Friday, April 14, 2017

Reporting bias drives half of the starting MBA gender pay gap

Women MBAs are at a salary disadvantage from the onset of their post-business school careers, new data shows. According to self-reported data from MBAs graduating from top U.S. business schools, women earn an average total compensation package of $14,000 less than men in their first year of work. The data has been compiled by Transparent Career, an online MBA job reporting platform founded by an MBA team from the University of Chicago Booth School of Business. ...

[Transparent Career CEO Mitch] Kirby continued, after running multiple regressions, “roughly $4.5K of the gap was driven by this difference in job function choice, or about 33% of the total.”

To go even further still, Kirby honed in on consulting, because of its “notoriously standardized compensation packages.” Yet, in the data, there was still a wage gap of more than $12,000. How could this be? ...

“We used data from a set of top consulting firms, which we know to offer completely standardized compensation to MBAs regardless of gender,” Kirby wrote of their methodology to examine the hypothesis. “We looked to see if there was a difference in how women and men reported these offers.”

While men and women both reported salaries around $144,400, men reported earning $8,000 more in “bonus” and “other compensation.” Of the $12,000 gap in consulting, Kirby reasoned at least two-thirds of it was due to men inflating their projected bonuses and overall compensation. According to the report, an additional 43% of the overall wage gap was a result of this phenomenon.

“What’s noteworthy here is that offered salary is an objective, immutable number,” Kirby wrote. “Performance bonuses and other compensation, however, can be interpreted more subjectively — based on a range candidates are given in an offer letter. Its likely that men are estimating they will achieve higher performance bonuses than women, which leads to a larger reported wage gap.”

--Nathan Allen, Poets and Quants, on self-confidence in pay estimates. Next step is to see how much of the forecasted bonus gap materializes in actual bonuses.