Have you ever wondered how media companies work out how much to pay you?
It is an important issue for everyone, but has become a pressing issue for BAME (Black, Asian and Minority Ethnic) people right now due to the issue of ethnicity pay-gaps.
This week the think tank, the Resolution Foundation, published their findings on the UK
ethnicity pay-gap and they make for bleak reading. Black male graduates are
paid 17% less than their white counterparts on average. British BAME people (Black,
Asian and Minority Ethnic) in general lose £3.2bn a year in pay gap differences
compared to their white counterparts.
In July 2018
ITN revealed an ethnicity pay gap of 20.8%.
PUT SIMPLY THE CONVERSATION THAT NEEDS TO CHANGE
Well here is an example of a typical
conversation I used to have as a BBC exec with Production Managers (PM) that may
have inadvertently perpetuated ethnicity pay-gaps.
Me: I want to employ a new Assistant
Producer I’ve just interviewed – I think they will be great for the new
Panorama we have just been commissioned to make.
PM: Great what is their name?
Me: Joan Smith, she has done some great
work, she has never done a network program before but has worked for the BBC
before and she will be great.
PM: OK let me look up the BBC payroll
records and see what they were paid last time she had a contract at the BBC. And
then that is what we will offer her.
Me: Great – let me know how it goes and
when you chat to them.
A few days later Joan Smith (not a real
name) would turn up and usually be paid the same, or just slightly more, than the last
time she worked at the BBC.
If the person had not worked at the BBC previously
the Production Manager would simply call them up and ask them “what was your
salary for your last job?”
TWO
BASIC ECONOMIC CONCEPTS
Economists have two terms for what is
happening in these conversations: “Anchoring” and “Asymmetric Information”.
Let’s start with the concept of “anchoring”.
“Anchoring” was first described by two psychologists
Daniel Kahneman and Amos Tversky in 1974 to explain the idea that an
initial number (regardless of how large or small) can act as a reference
point and influences subsequent judgments about something’s value.
Behavioral economists have recognized its particular importance in pay negotiations. Even though there may be subsequent adjustments on the initial number the first number will heavily influence the final outcome. If the initial number is high the final salary will be high, if the initial number is low the final salary will be low.
Behavioral economists have recognized its particular importance in pay negotiations. Even though there may be subsequent adjustments on the initial number the first number will heavily influence the final outcome. If the initial number is high the final salary will be high, if the initial number is low the final salary will be low.
The concept of “asymmetric information” is
also an important concept in economics and it is where one party has a lot more
information than another party. Unsurprisingly economists have found that the people
with more information have a massive advantage in any pay negotiations.
As the old saying goes; “knowledge is power”
WHY
ANCHORING IS BAD FOR BAME PEOPLE
Anchoring your current pay negotiations on
past pay is particularly bad for BAME people for a number of reasons. Statistically
in the UK BAME people find it particularly hard to land their first job, this
is true even for recent graduates who are more
than twice as likely to be unemployed compared to their white counterparts
The high unemployment level often leads BAME
people to take lower paid work. This initial low pay can then follow them throughout
their careers as subsequent pay negotiations are then based on it.
WHY
ASYMMETRIC INFORMATION IS BAD FOR PAY-GAPS
Asymmetric information gives the employer
the upper hand. While they know exactly how much you earn the chances are you
do not have a clue how much other people in the organization in your same
position earn. This means the employer has a good idea how much you will settle
for while you have next to no idea how high you can bargain for
According to David
Burkus, a professor in management studies, this means that “during initial hiring or annual raise or
promotion discussions, that information asymmetry gives an employer the
advantage—and they can use that advantage to save a lot of money. Imagine how
much better you could negotiate for a raise with all that information.”
WHAT
IS THE SOLUTION?
The combination of anchoring and asymmetric
information massively increases ethnicity pay gaps. So what can we do to try
and solve the problem?
One possible solution is to change the law.
Across the US from; New York City to San Francisco, it is now illegal to ask a
prospective employee “What’s
your current salary”.
The idea is to make sure that people who
may have accepted a lower salary previously are not penalized throughout the
rest of their careers.
For the policy to work in the media industry,
where a few large organizations dominate the market, (see my previous post on monopsony)
you would have to build
Chinese Walls that would prohibit Production Managers and execs from just
calling up pay roll records to see how much prospective employees earned
previously.
While this would combat the problem of anchoring,
some people have gone one step further and think pay-gaps will only be eliminated
once you get rid of the problem of asymmetric information.
David
Burkus, who I quoted earlier, thinks there should be complete transparency of
everyone’s salary in a company from the CEO to the office junior. This would
force managers to be fair and transparent about how they decide people’s pay. It
would also empower employees in salary negotiations
Other people have argued that companies may
not need complete transparency but should publish the average salaries and
range of certain positions so people can have discussions as to whether they
should be paid more or less than the average. This would level the playing
field in negotiations and would also act as a fairer anchor in pay negotiations.
WHAT
CAN I DO AS AN INDIVIDUAL?
While we wait for that glorious day when
new laws are implemented so employers can’t ask about your previous salary. Or
enlightened HR departments decide to give up their asymmetric advantage in salary
negotiations by creating more transparent salary information about their
workforce, is there anything individuals can do now?
One suggestion is to simply ask a new
employer what the average salary of the position is they are offering you to
try and address the information asymmetry.
Another idea is to simply ask them why they
need to know your current salary to offer you a new one and ask them to come up
with a figure so they set the anchor.
However the most important thing is to recognize
the importance of asymmetric information and the power of anchors. As a BBC
exec I often didn’t fully appreciate the powerful position I was in and how
simple conversations I had with Production Managers could have long lasting
consequences
Good luck and happy pay negotiations!
Additional note:
May I thank you for finally coming forward and stating what I have long suspected. I have been underpaid most of my entire career at the BBC and it didn’t change til I left. I have not received offers comparable to what a US company paid me recently in the UK as I believe in UK they are always look at my past history which I never saw as relevant. Thanks for breaking it down. I now Freelance and will do so til I get a sensible offer, wherever it may be from. NB. please tweak your headings. One should say Put Simply The Conversation needs to Change. Best Wishes.
ReplyDeleteThanks for spotting the horrible grammar typo!
DeleteHi!
ReplyDeleteThank you for this article. I have a question. I can see how anchoring and asymmetric information can lead to pay gaps. If there are any initially, they will be exacerbated. At what point does ethnicity come into this in your point of view? Would I be correct in inferring that they would be at the beginning somewhere ie. graduate programmes? entry level jobs? Would you say that young white applicants are getting better paid jobs than young BAME applicants, and is this the source of the pay gap? Apologies if you have already addressed this. I'd be grateful for your thoughts on this. Great article!
Hassan
Hi Hassan,
DeleteI think ethnicity can come in at various points in one's career. Graduate unemployment is higher for BAME people so they are more likely to take lower paid jobs, but for TV with freelance short term contracts any period of being out of work can cause you to take lower paid work and then that can follow you for the reat of your career.
For women you see the gender pay gap really kick in after childcare and in the US a lot of studies think that part of this is due to the "how much do you earn?" question. Which is why some states are banning the question.