Katica Roy is the CEO of Pipeline Equity. The views represented here are her own and do not necessarily reflect the opinion of Bloomberg LP and its owners.
Katica is also a member of Bloomberg Breakaway, a network of CEOs and founders who lead established and emerging industry leaders. Find out more about Bloomberg Breakaway here.
“If you believe that your likely successor will be a woman or person of color, would you kindly extend a hand into the air.”
It was a stunning moment before the House Financial Services Committee. Not one of the seven big bank CEOs raised their hand to indicate that their successor would be a woman or a person of color in response to the question from Representative Al Green. It was a moment that got to the heart of gender inequity in financial services. In its most powerful positions, it is white and male.
The long-held perception that money is men’s business should not come as a shock. What should come as a shock is the extent to which masculinizing money holds our economy back. The future of the financial services industry depends on gender equity. It’s time for Wall Street to wake up.
The Masculinization of Money: Numbers Behind the Narrative
Just six days prior to Representative Al Green’s brave question before the House Financial Services Committee, the same seven banks had reported their gender pay gaps in the UK—for the second year running. Only one big bank, Bank of America Merrill Lynch, showed improvement year over year. (They had taken steps to close both their median pay gap and median bonus gap.)
The median pay gaps for banks reported in 2019 range from 6.3% to 60%. To put that into context, a 60% pay gap translates to women earning .40p on the pound of their male colleagues. The median bonus gaps range from .9% to 74.8%, which means a 74.8% bonus gap reflects women earning .25p on the pound of their male colleagues.
When we take a broader look at the financial sector, we find two more facts worth noting. First, that the average financial services company narrowed the gender pay gap by .3p in 2018, from 81.9p to 81.6p. That is progress. However, we also find that, at its highest rate, women make up only 35.6% of the highest paid roles at banks. Now some of those banks will face hearings in the UK to explain how they plan to rectify their pay disparities.
Fairness aside, the gender equity imbalance in financial services comes with economic costs. Before prescribing solutions, let’s examine the underlying factors contributing to such an imbalance.
The Financial Services Talent Pipeline Is In Trouble
Women start out optimistic in the financial services industry. Many have aspirations to make it to the top, yet over time their aspirations dim.
In the US, women are 47% of degree holders in business. They make up approximately 56.5% of the labor base in financial services. And they represent only 19% of c-suite roles. If we further carve out the c-suite and strictly look at named executive officers, women constitute a mere 8.1% of those positions.
While the evidence of gender inequity in financial services is clear, we would be remiss to believe the inequity starts at the c-suite. In fact, it starts much earlier—at the very first promotion, where men receive promotions at an average rate of 25% greater than women. This rate is worse than the workforce as a whole, in which men are promoted at an average rate of 21% greater than women. Those are 37.5 point and 48.4 point leadership gaps, respectively.
Although it’s a common suspect, we cannot attribute the gap to attrition. Women are less likely to attrit out as compared to men in 11 of 15 career stages. We can, however, attribute the gap to this: that the pipeline of female talent exists, it’s just not being tapped as often. Why? Pattern matching.
Women in financial services look up and rarely see women. Managers who are promoting employees look up and, again, rarely see women. Of all the big banks’ CEOs, not one is a woman. It doesn’t help that the symbol for the industry is a bull.
As one female millennial working in the financial services industry explains it, “All of our senior leaders are older white males. They are the ones who set the culture that we experience every day, despite any programmatic efforts by the bank.”
Banks and financial service firms must do better. In fact, it’s in their best interest to do better, because when women succeed, businesses thrive.
The Future of Finance Starts With Gender Equity
Take the war on talent as an example. With today’s labor force shortage, banks cannot afford to cut out half of the talent pools by ignoring the importance of gender equity. Firms simply won’t be able to compete if they fail to bring on and grow more women.
To give another example of how financial services companies realize increased financial outcomes when they embrace gender equity, consider the success of female-founded Fintech firms. Fintech firms with a female founder have more than double the internal rate of return than Fintech firms whose initial entrepreneurs were all male.
Now let’s turn to female fund managers. Over the past 15 years, actively managed fixed-income funds run by women out-performed those run by men. The funds that were run by women exceeded average returns respective to their sector category by .35 percent annually. And female hedge fund managers have realized an 11.9 percent return compared to the broader index which has realized a 7.05 percent return.
Financial service firms enjoy quantifiable benefits when they increase the levels of gender equity in their workplaces. Here are three steps they can take towards equity.
The Right Way Forward for Finance
Women are not broken. The system is, and that is where the financial service industry must focus its efforts.
- Go Beyond Unconscious Bias Training.
Unconscious bias trainings are not enough. Studies have shown how these trainings perpetuate stereotypes rather than reduce them. It’s not to say implicit bias training play no role in achieving gender equity. Rather, and similar to women’s leadership programs, we cannot think of them as the panacea.
- Take A Data-Driven Approach.
Data are the critical link to drive action and realize gender equity. Businesses must examine the current talent state of their workplaces?(including latent talent). Use these questions to start:
- What are women in your company paid?
- How are their salaries decided and how often do they get raises?
- What’s the typical career path for women at your company?
- What are your hiring processes?
- How many women are in leadership roles?
- What are the most frequent reasons women leave your company?
- What resources are available to your employees? What benefits?
- Do resources and benefits differ according to gender?
Collect the facts and take action. Create equitable pools of talent, and ensure equity of both pay and opportunity.
- Advocate for Gender Budgeting as Part of Sound Fiscal Policy
It’s about investments and returns. Gender budgeting analyzes fiscal policy to quantify its different impacts on men and women. Government budgets are not gender-neutral, and gender-based budgeting ensures fairness in policy leading to better economies and increased investable assets.
Five of the seven banks mentioned above have signed public pledges committing to gender equity. Now is the time to live their pledge. Those seven banks employ over 850,000 employees. By our calculations, they make at least three key talent decisions each year—performance, potential, and pay—that is 2.5MM opportunities to move toward gender equity. When they make the best, equitable decisions, they realize better financial returns for all.