Nashville-based entrepreneur Sherry Deutschmann built her company, LetterLogic, into an enterprise with $40 million in revenue before selling it to a private-equity firm in 2016. As the firm’s founder, Deutschmann went seven years without giving herself a raise, and paid herself the relatively low amount of $225,000, even after the company crossed $30 million in sales. Her board encouraged her to finally take a pay hike. She says “Absolutely, it’s the truth” that men she knows in comparable positions paid themselves more. And she wonders now if this hurt her.
“Interestingly, when I sold my company, I suspect that the PE firm who bought us thought less of my business acumen … simply because I was paying myself about half what my male counterpart was making,” Deutschmann said in an interview. “It didn’t matter that I was running a faster-growing company and had zero debt. They likely devalued my leadership abilities because I had unwittingly devalued myself by not paying myself enough.”
She’s not alone: Prior studies have found that female founders are reluctant to pay themselves as much as their male counterparts choose to pay themselves.
But recent research shows this may be changing.
In the Business Outlook Survey, conducted annually by EY and the Women Presidents’ Organization (WPO), a global education and advocacy group, we ask WPO members and participants in EY’s global Entrepreneurial Winning Women™ program a slew a slew of questions about their work and wages, growth aspirations, concerns and opportunities. In the survey completed last spring, we found some encouraging signs: Women planned to give themselves solid raises in the coming year.
About 40% of respondents predicted a 1%–20% hike, and more than 5% were planning an increase of 20% or more. Whether it’s a reflection of robust economic growth, a redefinition of their own worth, or both, this change is very good news. It suggests more female founders are ready to put themselves on even footing with their male counterparts, at least when it comes to measuring their own worth.
Is there still a wage gap between female entrepreneurs and their male counterparts? Almost certainly. As with all wage questions, it’s difficult to parse out in a reliable, apples-to-apple way. But the changes are encouraging. The female business leaders contacted by the survey were asked what they pay themselves, and their answers seemed to suggest it was equivalent to what men in their field make. Just over half of the respondents, 52.7%, said they pay themselves between $150,000 and $300,000. The median annual salary for entrepreneurs is reportedly $171,610, right in that zone. (It’s worth noting that according to a study from Fundera, 86.3% of business owners take an annual salary of less than $100,000.) It’s hard to say with absolute precision that female entrepreneurs are now earning and paying themselves in ways that are comparable to men. But the new data from the survey suggests that they’re definitely in the ballpark, and the fact that they’re planning to pay themselves more is a good sign.
The data yielded other noteworthy results: Fewer than 2% received venture capital funding, and only one-quarter secured loans from a commercial bank. This is in keeping with other studies showing that women choose or need to bootstrap their companies much more than men do. For instance, in EY’s 2018 Growth Barometer, a global survey of mid-market company leaders, more than half of the women-led companies (52%) say they have no access to external funding. In spite of this, almost one in three (30%) women-led companies in that survey are targeting growth rates of 15% or more in the next 12 months, as compared with just 5% of men-led firms.
While it’s not an exhaustive survey of the approximately 2,000 members of the Women Presidents’ Organization, let alone all female executives around the country, this data represents a hopeful indicator.
One important part of closing the gap starts with those lucky enough to set their own salaries. What women in this category accomplish matters not only to them but also to our entire economy. Three decades ago there were roughly 4 million women-owned businesses in the United States. Today there are more than 11 million, representing 39% of all firms and millions of employees, female and male. When the women running these companies set higher salaries for themselves, it sends a signal not only to investors but to everyone — including themselves — of what they’re worth.
This article is authored by Lisa Schiffman ― Founder of EY Entrepreneurial Winning Women, and Marsha Firestone ― president of Women Presidents’ Organization. It was originally published on the Harvard Business Review website.
The next Business Outlook Survey, conducted by EY and the WPO, will be released later this spring. Stay tuned for updates from the Entrepreneurial Winning Women™ program.