Job-Hopping Toward Equity

Changing employers can help narrow the gender gap in executive compensation.

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Progress on shrinking the gender pay gap has been glacially slow. Though it has narrowed somewhat over the past 40 years, stark inequities persist. In 1980, women earned 64 cents for every dollar that men earned. By the end of the decade, that amount had increased to 74 cents, but since then, gains have been much more modest.1 As of 2018 (nearly 30 years later), the pay disparity was 81.6 cents on the dollar.2

Movement toward parity has been sluggish in all segments, but it’s slowest of all for people at higher earning levels, including managers and executives. Much of the research on this problem examines internal labor markets — that is, who gets promoted within organizations and how equitably they are compensated when they move up.3 However, the external market is becoming increasingly important in filling senior roles.4 Between 1970 and the early 2000s, the percentage of CEOs brought in from the outside jumped from 15% to 33% of all CEO hires.5 Clearly, we need to study the context of external job moves if we want a deeper understanding of current compensation trends.

For managers and executives, changing employers has been linked to larger increases in pay. So we set out to explore whether women — particularly those in senior roles — can use external moves to increase their own compensation and perhaps narrow the gender pay gap.

Existing survey-based studies suggest that gains from switching employers are less pronounced for women than for men.6 These studies broadly compare leavers versus stayers by gender. However, leavers and stayers may have different attributes that drive pay increases — and those differences may vary by gender.

For such reasons, we think it’s necessary to take a finer-grained look at the issue by asking some pointed questions. For instance, in external labor markets, do executive women primarily get paid less for doing the same job, or does the disparity have more to do with getting barred from job opportunities with higher pay? Recent work suggests that access to those plum opportunities is a critical component. Short-listing practices in external search firms have been shown to disadvantage women.7 But studies also show that once executive women enter consideration pools, they are as likely to be selected as men with comparable credentials.8 That finding raises another question: Once women are placed in these competitive roles as external hires, how do their pay increases compare with those of men brought in from the outside?

In our analysis, they actually compare favorably. Using proprietary data from a top-five executive placement firm, interviews with search firm executives, and career history information on LinkedIn, we looked at more than 2,000 senior-level external job switches across a wide variety of industries and functions.9 Surprisingly, we found that among executives who change jobs, women get higher-percentage increases than men overall. In this article, we quantify these differences and explore contextual factors that appear to be associated with the gains for women, shedding light on when women might fare better financially in changing employers.

To be clear: Higher increases are not the same thing as higher pay. In our sample of executive job switchers, women are paid, on average, less than men both before the move and after. But in some situations, external moves do appear to reduce pay disparities.

Investigating the Gap

Before digging into our findings about pay increases, let’s take a closer look at the pay gap itself. When analyzing compensation, it is important to account for human capital factors (like education and experience), employer characteristics (such as organization size and industry), job types (functional roles and reporting levels), and the portion of pay that’s performance-based. Isolating these factors — looking at men and women with similar education levels, work experience, roles, and so on — provides a more nuanced picture of disparity.

Such analysis starts with the “raw” pay differences between men and women and then layers on explanatory factors one by one to identify the greatest sources of difference and, ultimately, to see what gap remains after these factors are taken into account. This residual figure, often referred to as the unexplained gender gap, is typically taken as direct evidence of discrimination in pay. However, discrimination certainly can (and often does) also affect where people go to school, the experiences they accumulate at work, what they are hired to do, and where they are hired to do it. What’s more, other unmeasured attributes can contribute to pay disparity. So, we should note, even a careful analysis controlling for measured factors, while instructive, has its limits.

We compared what executive women and men were paid before they switched employers and in their new jobs and noted three key differences.

First, as expected, we observed a sizable raw pay gap between women and men both before and after the change. In our sample of executives, not controlling for any other factors, we found that men’s compensation was 19.5 percentage points higher than women’s in the prior job and 14.0 percentage points higher in the new job.

Second, when we included additional explanatory factors, the unexplained gender pay gap decreased but did not go away. (See “Sizing Up the Gender Pay Gap for Executives.”) With controls for experience and education levels and employer attributes, the gap shrank to 16.9 percentage points in the prior job and 13.2 percentage points in the new job. The largest drop in the gender gap occurred when we accounted for function and rank; that brought it down to 11.1 percentage points in the prior job and 6.1 percentage points in the new job. We observed further narrowing of the gap when controlling for the portion of cash compensation that is performance-based. Although a gap persisted with all these factors incorporated, it was 8.2 percentage points in the prior job and 5.9 percentage points in the new job — less than half the magnitude of the raw gap.

Third, no matter what we controlled for, the difference in pay between women and men overall was smaller in the new job. That telling data point suggests that women, on average, are receiving higher increases than men when changing employers.

Breaking Down the Controls

To dig deeper, we further analyzed the impact of explanatory factors on the gender pay gap by doing what is called a Blinder-Oaxaca decomposition of the pay difference: We first analyzed compensation for men and women separately and then asked two questions:

  1. How much would the gap close if women had the same human capital attributes (experience and education) as men and worked in the same kinds of jobs?
  2. How much would it close if women were compensated at the same level as men for the attributes and roles they currently possess?

Looking at the problem in this way, we found that differences in attributes explained 60% to 70% of the gender pay gap — and that differences in how women are paid for their qualifications accounted for 30% to 40% of the gap.

The degree to which pay is contingent on performance is another important factor to consider. When we controlled for performance bonus as a share of cash compensation, the residual pay difference between women and men dropped considerably in the prior job (by 3 percentage points) but didn’t change much in the new job. This is because, on average, women took on more performance-based pay than they previously had when they switched jobs.

Other Factors That Affect the Gap

Picture a long-distance foot race. Lagging runners can catch up with the leaders by improving their relative position in the pack, advancing beyond the middle runners, or the pack can tighten so that everyone is running closer together.

Now let’s apply that lens to compensation. When women increase their pay and narrow the gender gap by switching employers, are they moving up in the pay-distribution pack compared with men, or is the variance in pay decreasing overall?

Our analysis suggests the latter explanation. For both men and women, pay differences based on employee attributes and job types are more muted in the new jobs than in the prior jobs. The standard deviation of residual pay differences among men drops by nearly 70% in the new jobs compared with the prior jobs. If not for that drop among men, women would have lost ground (by nearly 4 percentage points) in their relative position on wage distribution when they switched jobs. However, the diminished variance in pay in the new jobs more broadly has tightened the pack.

Unmeasured individual attributes may also have an impact on the gender pay gap. For instance, women who change employers may differ from women who stay, in ways that don’t mirror the differences between male movers and stayers.

To allow for such unmeasured differences, we used what’s known as a regression model with individual fixed effects. This approach creates a control condition for each person — basically, you measure the difference in pay at the individual level for everyone in the sample, then average those differences over the populations you care about (in our case, women compared with men). All individual differences that do not change over time are accounted for.

Although this technique, too, has its limitations, we were able to use it to gauge the difference in increases between women and men who changed jobs, without ignoring the role that individual circumstances can play. We also controlled for the same measurable attributes that we controlled for when we looked at the pay gap itself. When accounting for human capital factors like education and work experience, we found that pay increases for women were 5.5 percentage points higher, on average, than those for men. Also accounting for employer and then job characteristics increased the magnitude of these gains for women over men to 5.9 and 6.2 percentage points, respectively (and the estimates became more precise).

However, the advantages for women disappeared altogether when we factored in the levels of performance-based pay. This finding underscores how underutilized bonuses are as a tool for leveling the compensation playing field.

Why Context Matters

In what situations are women poised to benefit financially from external job moves? Our findings suggest that contextual differences in labor markets matter. Supply and demand effects are tricky to pin down with causal certainty, since each force indirectly affects the other. But patterns in the data do indicate that these forces influence which women stand to gain the most from changing employers.

Demand forces. Amid pressure to address equality concerns, organizations are generally ramping up efforts to hire more women in senior roles. While some of them may be championing equity for equity’s sake, research suggests that many employers are focusing on executive hires in particular when trying to meet their diversity goals, at least partly because the representation of women is most visible in senior roles.10 This is not good news for women at other levels, but women entering executive positions have demand on their side.

For this reason, our interviews suggest, senior-level women are in a better position than women at lower levels to command more substantial pay increases and to narrow the gender compensation gap. As one search firm executive observed, “Virtually all of my clients [looking to fill a senior role] will go out of their way to include a woman on the short list. … If a woman is not initially interested in a role because it is not quite big enough or broad enough for her, they’ll often say, ‘OK, OK. You can have this other division of the company as well.’ And with money, they will absolutely, absolutely happily pay more for women. There is just such a strong push and momentum behind bringing women onto the exec team.”

The data we analyzed conveys a similar message. Among senior executives, we found that pay increases for job-switching women were 9.41 percentage points higher than increases for job-switching men; at lower levels, women received the same increases as men when they moved. Given this pattern, the visibility of senior positions may be partly driving women’s ability to achieve higher relative increases.

If the visibility of executive roles puts pressure on organizations to hire women, does that mean highly visible employers — for instance, public companies with a global presence — would have even greater demand for female executives? In our interviews, we found some hints that they might. As one search firm executive put it, “For an American multinational, if they were working here in my country, would they pay more to hire a female than a male? If all else would stay equal, I’d say so. But I don’t see this happening with the local companies.”

Our analysis also suggests that companies in the public eye may be more likely than others to give executive women higher increases to diversify their workforces. For job moves to publicly traded companies, we observed that women’s average pay increase of 33.2% was 11.5 percentage points higher than men’s average increase of 21.7%. For job moves to privately held companies, which undergo less scrutiny, women received the same 15.7% average increase that men did.

Supply forces. What impact might supply forces have on pay increases for women? We hypothesized that the relative scarcity of women in candidate pools could boost prices. In our interviews, that effect came up, though it did not seem to be widely exploited. One search firm executive described it this way: “Some of the female executives who are aware of [the scarcity effect] have negotiated remarkable compensation agreements. I think that the phenomenon is very real, and the few women who’ve figured it out have monetized it nicely.”

To dig a bit deeper, we looked at industries where women are historically underrepresented, such as logistics, manufacturing, and construction. Research shows that executive women in such fields often lack career support, since they have limited access to networks of role models and mentors to fuel their professional development.11 In our analysis, however, their scarcity seemed to give them financial leverage. We observed that those who switched jobs in industries with fewer women received an average pay increase of 34% — 13.2 percentage points higher than the 20.8% increase received by men in such industries. In industries with more equal representation, pay increases for women who switched jobs were not much higher than those for men.

The scarcity effect can also occur in functions where women are traditionally underrepresented, such as R&D, general management, and operations. As one search firm executive commented, “If you’ve got a woman who is really good at sales or really good as a general manager, then they will command an even bigger premium than the ones in the functions where they’re more represented.”

In our sample, executive women who changed jobs in functions where they are underrepresented increased their pay by an average of 30.2%, compared with 16.8% for men; however, because these estimates could not be precisely estimated, we could not conclude that raises were different between men and women.

Finally, we considered scarcity-driven labor costs stemming not only from a lower supply of women but also from a higher cost of enticing them to move. Women bear the brunt of family concerns in many households, so job switches are often difficult for them. To study this family effect, we compared women’s and men’s pay increases among two populations: executives who have a partner and/or children and those who have neither. Because family status was captured only in the South American and European regions in our data set (45% of the sample), we examined only these two regions, where the average pay increase for job switchers overall is around 10%. In these regions, women with a partner or children received increases that were 17.9 percentage points higher, on average, than increases for men. For women without a partner or children, increases were not higher than the 10% baseline.

In certain contexts, then, external job moves can lead to higher — and more equitable — compensation for executive women. Since our results appear to contradict prior work that used different methods, this issue deserves more study. Still, we see potential for further progress toward parity.

Even though women do not appear to be moving into more lucrative positions in more lucrative industries or roles than men overall, two mitigating factors can help them gain ground. First, executive women have an underexploited opportunity to narrow the gender gap further by negotiating a greater share of performance-based pay — particularly in contexts where they are highly visible, scarce, or both. And second, the residual, unexplained pay disparity in external job moves is decreasing generally.

Of course, gains are not distributed evenly across women in all situations. Although we’re seeing progress for some, compensation remains far from equitable overall. But there’s movement — and by understanding where it’s happening, both employers and job candidates can build on it.

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References

1. F.D. Blau and L.M. Kahn, “The Gender Wage Gap: Extent, Trends, and Explanations,” Journal of Economic Literature 55, no. 3 (September 2017): 789-865.

2. M. Leisenring, “Women Still Have to Work Three Months Longer to Equal What Men Earned in a Year,” U.S. Census Bureau, March 31, 2020, https://census.gov.

3. One of the few studies that tries to fill the gap in research on external job moves is C. Quintana-García and M.M. Elvira, “The Effect of the External Labor Market on the Gender Pay Gap Among Executives,” ILR Review 70, no. 1 (January 2017): 132-159.

4. M. Bidwell, F. Briscoe, I. Fernandez-Mateo, et al., “The Employment Relationship and Inequality: How and Why Changes in Employment Practices Are Reshaping Rewards in Organizations,” Academy of Management Annals 7, no. 1 (June 2013): 61-121.

5. K.J. Murphy and J. Zábojník, “Managerial Capital and the Market for CEOs,” SSRN, April 2007, https://papers.ssrn.com.

6. For example, see G.F. Dreher and T.H. Cox, “Labor Market Mobility and Cash Compensation: The Moderating Effects of Race and Gender,” Academy of Management Journal 43, no. 5 (October 2000): 890-900; and J.M. Brett and L.K. Stroh, “Jumping Ship: Who Benefits From an External Labor Market Career Strategy?” Journal of Applied Psychology 82, no. 3 (June 1997): 331-341.

7. T.L. Botelho and M. Abraham, “Pursuing Quality: How Search Costs and Uncertainty Magnify Gender-Based Double Standards in a Multistage Evaluation Process,” Administrative Science Quarterly 62, no. 4 (December 2017): 698-730; and G.F. Dreher, J. Lee, and T.A. Clerkin, “Mobility and Cash Compensation: The Moderating Effects of Gender, Race, and Executive Search Firms,” Journal of Management 37, no. 3 (May 2011): 651-681.

8. R.M. Fernandez and M. Abraham, “From Metaphors to Mechanisms: Gender Sorting In(to) an Organizational Hierarchy,” research paper 4779-10, MIT Sloan School of Management, Cambridge, Massachusetts, April 2010; and R.M. Fernandez and M. Abraham, “Glass Ceilings and Glass Doors? Internal and External Hiring in an Organizational Hierarchy,” research paper 4895-11, MIT Sloan School of Management, Cambridge, Massachusetts, January 2011.

9. B. Groysberg, P. Healy, and E. Lin, “Determinants of Gender Differences in Change in Pay Among Job-Switching Executives,” ILR Review, published online June 2020, forthcoming in print.

10. L.M. Leslie, C.F. Manchester, and P.C. Dahm, “Why and When Does the Gender Gap Reverse? Diversity Goals and the Pay Premium for High Potential Women,” Academy of Management Journal 60, no. 2 (April 2017): 402-432.

11. K.S. Lyness and D.E. Thompson, “Climbing the Corporate Ladder: Do Female and Male Executives Follow the Same Route?” Journal of Applied Psychology 85, no. 1 (February 2000): 86-101.

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