On average, companies are paying women 77% as much as the guys in the cubes next to them, doing the same jobs. Traditionally this has been seen as a women’s issue, an issue of social justice, a reason for women ask for legislated change. However, I believe that this “fairness” argument has been masking something more important to modern leaders — leaders who want to run innovative, high-performance organizations.

Since women and men can be equally effective (or ineffective) at leading and managing businesses, risk and people, what the pay gap really means to today’s executives is that we’re overpaying some of our ineffective men. A Harvard Business School study reported that if your company is following typical individual hiring procedures (rather than instituting comparative evaluation processes) you may be favoring underperforming men as much as 63% of the time.

As a culture, until we learn how to hire and pay for true talent (there are ways, see below), we’ll keep losing great female talent from large organizations, often at the director level, who are seeking lifestyle success and entrepreneurial challenges. Will equal pay encourage them to stay? Probably not, say these studies that point to the importance of workplace flexibility, but you can be sure of this: unequal pay does not encourage them to stay.

Of course, our compensation practices don’t always look all that discriminatory at ground level. They look like good business.

When I was running teams in technology giants and startups, I was rewarded for bringing in good talent at the lowest wage possible. From a budget management point of view this made good sense. The loaded headcount budget — which was gigantic — made salary negotiations a strategic financial issue.

However, from a workforce and talent-development point of view, negotiating down salaries as low as they would go made less sense. The prevailing assumption when we were being miserly with our hiring dollars was that if we could pressure good talent into joining us at a lower salary, we got a win-win (talent and savings) and that this was fair because if they didn’t negotiate on their own behalf well enough, it was their problem.

Here are some of the prevailing business-culture assumptions buried in this general approach:

  • The best talent knows they’re good and will negotiate accordingly for the highest salary they can get.
  • Talent who doesn’t know what they’re worth won’t wake up and smell the coffee, realize they’re being underpaid and leave (and if they do, this is normal employee turnover).
  • All good talent really cares about is money.

The problem with this “good business” approach is that these assumptions are flawed and absolutely disadvantage women, who the research tells us don’t negotiate their salaries as assertively as men and often care about compensation that doesn’t come in a paycheck. The concern for work-life balance is especially strong in Gen Y women.

However, these assumptions don’t just hurt the female demographic, they also weaken your management and leadership culture. If your company is hiring people like this, you have in place a cultural filter that rejects some of your best talent, who have the potential to be more loyal and innovative than some who you’re promoting.

Here are assumptions I believe would help build strong companies and fill the leadership pipeline with good women and men.

  • The best talent is the best talent, regardless of their self-promotional abilities, which can — and should — be taught.
  • People who never wake up and smell the coffee are not your best talent; good talent always wakes up, and they are more likely to be loyal to you if you’re the one pouring them a cup and passing the cream and sweetener.
  • Many of your employees — men and women — care about quality of life as much or more than money, giving you more to bargain with if you’re paying attention and willing to adjust the culture to the talent in order to achieve productivity.

Changing these assumptions is a corporate culture design challenge on many levels and has to be done consciously. Running a work-life workshop for women once a year isn’t going to make it happen. It has to be an explicit effort to understand what motivates your workforce and respond genuinely to those needs, even if they are hard for you — the leadership — to relate to personally.

Making a commitment to “wake up” the employees to their value by honoring it in ways they value is a great place to start. And countering cultural discrimination isn’t always as hard as it seems. In the Harvard study mentioned above, simply moving to panel review of new recruits cut down on the hiring of unqualified male candidates from 63% to 3%.

Leadership talent has to be committed and skilled in assertiveness and harnessing competitive drive to deliver results, and much of this can be taught to promising employees who are still learning the ropes of leadership. However, what this research tells us is that protecting a corporate culture that perpetuates a leadership culture of workaholic, “company first” women and men who are good at self-promotion favors the mediocre employee who’s learned to game the system and impress you with their swagger.

Squeezing headcount budget to the lowest levels and taking advantage of women who don’t negotiate their salary doesn’t just look bad demographically, it’s an indicator of a culture where talent is undervalued and underperformance rewarded.

Want to get the best out of the best people? Take on a sincere culture design effort at the highest levels of the business. The HR department knows most of what is in this article and will certainly help you roll it out, but company culture starts at the top, with the leadership. The buck starts or stops with you.

Dana Theus is president and CEO of InPower Consulting, creating business cultures by design, and is a regular contributor to SmartBlog on Leadership. Follow her on Twitter at @DanaTheus and on LinkedIn.

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