- Since 2016, investment management firm Arjuna Capital has persuaded 28 Fortune 500 companies to disclose racial and gender pay gap data.
- In the US, black workers’ median earnings represent 64% of white workers’ earnings and women’s earnings represent 83% of men’s earnings.
- Walt Disney published statistically adjusted racial and gender pay gap data last September after a historic majority vote by investors at the company’s AGM.
As with many governance issues, the US is playing catch up with Europe and the UK over pay gap disparity disclosures. But unlike in Europe, where regulations plays a bigger role, it is left to activist shareholders to make things happen.
For starters, there is no such thing in the US as the UK’s gender pay gap service, where companies with more than 250 employees must report statistics comparing men and women’s average pay across the organisation.
“US investors should have access to that information in their own country,” says Natasha Lamb, managing partner of investment management firm Arjuna Capital, the lead shareholder proponent in the campaign to disclose pay disparities.
In addition to Arjuna Capital ($400m AUM) and shareholder advocacy firm Proxy Impact, New York City pension funds, Pax World Funds, Zevin Asset Management and even, this year, gadfly investor James McRitchie have all filed gender/race pay gap resolutions.
Pay disclosure success rate
Between them, these shareholders have persuaded 28 companies to disclose pay gap data, including unadjusted median pay gaps across race and gender.
Those 28 companies include restaurant chain Chipotle, retailers Home Depot and Target, and Microsoft. Over the last seven years, 152 shareholder proposals requesting pay gap disclosures have been filed at more than 80 companies according to Sustainable Investments Institute (Si2), a non-profit organisation conducting research into shareholder activism.
If you include all decent work/fair pay resolutions, that figure rises to 256, according to Si2.
In March last year, a shareholder proposal filed by Arjuna Capital at Disney captured 59% shareholder support. In response, the company published statistically adjusted racial and gender pay gap data in September, which is not what the resolution asked for (more on this issue below), but it’s a start.
Disney has promised to publish unadjusted median gaps and include bonus and equity compensation in future disclosures in 18 months. Disney had tried to prevent the resolution appearing on its proxy as it is also facing a class action lawsuit about discriminatory pay practices. In May, a majority of DIY store Lowe’s shareholders supported a similar proposal from Arjuna Capital. A vote on a similar resolution at Apple garnered 35% support.
As the chart using data from Si2 shows, support for resolutions has been growing fairly steadily since the first was filed in 2015, with a significant jump in support in 2021 and 2022. Increased support slowed in 2018, because Arjuna Capital and others switched from asking for adjusted to unadjusted pay gap data.
Adjusted versus unadjusted pay
Companies are typically more willing to disclose adjusted pay gap data because it often shows there is no gap between male pay and that of women and ethnic minorities. The process of adjusting it means that only ‘same role pay’ is compared – male senior software engineer with female senior software engineer. Adjusted for that and, lo and behold, women earn 100% of male pay.
Unadjusted pay throws everyone’s pay into one big bucket and, because at most companies far more white males occupy senior positions than either women or ethnic minorities, it shows that men earn far more. In the US, black workers’ median earnings represent 64% of white workers’ earnings, and women’s earnings represent 83% of men’s earnings.
Both figures are useful, of course, but the unadjusted figure shows the disparity in promotions, seniority and earning power. It is the one required to be disclosed in the UK and typically does not reflect well on companies.
“The unadjusted pay gap information is an accurate representation of structural bias in the organisation. And investors want to see those gaps closing over time,” says Lamb. “We’ve seen companies raise salaries for women and people of colour by millions of dollars as a result of these campaigns, but that does not address the structural issues.”
Data from Si2 also shows that of the total gender/racial pay gap resolutions that were filed, almost as many were withdrawn (73) as went to a vote (74). A withdrawn resolutions signals an agreement by the company to disclose the data that the resolution is requesting. For example, Arjuna Capital has already withdrawn a resolution it filed this year at Visa because the company agreed to disclose the data. Another 11 such proposals have been filed this year.
What do the big three US fund managers think about pay?
In order to get the majority votes that were seen at Disney and Lowe’s, for example, it is likely that at least one, if not more, of the three largest asset management firms in the US – BlackRock, Vanguard and State Street Global Advisors (SSGA) – supported them.
“The level of interest in ESG proposals has gone up dramatically in the last few years among the big asset managers. They want to understand the issues more and they are talking to us,” says Lamb.
Capital Monitor checked the voting records of all three firms on three of the resolutions that went to a vote last year – at Disney, Lowe’s and Amazon. Resolutions were withdrawn last year at Target, Chipotle and Home Depot owing to substantial agreement to implement the requests by the companies.
BlackRock voted for the resolutions at Lowe’s and at Disney, but against at Amazon. SSGA also voted against the resolution at Amazon, but for at Disney and abstained at Lowe’s.
“Many of the early companies where shareholders had success, such as Amazon, agreed to disclose adjusted pay gap data and for many of the institutional shareholders that was enough as they did not support later resolutions asking for unadjusted median pay gap data,” observes Michael Passoff, CEO of Proxy Impact.
In practice, Vanguard makes fund by fund vote disclosure, so we looked at the votes disclosed for multiple funds. In these cases, the ‘multiple’ funds voted against all three resolutions. On the other hand, individual funds, such as the Vanguard Variable Insurance Fund – Growth Portfolio – Wellington, supported the Disney resolution, as did another Wellington fund.
Explaining its house approach in its stewardship report for 2022, Vanguard, which did not respond to requests for comment, argues inequities in adjusted pay gap data could trigger litigation. It felt that with disclosing the unadjusted pay gap “investors…may be led to believe that pay inequities exist in like-to-like roles at a company when they do not.”
Arjuna Capital’s Lamb comments: “I don’t understand them saying 'well, if it looks bad, we don’t want companies to disclose it'. The whole point is that investors should have the full picture, an honest accounting.” But this vote criteria would not explain why Vanguard voted against the resolutions at Disney and Lowe’s, which reported no data at all.
Passoff argues: “We only get [big asset managers’] support if the company has no disclosure at all or if they are being sued. But, otherwise, there’s no pressure for companies to do it, so those asset managers are complicit in keeping everyone’s salaries unequal.”
BlackRock does not specifically reference pay gap resolutions in its Stewardship Report, although it does ask companies to disclose their EEO-1 survey, in its US voting guidelines. However, in its vote disclosure tool, it does give a brief description of why it voted for or against a particular resolution.
For example, at Disney, it says: “We believe it is in the best interests of shareholders to have access to greater disclosure on this issue.” Lamb comments: “In some ways BlackRock’s votes make the most sense; I can see what their perspective is. Disney and Lowe’s didn’t disclose any pay gap information.”
At Amazon, where BlackRock voted against the resolution, its vote report says: “The company already provides sufficient disclosure and/or reporting regarding this issue, or is already enhancing its relevant disclosures.” And it has voted against this resolution in the two years prior.
SSGA policy on these resolutions is based on its evaluation of the following disclosures: adjusted pay gaps, EEO-1 data, diversity specific goals for each level of management and the strategies to achieve those goals. It will vote against proposals if the company provides those disclosures, abstain where companies have given an assurance of making these disclosures within a reasonable timeframe and against if they have not. Such an approach explains the three different votes noted above.
Pay gap engagement is a slog
Resolutions are time-consuming and it’s unclear how much fight investors have in them to move an entire market in a certain direction.
“This year I’m doing less filing,” says Passoff, “but for a high-net worth individual client I’m doing letter-based surveys on pay gap and DEI [discrimination, equity and inclusion] issues of specific companies in her portfolio. One resolution fight can take up a lot of time, and surveying 20 companies is more efficient in the long run. The results will also be used to expand coverage in the scorecard and they will inform who we target for resolutions.”
But big wins can create positive PR. Lamb sums up by pointing to Citigroup, the first company in the US to disclose its unadjusted pay gap statistics, and now it has the first female CEO on Wall Street, it has become a leader on diversity. “Back in 2019, it took out a four-page spread in the New York Times, encouraging others to follow their example,” she says.