Four Reasons why Women MBAs earn less. Good News for Women CEO

The number of Women MBAs in top Business Schools has steadily increased over the past ten years, with schools accepting 35-45% women candidates in the past two years. However, a more disturbing finding is the rising pay gap between Men and Women professionals. The gap is exacerbated in a management position at both mid-level and senior positions. There are several reasons for this gap. We shortlisted four major reasons:

1) Low Expectation 

This might be the major reason why pay levels for Women management professionals don’t catch up with their men counterpart. The thought process for most Women MBAs is to settle for a reasonable fixed salary. Men, on the other hand, understand the need to start with a higher base salary. They would haggle until the breaking point and then quickly accept a moderate to high variable pay. 

The lower expectation does not start at the graduate level, but a Study conducted by Universum in 2016 shows that Women Business Students expected to make only 80% of what the male counterparts were earning. Engineers had a much higher expectation at 90%. These expectations are not reversed with an MBA, although the degree familiarizes the women MBA candidate with the industry average. 

2) Poor Negotiation Skills

Most Business School career service teams conduct sessions on negotiation and networking as part of their essential service. Linda C. Babcock, a professor of economics at Carnegie Mellon University, conducted several interesting studies on how women negotiate for their starting salary. 

In one of her studies, 153 volunteers were asked to play a word game, and for the time they were told that the pay range will be $3 to $10. They were also told that the amount was negotiable. 83% men asked for more pay compared to 53% women. 

This behavior was not limited to the experimental setup. Another survey conducted among masters degree students asked whether the offer was accepted immediately without any negotiation. 51% of men asked for a better pay package compared to 12.5% women, a substantial difference even among highly qualified students.

Society’s expectation of women professionals to be less aggressive and “nice” discourages them from pursuing behavior that is against the norm and pressurizes them to confine within the archetype. Studies have also shown that women professionals who have negotiated aggressively are seen as less of a team player among their peers, both men, and women.

3) Family

This might be one of the most commonly argued factors for pay gap seen in Women MBAs. US Census data shows that the average age of marriage for Women in 2016 was 27.2  Women MBAs marry at a much later age but an interesting factor that needs to be taken into consideration is the total marriage rate among US citizens. It is just 29.9% as the majority of couples choose to raise a family outside of marriage. 

Considering that most top MBA programs require work experience of 3-5 years, Women MBAs start a family within 2-3 years, post-MBA - a critical point for growth in a management career. Interestingly, the 100-250% higher pay that Women MBAs earn compared to undergraduates encourages them to pursue a full sabbatical from their full-time post-MBA positions. This was confirmed by a study by Vanderbilt University that showed that full-time employment rate for MBA moms who earned their undergraduate degree from tier-1 institutions was 35% against 66% for MBA moms from tier-2 institutions.

4) Job Commitment

The higher variable pay is often associated with industries and roles that require larger time and travel commitments. With a family, it becomes impossible for Women MBAs to pursue all the responsibilities required by the position. The time spent per day on the job is another factor that companies take into consideration for the bonus. Even though flexible work hours have been widely adopted across industries, most management still considers traditional office based work for the annual bonus evaluation, thus forcing women MBAs to take home a lower variable pay.

Good News for Women CEO

The pay gap is limited to mid-level and senior-level position. The Latest analysis by ISS Corporate Solutions shows that the median salary for Women CEO was $13 million against $11 million for the male counterpart. However, do note that the study compared 23 women CEO against 300 CEOs from the S&P 500.