Are Firms ‘Kicking the Can Down The Road’ So They Can Pay STEM Women Less?

Dec 15, 2014

Screen Shot 2014-12-11 at 11.55.57 AMConsider the possibility that thousands of STEM women are literally missing out on billions of dollars in higher salaries as a result of the recent actions by tech firms.

Everyone knows that many of the larger tech firms have recently released their employee diversity numbers.

Obviously releasing this data was a positive move that resulted in an expanded discussion around the need to increase the number of STEM women employees at tech firms. But what most analysts have missed is the realization that, almost universally, the response to this shortage of women in tech firms has been some variation of a long-term “increase-the-supply” solution. In my book, increasing the supply is code for “doesn’t increase your salary costs.” This is what would occur if every firm instead solved its shortage problem with a short-term solution. This would involve actively recruiting STEM women away from other firms, because that competition would have the effect of immediately driving up the salaries of women.

Waiting 5+ Years for the Employees You Need Wouldn’t Be the Normal Response

The primary reason why high-tech firms want more women in technical positions is a business reason. Having them has a positive and measurable impact on improving their firms’ product (because women represent so many product users). If a firm needed more STEM women to improve their product, you have to ask yourself “why would their leaders wait for at least five years in order to get them?” Five years is the minimum time that I estimate that these long-term “supply increasing” solutions will take to produce any potential employees.

As an expert in recruiting, I can tell you that normally no firm would choose to wait even a single year to begin attracting the talent that it needed.

Why Haven’t Firms Supplemented Their Long-term Supply-building Initiative With a Short-term Recruiting Solution?

It is a good idea for these firms to support a long-term supply building solution involving developing young women, but you have to wonder why they haven’t complemented that approach with a short-term recruiting solution that would immediately produce women employees. In fact, I have not been able to find a single large tech firm in the Silicon Valley that has opted for the short-term “recruiting solution,” which would involve poaching already trained STEM women directly away from other tech firms.

I call this failure “a recruiting embargo.” The most logical reason for not accelerating competitive recruiting between firms for STEM women is that competition would immediately raise womens’ salaries. I estimate that fighting over this limited supply would increase the salary price that firms would have to pay to STEM women over the next 18 months by at least 25 percent. 

It’s Hard to Argue Against the Fact That “Increasing-the-Supply Solutions” Reduces Salaries, and Recruiting Solutions Raise Salaries

It’s a basic principle of economics and the marketplace that when the supply goes up, the reduced need to compete for scarce resources means that everyone will pay less for the item. Even today, we see that an increase in the supply of oil and gas products has caused a dramatic lowering of their market price. So in a situation where many firms are working to increase the supply and virtually no firm is choosing to heavily actively compete for existing female talent, it’s easy to conclude that keeping salaries down is the primary driver. As a result, I am raising the question “Could firms be purposely ‘kicking the can down the road?’ in order to avoid paying STEM women more money in today’s marketplace?”

Obviously most executives won’t publicly or privately acknowledge that salary savings is the driving factor behind avoiding the recruiting solution. However, I have information from one well-known firm that the fear of increased salaries is in fact their primary reason for not implementing a competitive recruiting solution.

Silicon Valley Has a History of “Not Competing” in Order to Reduce Salary Costs

You might think that it is unfair to raise this type of challenging question. That is, unless you remember the fact that several large Silicon Valley firms have already been successfully sued by the U.S. Justice Department and are currently still being sued by individual tech firm employees for their previous “decreasing the supply” actions. The Justice Department has already concluded that these large Silicon Valley firms consciously “agreed not to hire each other’s employees, thereby depressing wages across the industry.” Women in all fields have a long history of being underpaid, so consider the possibility that not being willing to pay women higher salaries today is part of a continuing pattern, and the primary driver behind the singular focus of tech firms on increasing the supply.

Additional Actions Are Taken to Reduce Recruiting Competition

In the cases where an active jobseeker STEM women from other tech firms actually apply for a job, a high percentage are rejected because “they don’t meet our hiring bar,” a bar that may be purposely raised in order to minimize recruiting competition. Other STEM women recruits are not landed at the end of the recruiting process simply because most tech firms inexplicitly don’t have a compelling enough argument to overcome the common “on second thought, I’ve decided that I’m happy where I am” response.

Purposely maintaining a high STEM women hiring failure and dropout rate is simply another way to keep competition and salaries down.

Funding the “Increasing-the-supply” Solution Is Problematic Because No Firm Is Guaranteed a Single Woman STEM Hire

You might also wonder, like I have, why no matter how much individual firms invest in these “developing young women in technology” programs, they are not in any way guaranteed that a single one of these developed women will end up working for their firm. To me, the obvious reason for not demanding a guaranteed employee placement is that if the future supply becomes larger and the supply of more experienced STEM women available, there will be little competition for them and every firm will easily be able to get their fair share, without having to pay higher salaries to women.

Final Thoughts

Every single department within high-tech firms is extremely competitive. Therefore, when I find that the recruiting function is purposely avoiding intense head-to-head recruiting competition, I get suspicious. Many of these firms also have powerhouse employer brands, so it would be relatively easy for them to use their attraction power to proactively attract STEM women away from other lesser-known companies. But they clearly haven’t chosen the proactive recruiting option.

You might believe that donating millions to long-term programs that develop young women initially seems like a noble gesture, until you concluded that the cost of an “increasing the supply” solution is a drop in the bucket compared to what the firms would have to pay in increased salary cost if they also actively recruited each other’s STEM women employees. You certainly won’t find a single high-tech executive who will argue against the fact that intense recruiting competition between companies always increases salary costs.

My final conclusion is that even if the primary driving factor of these executives is to reduce salary costs, that that too may be a miscalculation. In my analysis, tech executives are under-calculating at least three additional high cost factors in their overall ROI calculation.

The first undervalued cost factor is the measurably lower usability and reduced value of their product because it is designed almost exclusively by males (even though their user base may include over 50 percent women).

The second underestimated cost factor is the cost of “catching up,” which would be necessary if a single major tech firm breaks “the embargo” and begins aggressive direct recruiting.

The third under-calculated negative cost to these firms would be the damage to their public image and product brand if a large number of women begin to believe that what initially appeared to be noble actions to help women were in fact at least partially designed instead to hold women’s salary costs down.

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