Reaching a high salary in the workplace is an admirable achievement, but what has an economic ripple effect in employees' lives are having equity in the company. Many employees believe that the only way to make more money is to get a promotion, but that's not always true. Take just one example of how the two go hand-in-hand: shares that are vested can be then cashed in for money (income) by an employee, and that stock cash-out money can also be used to purchase other stocks (ownership).
Equity ownership isn't a new concept. However, the gap widens for women while the gap is even further stretched for Black women and women of color. In 2020, women employees owned just $0.47 in equity for every $1.00 men employees own. Here are 5 hurdles women continue to face in equity ownership with solutions that companies can begin to implement to solve this issue.
1. Lack of representation.
Despite some gains in women in executive positions, the statistics are relatively low. During the inception of a company, there's a lack of representation across the board. You see this divide in senior positions where equity is offered. Since senior executives are disproportionately male for reasons that are directly related to hiring practices at every level of the organization, this is a key reason why women own a fraction of the equity that men own on average.
Solution: Seek out top talent and place women of all racial backgrounds in senior executive roles. This has to be a part of the organizational structure of the company.
2. Positions and roles.
Many women are in roles in departments that have lower equity compensations. And with the lack of diversity in the startup ecosystems, Black and Latinx employees tend to be in non-technical roles such as customer success, sales, and operations.
Solution: Provide internal opportunities for women of all racial backgrounds to be promoted to higher positions and varied technical roles. Much of this has to do with training, mentorship, and the companies dedication to creating more diversity in their organizations.
3. Look for talent outside of Silicon Valley.
Silicon Valley stands as the giant of equity ownership, often seen as an impenetrable market of "who you know," where positions and offers are recycled in ways that make it difficult for outsiders to join.
Solution: With the pandemic at play, companies sought talent from all over the world. Switching from hyper-local recruitment companies moved equity ownership outside of Silicon Valley and into other urban areas.
4. Lack of diversity in the boardroom.
Excluded from boardrooms even in the 21st century, women aren't helping with critical decisions. Without women in decision making roles, there is no accountability or reason for these companies to remove these long-standing barriers. Research shows that company profits and share performance can be close to 50 percent higher when women are well represented at the top. Women are also likely to be in non-technical jobs and are less likely to be founders of companies. These are just a few of the hurdles as to why women control so little equity in high growth startups.
Solution: Hiring more women in leadership positions has been shown to improve the overall work culture. Women are more likely to adopt a stance in gender and racial equity at work than men.
5. Not being an early adopter.
Equity is also associated with when someone becomes a part of an organization. If employees can get in at the early stages of a company, there's a strong chance that they can get on the equity track. According to this data by Carta, Black employees are more likely to join companies at later stages of growth than other People of Color. More specifically, about 21% of Black employees joined at the series A round, as opposed to 30% of South Asian employees.
Solution: Diversify in the early stages so that diversity and inclusion is already part of the organizational structure.
There is a multitude of ways that companies can change the equity, gender, and racial gaps facing their organizations. For these changes to occur, companies need to integrate policies, procedures, and benchmarks that provide access to opportunities for women and, more specifically, Black women and women of color. It's not only about increasing wages. It's about removing the barriers so women can thrive upwardly. Employers must examine their workplaces to verify that they are free from discriminatory practices. Companies must be honest in their hiring practices and begin to rethink their work culture if we're going to close this equity gap.