An Update On Pay Gap Shareholder Proposals

For nearly five years, major U.S. corporations have been subject to intense scrutiny over their decisions on whether to release internal pay gap percentages in response to shareholder proposals by Arjuna Capital, LLC and other activist shareholder groups. As these activist groups maintain a keen interest in seeking compensation-related disclosures from industry giants, employers should be mindful of certain issues in considering their response.

Initial Activist Demands and Employer Responses

Companies have responded to these shareholder proposals in several different ways. While some companies quickly disclosed pay gap information, other large technology, retail, and banking outfits were reluctant to disclose the requested information, and some sought to exclude the wage gap shareholder proposals from their annual shareholder proxy statements by requesting “no action” letters from the SEC. These efforts were unsuccessful.

In this first wave of pressure from activist groups, many companies reached agreements with shareholder groups to release wage gap information in exchange for the withdrawal of the shareholder proposals. In other cases, shareholders voted down such wage gap shareholder proposals at annual shareholder proxy meetings. A small number of companies proactively released internal wage gap statistics. Ultimately, the first wage gap shareholder proposals yielded only a few public disclosures that specifically related to how companies pay women and men performing the same job roles.

Renewed Interest in 2019

Now, doubling down on pressure to disclose, shareholder groups in 2019 are targeting employers in technology, banking, and retail industries with new pay gap disclosure demands. Unlike prior requests, however, shareholder proposals issued in 2019 have sought median pay gap data. The median pay gap represents a single, raw, unadjusted data point reflecting the middle compensation value among all female employees in a workforce versus the same value for men.

As we previously reported here, what median wage gap statistics actually describe is a subject of debate. First, median wage gap values reflect a single compensation data point at the middle of an organization’s workforce. These median values do not, however, provide more nuanced information organization’s highest and lowest earners. Similarly, median values may be skewed by the number of individuals in an organization, or by other variables that can be difficult to interpret from a single, unadjusted percentage value.

Second, unlike the kinds of wage gap percentages that organizations have reported for the last several years, median wage gap statistics do not reflect legitimate differences in compensation between employees based on, for example, the nature of the work performed. Specifically, median wage gap statistics do not consider that individuals may be performing very different jobs reflecting highly diverse skill levels, education, and experience, among other factors. As a result, median pay gap statistics may over or understate the prevalence of perceived compensation disparities in a given workforce.

Most organizations to receive median wage gap disclosure proposals have resisted the call to disclose such information. Several companies have again petitioned the SEC for “no-action” letters seeking to omit the median pay gap disclosure proposals from annual shareholder proxy statements. These petitions have again been unsuccessful. Companies have also asserted several reasons for opposing median pay gap disclosure proposals within their respective statements, including existing internal pay equity policies and prior adjusted wage gap disclosures.

As we continue to monitor this trend, shareholders remain leery of disclosing median pay gap information, and over the last year, companies have uniformly voted down median pay gap disclosure proposals at every company for which they have come to a vote. Indeed, of the numerous companies targeted, only Citigroup has publicly released its median pay gap information in response to a shareholder proposal. Along with the disclosure, Citigroup outlined an ambitious set of goals to close any remaining internal median pay gap and to achieve full pay equity across the company’s global workforce. To date, Citigroup received the sole “A” grade on Arjuna Capital’s “Gender Pay Scorecard” in recognition of Citigroup’s pay transparency.

Looking forward, this trend is unlikely to fade, and employers should expect renewed waves of shareholder proposals in years to come. In anticipation of these proposals, organizations should consult with counsel in evaluating whether disclosure of pay gap information is right for the company, and on what terms. Employers may also consider performing a pay-equity analysis—if they are not doing so already—to evaluate employee jobs and compare pay among comparators. Typically, this involves retaining legal counsel, and possibly a labor economist to work at counsel’s direction and conduct a privileged assessment. Given the near-certainty that many large companies will be on the receiving end of a pay gap disclosure proposal at some point in the future, preparedness is key in addressing and disclosing internal pay gap information.