The Impact of Mandated Pay Gap Transparency on Firms’ Reputations as Employers

In recent years, there have been increasing calls for governments to require firms to publicly disclose information about gender pay gaps in an attempt to reduce workplace inequality. Denmark, France, Germany, and the U.K. now require gender pay gap disclosures from a broad swath of firms.  

But are we putting more faith into transparency initiatives than evidence warrants?

The idea is that transparency would create reputational pressure that would result in the narrowing of pay gaps. In this study, we ask whether this happened in one case, the U.K., where a 2017 law mandated gender pay gap disclosure for firms with more than 250 employees. We study whether evaluations changed for a key constituency affected by pay gaps, employees, looking at whether ratings on Glassdoor changed when large or small gender pay gaps were revealed.

Narrowing of Gender Pay Gaps?

There was reason for hope—the law impacted a large and diverse set of firms, attracted a great deal of media coverage, and made statistics about gender pay gaps easily available to members of the public.  

But, overall, our analyses showed effects were more limited than might have been expected—with a short-lived boost for firms reporting near-equal pay, and no detectable change for firms with high pay gaps. 

We ran a number of follow-on analyses to understand why effects were so muted. As Professor Henrich R. Greve of INSEAD summarizes in his recent blog, "Naming Is Not Shaming? Firms Paying Women Less without Reputation Loss," the challenges of evaluating the impact of these kinds of initiatives were substantial. The aggregated nature of these statistics made interpretation challenging and allowed employers to provide explanations for gender pay gaps that had nothing to do with discrimination, such as differences in the types of jobs women versus men select. 

Overall, our analyses point to both the promise and the limitations of mandating aggregated gender pay gap statistics. Rather than questioning the effectiveness of all forms of transparency in mandating change, our research suggests that policymakers should carefully consider the design of future transparency initiatives to make sure information is interpretable and actionable for employees and job seekers who are interested in egalitarian workplaces.

Sharkey, Amanda, Elizabeth Pontikes and Greta Hsu. 2022. "The Impact of Mandated Pay Gap Transparency on Firms’ Reputations as Employers." Administrative Science Quarterly, forthcoming