As the deadline for gender pay gap reporting has been moved to October 2021, employers are increasingly scrutinising their record when it comes to pay gaps across their organisations.
We outline guidance for employers when it comes to analysing their equality, diversity and inclusion record and the importance of getting ahead of reporting requirements to create meaningful and lasting change.
The business case for analysing the demographics across your organisation
The greater your company’s understanding of the picture of diversity and inclusion throughout the organisation, the better prepared the business will be to self-govern. The contribution that organisations make to the world is increasingly linked to business growth.
“Once upon a time, doing good in the world and doing well in business were mutually exclusive goals.”
A company’s record when it comes to social value is being elevated. The Social Value Act and the UN’s Sustainable Development Goals call on public sector bodies to consider how to secure more economic, social and environmental benefits when selecting their providers for goods and services. In contract management, the Procurement Policy Note 06/20 requires central government procurement to analyse the metrics and case put forward in pitches and tenders, quantifying the positive impact businesses are creating. This elevates the Environmental, Social and Governance (ESG) agenda of businesses beyond a public relations exercise. Investors and B2B consumers increasingly scrutinise these non-financial factors to guide their decision making. It has a material impact on the growth opportunity of a company and affects every sector.
Promoting a culture of belonging
Companies are increasingly analysing their ESG strategy because it is not only valued by existing clients, new clients and employees, it is also a key factor that drives recruitment. Anecdotally, prospective hires are increasingly asking companies what they are doing to promote a diverse culture. Some companies are directly building this into their Employer Brand and articulating this as a key differentiator to attract candidates. Employers are realising that creating a culture of belonging isn’t something you just order and create overnight – it takes cultivation and initiatives to truly embed this throughout organisations. Everyone must be tasked with embracing diversity and inclusion.
Businesses are realising that their own make up of employees should reflect the societies that they serve. By understanding your picture of pay across the organisation, you can identify any pay gaps within specific groups early on. Whilst gender pay has been under the spotlight since 2017 when employers were notified that the first reports were due in April 2018, the six months grace given in 2021 has been met with criticism given the reports that women face a disproportionate negative impact to their careers as a result of the lockdowns over the pandemic. When taking into account McKinsey’s latest study of diversity in the workplace, Delivering through diversity, it’s also counter-intuitive to not identify drivers behind pay gaps, as the report promotes the link between diversity – defined as a greater proportion of women and a more ethnic and cultural composition in the leadership of large companies – and company outperformance.
Reflecting an inclusive society
The Black Lives Matter movement in 2020 intensified calls for racial equality across the whole of society. Companies strived to identify how they could support black and ethnic minority employees beyond the posting of a black square, to create meaningful and lasting change. Despite a petition to introduce mandatory ethnicity pay gap reporting, campaigners are still waiting for this to come into effect a year later. It was widely anticipated that the government would make this mandatory given the McGregor-Smith review in 2018 which examined race in the workplace. The report concluded that there was a lack of access to training and promotion opportunities for black and ethnic minority employees and a lower proportion reaching the top-paid positions.
“Employers must publish their aspirational targets, be transparent about their progress and be accountable for delivering them. The government must also legislate to make larger businesses publish their ethnicity data by salary band to show progress.”
Despite this clear direction, this is yet to come into force. The government have pointed to “Genuine difficulties” in producing robust and consistent data. This in part is caused by the voluntary nature of reporting race and ethnicity as an employee and the option to ‘prefer not to say’ contributing to low response rates. However, 23 per cent of companies still managed to calculate their data by 2020 according to PwC. Voluntary reporting alone may not be enough to highlight and correct labour market disadvantage.
The TUC recently concluded that the Covid-19 pandemic had highlighted the discrimination faced by ethnic minority workers in the workplace. Having mandatory reporting might help employers make more informed decisions about their HR approach. The exercise need not be 100 per cent robust – the point is that it obliges employers to examine their data through the lens of fairness, which is why many employers are also analysing their pay data in relation to age and disability to get a truly representative understanding of their employees.
Equality throughout organisations
At the heart of scrutinising pay gaps lies the question of fairness and equity. The 2018 UK Corporate Governance Code requires companies to report on their executive remuneration policies and practices. However, recent research carried out for the Financial Reporting Council showed that whilst FTSE companies are disclosing more information about shareholder and workforce engagement than they did previously, there is more of a focus on shareholder engagement than wider workforce engagement.
“We are pleased to see progress on remuneration reporting brought about by the changes to the code. Nevertheless, we would like to see further improvement.”
David Styles, Director at the Financial Reporting Council
The reporting requirements were introduced to ensure company remuneration and HR policies align with its long-term success, whilst being set in the context of wider employee pay. Fewer companies sought to explain or set out steps to mitigate excessive pay, undermining the immediate impact and aims of the disclosures made by companies to promote fairness.
It is also imperative to scrutinise your record on Equal Pay and how you define comparable jobs when assessing how far your organisation promotes equality. Equal pay is a legal requirement and fair pay for comparable roles between men and women rely on a robust method for comparing like with like. Again, equal pay audits are essential to identify any unintentional discrimination that might be present within your organisation that can be explained by differences in experience or occupation, but would not hold up to scrutiny in a court of law. The equal pay claims brought against supermarkets mostly by women who had been unfairly paid less than mostly male workforces in the supermarket warehouses highlights the complexities involved and reinforces the importance of tracking your pay practices.
How does diversity and inclusion fit into your picture of pay?
Our PayReview software can help you track pay calculations across your company. You don’t need to worry about replacing your existing ways of working – we can adapt the software to your business. PayReview can be tailored to customers’ key requirements as the ultimate pay and reward solution. With PayReview storing all of your data in one place, you can access all of the requisite data from one place, anytime, anywhere. By being aware of the extent of pay gaps within the different demographics, this promotes the resilience of your company. Awareness of the pay picture will help to build a culture that addresses its diversity and inclusion responsibilities and gives employees reasons to stay.
The software can easily rationalise the data at the click of a button and give granular detail and insights into the pay levels across the demographics of your organisation. This helps you to robustly interrogate your compensation figures and identify key drivers behind the figures. Using these crucial insights from your data, you can set in motion defined strategies designed to close existing gaps.
The software also enables you to access a real time picture of pay. This information can be used in pitches and wider marketing messages to keep stakeholders updated, hold yourself accountable and meet your reporting requirements. We start with your objectives when tailoring the software to what it needs to deliver for your business. Our charts and reports intuitively present the data you need to gain new perspectives on your employees. Advanced filtering lets you organise the data in many different ways to truly understand the picture of pay and how this relates to the demographics of your workforce.
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Software that tracks pay practices and supports a fair system of pay can help organisations assess their track record when it comes to promoting diversity and creating a system of pay that supports equal opportunities. Not only does this strengthen the very culture of an organisation, but it is proven to have a direct impact on its bottom line and vision for growth.
Call us today to discuss how PayReview can help fuel your business growth, create an equitable culture and ensure you are aware of your track record. This will empower your organisation to truly move the dial on equality, diversity and inclusion.
Founder of Paydata
Paul has led the reward consulting services at Paydata over 20 years, advising FTSE 100/250, private equity and other UK businesses.