The Gender Wealth Gap and Equity Compensation

I recently read an article about the gender wealth gap, which stated women retire with a quarter less wealth than their male counterparts. I’ve heard stats like this before, and it did not come as a surprise. We all know that women make 77 cents on the dollar to what a man earns for equivalent jobs (and that’s white women; Black/Latinas make even less at about 63 cents/58 cents, respectively).

What did surprise me, was the statement that “women tend to be in roles with less compensation in stock and may not negotiate as well for non-salary compensation that often gains value over time”. Now this caught my attention. Of course, it makes sense that women’s earnings over the course of a 40-year career would be less than a man’s but it never occurred to me that equity compensation plays such a big role.

Let me tell you: I. HAVE. THOUGHTS. First, I wanted to do some more digging into this issue. I found reporting from 2018 which showed that 16% of women receive some kind of equity comp to 24% of men. The value of the average equity grant is $104,902 for a man and $23,361 for a woman. Compound that over a career and the numbers are staggering.

Carta, which manages the stock plans for many companies, reported in 2021 that of all equity compensation that is granted, only 27% goes to women. The remaining 73% is awarded to men.

Gender wealth gap vs gender pay gap

The issue of the gender wealth gap is even more complex than the gender pay gap. Not only do women make less, but they may be more conservative investors, or generally invest later than men of the same age. The study points out that the difference is more stark at higher income levels than lower income levels. In other words, for people who are making minimum wage, the relative net worth isn’t significantly different for men vs women. 

And this doesn’t begin to consider the issue of race. Needless to say women of color receive even less equity compensation than white women, with Latina women coming in last with regards to all other race/gender categories.

Per Carta: “Together, Black and Latinx people make up 29% of the U.S. labor force—that is, Americans who are working or available to work. But they make up only 16% of employees who hold equity. What’s more, these 16% of employees collectively hold only 9% of the total value of employee equity. Twenty-nine percent of America’s workers holding only 9% of employee equity is concerning.”

Some of this is due to Black, Latinx folks AND women occupying roles at lower levels in their companies. Only 7% of people in the C-suite are Black/LatinX. While 24% of people in the C-Suite are women, only 14% of founders are women.

You may be asking “What the heck can we do about it??” 

One of my goals with Xena Financial Planning is to educate the people I work with about what types of equity comp exist, which type(s) they have/what they mean and what is reasonable to negotiate. I’ve written about negotiating before, and not surprisingly, I have pretty strong feelings about the subject. 

First, I think it’s really important to acknowledge that not everyone is in a position to negotiate on anything. Women of color in particular are much more likely to have a job offer retracted or face other retribution from the hiring manager if they try to negotiate their comp package. I’ve been known to say “you have nothing to lose” (when negotiating) or “it can’t hurt to ask.” But the reality is, that’s not 100% true. If you’re desperate for a job, you’re more than likely not going to take the risk that comes with negotiating.

That said, there are a lot of ways to approach it and I’ve had quite a lot of success personally and with friends/clients. 

My top suggestions for negotiating:

-Do not go into a negotiation with a threatening or accusatory tone. Imagine that you and the hiring manager are on the “same side of the table” and you’re trying to find the best possible outcome for all parties.

-Do. Your. Homework. I cannot stress this enough. It’s extremely poor form to just ask for money without any basis. You should know what a reasonable range of “total comp” (INCLUDING equity!) is for the role. There are ways to gather this information: from speaking to recruiters, searching sites like glassdoor or and my favorite (for tech roles):

-Don’t show your cards too soon. In other words, if a hiring manager asks for your salary expectations, DO NOT TELL THEM. There are clever ways to deflect this question (you might say “I prefer to get into salary negotiations after we’ve established if this is a fit”) but you may very well be giving them a number that is on the low end. Let the company make the first move when it comes to dollar amounts.

-Role play or practice with a friend as much as you need to in order to boost your confidence.

This is not a silver bullet to the problem of the gender wealth gap. Companies can and should do everything they can to ensure women and men of all races are paid comparably, including equity packages. The move towards increased pay transparency should go a long way to helping with this. But negotiating and advocating for oneself is certainly an available option that is worth considering. In the meantime, I’ll keep pounding this drum and doing whatever I can to help my clients build their wealth.

Note: I recognize that the data doesn’t mention non-binary folks at all. Carta said they don’t track that at this time but in the other sources, there was no mention of non-binary people at all. If you have data that reflects the inclusion of non-binary people, I’d love to see it!

Prioritizing Company Savings Options

If you’re lucky enough to work for one of the many tech companies that offer multiple ways to save, you may be wondering which programs to prioritize. For instance, Microsoft employees have the good fortune of having access to a pre-tax/Roth 401(k), after-tax 401(k), ESPP and HSA. If you can afford to maximize them all, well that’s fantastic. They all offer their own unique advantages. But if you can only afford to save to one or two of the above, how do you decide? Which is most important? Which one makes the most sense for you?

You will undoubtedly get sick of me saying this, but like most things in your financial life, it depends. What I’ll offer here is some general advice, but it will likely vary depending on your unique circumstances.

An overview on the options:

401(k) – either pre-tax or Roth

In 2022, you can save up to $20,500 to a pre-tax or Roth 401(k). If you’re over 50, you can save an additional $6,500, called a catch-up contribution. I typically recommend you at least take full advantage of your employer match. That may or may not mean deferring the full annual contribution. In the case of Microsoft, they match 50% of your total contribution (up to the annual limit). If you defer the maximum amount, they will match $10,250. That’s HUGE. On top of your salary, bonus, and RSUs, you’re getting another $10,250 from Microsoft. This is a no-brainer (assuming you can afford to save $20,500 per year). Whether you save those dollars pre-tax or Roth is highly individual; I suggest you work with your financial advisor to determine what makes the most sense for you.

OK, so you’re saving $20,500 per year and you still have “extra” cash- what’s next?

I’m a big fan of Health Savings Accounts (HSAs). That’s a blog post for another day, but in short, an HSA offers incredible tax benefits that you cannot get from any other account type. You can contribute to an HSA on a pre-tax basis, the earnings grow tax-free AND all withdrawals are tax-free. That’s a pretty incredible combination.

In order to contribute to an HSA you must be enrolled in a High Deductible Health Plan (HDHP). If you are, you can contribute up to $7,300 for a family and $3,650 for an individual in 2022 to the HSA. Unlike a 401(k), that total actually includes the employer contribution. Again, we are talking free money here! Microsoft will contribute up to $2,500 to a family account or $1,000 for an individual (in 2022). 

If you still have room for extra savings:

After-tax 401(k)

In addition to the pre-tax or Roth 401(k), some companies, like Microsoft, also offer the after-tax 401(k), also known as a Mega BackDoor Roth 401(k). With this option(and continuing the Microsoft example), once you have maxed out your 401(k), plus Microsoft’s $10,250 match, you have the option to defer another $30,250 to an after-tax 401(k). (The total IRS annual limit for all contributions in 2022 is $61,000.) 

There are a lot of great things about a Mega BackDoor Roth, not least of which is that if you’re very high income, you don’t have that many savings options that are tax-advantaged. This allows you to save aggressively into an account that won’t be taxed in the future. Note: it’s important to make sure your after-tax contributions are automatically being converted to Roth. 

Employee Stock Purchase Plan (ESPP)

Finally, at Microsoft you can save to an Employee Stock Purchase plan (ESPP). The federal limit for an ESPP is $25,000 of the un-discounted stock, which with a 15% discount means you can save $21,250. I’ve also written about the specifics of Apple’s ESPP plan here. There are some definite benefits, though the tax implications can be complicated and you have to manage the selling and reinvesting process. It may still be worth doing, but generally lower on my list of savings options.

If you happen to make enough money to save $20,500 to your 401(k), plus $7,300 to an HSA, plus $30,250 to your after-tax 401(k), plus $21,250 to an ESPP, by all means!

For many people, that’s just not realistic and they must prioritize. Broadly speaking, my order or preference is:

  1. Pre-tax or Roth 401(k)
  2. HSA
  3. After-tax 401(k)
  4. ESPP

As mentioned above, this may not be the best order for your situation. For instance, if you plan to retire very early (say, age 50), you might not want to tie up too much in a 401(k) and would rather save to a taxable account. In that case, maximizing the ESPP (then selling and diversifying out of company stock) would make more sense than filling up the 401(k) buckets.

It’s a highly individual decision, but this framework applies in many situations. As always, I encourage you to work with your financial advisors to decide what’s best for you.