more likely than men to hold shares acquired from Restricted Stock grants. Source: Fidelity data analysis for 2016 vestings as of 12/31/17.

19 Selling Behavior by Gender While women are more likely to be holders, when they are sellers, they are more likely to sell within first 2 weeks. Source: Fidelity data analysis for 2016 vestings as of 12/31/17.

20 ESPP Contribution Amounts Source: Fidelity internal reporting as of February Data represents the average automatic contribution amount (as a % of salary) by men and women.

21 FOR YOUR COMPANY

22 How to Handle Pay Issues Related to LTI New Hire Grants 1) Set stricter guidelines 2) Closely monitor exceptions to those guidelines in real time 3) Do a retroactive analysis annually to monitor if your approach is working Ongoing Grants 1) Do a pay equity analysis to test for historical inequities 2) If there are problems, learn how to fix them going forward 3) Most likely you will have to run a just-in-time pay equity analysis during the grant cycle

23 Some Things You Might Find Base Pay Base pay can be a good diagnostic for imbalances as we often see that fixing gender or ethnicity gaps with respect to base pay also addresses similar gaps related to LTI Potential Courts may be concerned if judgment-based future potential explains gender or ethnicity equity pay gaps Potential is hard to accurately define and measure, and even harder to justify If non-diverse men as a group have higher potential, you might have a problem Attrition Risk We recommend that equity planners flag employees who they believe are at risk as they make equity grant decisions It s difficult to assess, but the inclusion of these flags when running pay equity models would clarify if attrition risk drives grant decisions (which is likely) and if such subjective attrition risk perceptions explain pay gaps by gender and ethnicity Again, if non-diverse men have higher attrition risk, you might have a problem

24 Client Example 10% 5% 3% Male vs. Female 5% 8% 0% Base Pay Base Pay plus 2018 grant Base Pay plus 2018 unvested stock Client felt that supervisors trade lower grants for higher base pay which might explain away gender pay gaps It turned out that base pay levels actually drove larger incentives (short term + long term) There was no evidence for a systematic trade-off In fact, once base pay levels are taken into account, there was no significant pay gap for long term incentive payments Note: Numbers are slightly altered to protect the client.

25 E0 E8 E7 M6 / P6 M5 / P5 M4 /P4 M3 / P3 M2 / P2 M1 / P1 S5 S4 S3 S2 S1 The Bigger Problem: Pay Equity versus Job Equity 60% 50% 40% 30% % Female by Grade Level Equity Grants 20% 10% 0% Source: Radford.

26 Questions and Contact Emily Cervino Fidelity Stock Plan Services Stefan Gaertner Aon Radford FOR CEPI SYMPOSIUM ATTENDEES ONLY. CEPI, Aon Radford, and Fidelity Investments are not affiliated