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For Wall Street, increasing pressure to disclose gender pay gap

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For Wall Street, increasing pressure to disclose gender pay gap

Wells Fargo & Co. on Feb. 1 became the third big U.S. bank to agree to disclose its gender pay gap, as the "Time's Up" and #MeToo movements add to pressure from U.S. investors and European regulators to release information on pay equity.

Wells Fargo said in an online post that its female employees based in the U.S. earn more than 99 cents for every dollar earned by male peers. The bank said the gap is the same for U.S. employees of color compared to white peers. The disclosure follows similar news from Citigroup Inc. and Bank of America Corp. in January. Both banks found a 1% gender pay gap.

"The #MeToo movement and 'Time's Up,' the fact that women are speaking up about inequality, whether that has to do with sexual harassment or equal pay; this is a critical moment in time for women's rights and also for racial rights," said Natasha Lamb, managing partner and director of equity research and shareholder engagement at Arjuna Capital, referring to the social movements that aim to raise awareness of sexual harassment and that call for gender equality.

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Arjuna is one shareholder pushing companies to disclose information on their pay gaps. The firm focuses on sustainable and impact investing, and it first targeted Silicon Valley companies with a proposal for disclosures on gender and racial pay gaps in 2016.

In 2017, the firm turned its focus to Wall Street, submitting its proposal at Bank of America, Mastercard Inc., American Express Co., JPMorgan Chase & Co., Wells Fargo and Citi. These proposals were rejected, but Arjuna refiled in 2018 at the same six companies, plus an additional three: Bank of New York Mellon Corp., Reinsurance Group of America Inc. and Progressive Corp.

In the past two weeks, some of the largest banks have publicly acted on the issue. Citi analyzed pay for employees in the U.S., U.K. and Germany and found that women are paid on average 99% of what men are paid and minorities are paid on average 99% of what non-minorities are paid.

Bank of America committed to disclose gender and racial pay gap information in its 2018 proxy statement and through its environmental, social and governance reporting. The bank said in an internal memo that it found just a 1% pay gap for women and minorities when examining U.S. and U.K. employees, according to Bank of America spokesman Andy Aldridge. The memo also notes that, beginning in March, BofA will stop asking candidates how much they made at their previous employer.

Courteney Keatinge is director of ESG research at Glass Lewis, a proxy advisory firm that has recommended shareholder support for a number of Arjuna's proposals on gender pay gap disclosures.

"I definitely think that it will put a bit more pressure on other financial institutions to follow suit," Keatinge said. "If one company puts out this type of statement and the other one doesn't, that does present a recruitment [or retention] kind of risk."

Granular data on employee compensation is hard to come by. Arjuna's proposals cite numbers from PayScale, a research firm that provides salary information based on surveys. PayScale shows an average gender pay gap larger than what banks have so far reported: a gap of 6.6% at Citi, 14.8% at Bank of America and 15.0% at Wells Fargo.

BofA's Aldridge questioned the validity of PayScale's numbers. "I can't comment on their data, I can't even verify it, because I don't know who submitted it, I don't know what roles it's for," he said. "To me that's a made-up number."

Lamb acknowledged that the data is "imperfect," but she said in the absence of company disclosure, investors and employees must rely on information like that voluntarily disclosed via PayScale. "Of course it is a sample, and of course it doesn't adjust for the things [the banks] adjust for in their statistical analysis like tenure, geography, etc.," she said. "It doesn't mean there's no legitimacy to it."

Arjuna responded to the banks' disclosures by withdrawing its proposals at Citi, BofA and Wells Fargo.

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In another sign of the increasing influence of gender issues on investment decisions, the largest U.S. proxy advisory firm has formalized its framework for making recommendations on shareholder proposals related to the gender pay gap.

"We knew we were going to be seeing more of these proposals, so we decided it was time to formalize that policy and include it in our voting guidelines," Marc Goldstein, head of U.S. research for Institutional Shareholder Services, said in an interview. "We like to be fairly transparent about these things. We don't want companies to feel they've been blindsided when they see a recommendation."

In 2016, five proposals related to the gender pay gap made it onto company ballots, according to ISS. By 2017, there were 14 such proposals.

"Sexual harassment is not the same thing as unequal pay, but there's clearly more attention being paid to gender-related issues and equality-related issues, and that's going to be reflected in the kinds of issues that we see on proxy ballots as well," Goldstein said.

"We're not trying to be activists on this issue, but generally speaking more disclosure, particularly of things that companies are already doing anyway, is going to be beneficial," he added.

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The #MeToo movement is influencing the broader conversation about gender equality and equal pay.

Source: MediaPunch via Associated Press

Regulation on the horizon

Pending changes in overseas regulations could also be influencing the recent tide of disclosures. Starting in April, the U.K. will mandate that companies with 250 or more employees must disclose gender pay gap numbers.

Goldstein said the U.K. disclosures will provide ISS with "one more data point" to consider when making recommendations. He does not expect to see this kind of rule in the U.S. in the near term. "Down the road, who knows?" he said. "It's possible that under a different administration in Washington there might be such a requirement in the U.S. as well."

Lamb said investor pressure, as opposed to regulation, has been the only means of driving results in the U.S. thus far. But she noted that some states are starting to enact equal pay laws.

"There is an impetus for companies to disclose and adjust pay so they can stay ahead of regulation," she said.

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