In a significant legal settlement, Disney has agreed to pay $43 million to resolve claims that it systematically underpaid female employees. The case highlights how common compensation practices can reinforce pay inequities for women.
The original lawsuit was filed in 2019 by LaRonda Rasmussen, who at the time held the title of manager of product development. Rasmussen alleged that six men with the same job title were paid significantly more than her, including one with several years less experience who earned $20,000 more annually. Approximately 9,000 current and former female employees later joined the case.
As part of the settlement, Disney will pay $43.25 million to the women and will hire an external labor economist to conduct a pay equity analysis for the company over the next three years. “The labor economist will analyze the annual base pay of these employees to identify whether any potential statistically significant pay differences exist,” according to the settlement. In addition, Disney must hire an industrial/organizational psychologist to train their compensation personnel.
By accepting the settlement, Disney is not required to admit to paying women less. “We have always been committed to paying our employees fairly and have demonstrated that commitment throughout this case, and we are pleased to have resolved this matter,” a Disney spokesperson explained via email.
The most striking aspect of the pay disparities alleged at Disney is the impact of asking about a prospective employee’s previous pay. This is illustrated by an analysis of pay at Disney completed by David Neumark, an economist and gender pay gap expert at the University of California, Irvine. Neumark found that Disney paid women 2% less than men. His analysis controlled for non-discriminatory factors like previous experience that might impact pay. According to the complaint, there’s only a one in a billion chance of obtaining Neumark’s results if no gender differences exist.
The most notable aspect of Neumark’s analysis is his observation that Disney’s gender pay gap significantly decreased after 2017. Between 2015 and October 2017, women’s starting pay was found to be 4.36% lower than men’s. However, after October 2017, this gap dropped to 1.3%. The plaintiffs attribute this sharp decline to a policy change implemented by Disney.
Until October 2017, Disney’s pay policies allowed new hires’ starting salaries to be based on their previous wages. This approach can reinforce the gender pay gap, as women, who tend to be paid less than men, could carry those lower wages into new jobs, making it harder for them to achieve equal pay. To make the situation worse, Disney’s subsequent annual pay increases were based on percentage raises. This approach likely perpetuated pay disparities, as women starting with lower salaries found it difficult to close the gap with their male counterparts.
Disney’s policy change in 2018 was due to a California law enacted in January of that year prohibiting employers from asking potential employees about their salary histories. Currently, 22 states have banned employers from asking new hires about their salary histories. The effect of the ban on Disney employees seems substantial according to Neumark’s analysis.
However, most state bans on asking prospective employees about their pay history have a significant drawback—they do not prohibit organizations from using prior salary information if prospective employees offer it voluntarily. Employees with a history of high compensation may choose to disclose their previous salary to gain an advantage. Employers, in turn, might assume that candidates who don’t share their salary history were not well-paid in prior roles.
Indeed, one study found that men are about 12% more likely than women to volunteer their previous pay—likely because men were paid more in their previous positions. The same study also found some evidence that more prospective employees are choosing to voluntarily reveal their previous pay since the bans on asking about previous compensation were implemented. The complaint against Disney alleges that the company collected current or prior salary information if candidates voluntarily disclosed it and shared this data with its compensation department.
The Disney settlement not only highlights the systemic challenges women face in achieving pay equity but also underscores the importance of continued efforts to address and rectify seemingly benign compensation practices that result in disparate pay. “I strongly commend Ms. Rasmussen and the women who brought this discrimination suit against Disney, one of the largest entertainment companies in the world. They risked their careers to raise pay disparity at Disney,” said Lori Andrus, an attorney on the case and founding partner of Andrus Anderson, in a press release. Disney’s settlement agreement still requires approval by a judge.