Ferdinand Bratek, April Klein, and Yanting (Crystal) Shi have recently posted to ssrn The Market Value of Pay Gaps: Evidence from EEO-1 Disclosures.

Most companies are required to file reports with the EEOC regarding the diversity of their workforce, however, these EEO-1 reports are confidential unless the companies choose to release them. In 2023, a FOIA lawsuit forced the public release of EEO-1 reports for government contractors. The authors use this newly-released granular workforce data to confirm that women and people of color are paid less than white men in a variety of positions, and also that firms financially benefit by having more women and people of color in their workforce. In general, analysts often tout the purported financial benefits that diversity brings to a firm, but these authors suggest the disturbing possibility that diversity benefits a firm by lowering its labor costs.

Most strikingly, the authors find that when this particular EEO-1 data became public, the firms with greater pay gaps experienced more positive shareholder returns. In other words, the market, as well, recognized the value of underpaying women and people of color.

From a ruthless shareholder wealth maximization perspective, that makes perfect sense. But I note that pay-equity shareholder proposals are a popular genre and proceed from the (apparently?) false premise that investors value equality rather than discrimination.

And another thing: New Shareholder Primacy podcast is up – this time, Mike Levin and I talk about Caremark claims in Delaware, and the information that Broadridge can supply to activists. Available at Spotify, Apple, and YouTube.