The Hidden Adjustment: Bonuses, Promotions and the Direction of Convergence

The UK reporting study does not stop at the finding that the gender pay gap became smaller. This chapter follows the adjustment inside treated firms: whether women’s pay rose, whether men’s pay grew more slowly, and whether bonuses, promotions or workforce composition changed. That distinction helps the reader judge what kind of equality a transparency policy produced and what its data cannot establish about welfare.

A gap is a relationship between two pay distributions. It can narrow because the lower-paid group moves up, because the higher-paid group moves more slowly, or because the people in the comparison change. Those routes have different consequences for workers and different implications for policy. The UK evidence is most informative when the routes are kept separate.

The measured gap narrowed through pay compression

The study’s main specification uses individual-by-firm fixed effects, so the central pay result is not explained by high-paid men leaving treated firms or by inexperienced women joining them after the policy. It compares changes in the pay of workers already observed in particular worker-employer relationships. Within that framework, the policy produced a relative increase of about 3 percentage points in women’s hourly pay compared with men’s pay. The result corresponds to a 19% reduction in the pre-policy gap in the study’s near-threshold sample.

The separate gender coefficients show where that relative increase came from. Men’s real pay in treated firms grew about 2.9% more slowly than men’s pay in comparable control firms after the reporting requirement began. The average effect on women’s pay was not statistically significant. In ordinary language, the measured gap narrowed mainly because the upper side of the comparison moved more slowly, not because the policy delivered a broad increase in women’s wages.

Economists often call this pay compression. It does not mean that every man received a pay cut, or that all men were better paid than all women. It means that the pay trajectory for men in the treated firms was lower relative to the trajectory for the comparison group, reducing the distance between the two gender averages. The study’s appendix finds no evidence of a nominal or real pay cut for men, which supports the more precise description: slower growth relative to controls.

That wording matters for at least three reasons. First, a worker’s absolute income can remain unchanged while the worker’s position relative to another group changes. Second, an employer can improve a reported gap without improving the earnings of the group that started behind. Third, the distributional response may affect future bargaining, morale and retention even when a short-run equality indicator looks better.

The result is not a statistical trick. A relative change is a real policy outcome if the policy changes the path of pay in the treated group. But it answers a narrower question than “Did the policy improve women’s economic position?” The latter requires evidence on women’s wage levels, progression, hours, job access and longer-run security, not only on the distance between two averages.

The direction also aligns with evidence from other transparency settings summarised by the OECD.