To Tackle the Salary Gap, Start With Entrepreneurs

Written by Adetola Olatunji

The uneven compensation playing field across genders is an age-old problem that we still grapple with today. Politicians, anchor institutions and thought leaders have all suggested different approaches that our nation needs to take in order to attack the gender wage gap. According to a recently published impact report by the Goldman Sachs 10,000 Small Businesses program, a good approach to closing this gap might be to start with how entrepreneurs pay themselves.

In February 2014, Goldman Sachs 10,000 Small Businesses published a third party assessment of the program’s impact – Stimulating Small Business Growth. This Babson-penned report was tasked with analyzing the effectiveness of the program’s goals to change the behavior of entrepreneurs for the better, expounding on how the program gives business owners the practical tools and support to make said changes. Babson’s analysis uncovered some unexpected behavioral gaps between male and female entrepreneurs that undoubtedly correlate to the experience of these men and women had in the workforce prior to becoming entrepreneurs. According to the report, female participants were paying themselves only 80% of the salary that male participants paid themselves when they started the program.  However the rigor of the 10,000 Small Businesses program positively impacted this gap, as within six months of completing the program, the average female participant’s salary had risen to 92% of her male counterparts in the program.

In reflecting on lessons we can learn from the 10,000 Small Businesses program to tackle the wage gap nationally, it’s important to understand the consistency of this data in comparison to national averages, and to understand some underlying causes behind the data itself. The wage gap reported by Babson between male and female participants before completing the program is consistent with national averages. The progress report noted that median weekly full-time earnings differed by 19% in 2012, meaning that women across the country earned 81% of wages paid to their male counterparts. According to Bureau of Labor Statistics data, this discrepancy had only improved slightly to 82% across the United States by 2013.

According to a report recently published by the Boston Women’s Workforce Council, the tendency of female entrepreneurs to pay themselves a smaller salary often stems from the nature of their wage compensation before becoming self-employed. Women are often paid less than their male colleagues before venturing into entrepreneurship, and thus women often start their own businesses with fewer personal resources. Moreover, women tend to self-fund or undertake debt-financing strategies to support their business, while men have more of a tendency to seek out equity financing options. With less working capital from the beginning, not only is there less room for a female entrepreneur to pay herself, but this often also leaves less room for investing in the business, expanding staff infrastructure, and pursuing new avenues for growth. However as demonstrated by the 12% reduction in the wage gap between male and female participants, the 10,000 Small Businesses program has found a way to tackle these inherent causes of the gender wage gap among entrepreneurs.

So what can we learn from the tangible results seen by the 10,000 Small Businesses program in tackling the gender wage gap among entrepreneurs? The lesson appears to be two-fold:

• It pays to pay yourself. Through the program, female entrepreneurs learn that there are potential monetary benefits to paying oneself a higher salary. While learning about the variety of opportunities to access capital, the participants also learn that they are more likely to find success in obtaining investment from potential funders if they can provide concrete metrics to demonstrate the financial health of the business. One key metric is whether a business can afford to pay its founders a decent salary.
• Your leadership is valuable. 10,000 Small Businesses provides more than a four month classroom experience – it also provides the entrepreneurs with a network of like-minded CEOs who are able to share their experiences as they relate to not only salary and funding, but also to hiring, growing a business, negotiating contracts, and more.  Through peer-to-peer learning opportunities, female business owners can see first-hand that similar to their male peers in the class, they deserve a strong salary because the expertise and value they add to their businesses deserves compensation.

If entrepreneurs can continue to act upon these two key takeaways, perhaps larger employers will begin to take notice and heed to the lessons from the entrepreneurs who are driving social and economic change in their communities. Thankfully there are resources such as the 10,000 Small Businesses program to point out some of the concrete ways we can begin to close the gender wage gap, starting by changing the behavior of those who have the power to pay themselves.