The snapshot of an organisation’s gender pay gap for 2019 has been taken. Companies will be required to publish their figures from 31 March 2019. As we speculate how companies will fare when they publish their third set of results in 2020, might there be a renewed focus or was the first wave of coverage buoyed by the MeToo movement?
Here we consider the success of gender pay gap reporting and the wider aims of the regulations.
A first step in the push for equality
Diversity is gaining momentum worldwide and there is evidence to link diverse management with the overall innovation of an organisation. The gender pay gap regulations are the first concrete corporate governance measure designed to hold organisations to account when it comes to the make-up of their workforce. Whilst the Equal Pay Act prohibited paying men and women different amounts for the same role, this mechanism shows the difference between the average hourly earnings of men and women. The method of calculating the median hourly earnings for all workers is designed to look at the structure of an organisation as a whole, not on the internal, more granular scale of like for like work. With the threshold set at 250 or more employees, this ongoing requirement to publish every year affects thousands of employers and is a reputational risk factor for many.
Our most recent spring edition of Paydata’s UK Reward Management Survey revealed little progress since 2018. Our autumn edition captured a median gender pay gap of 17.1 per cent with an interquartile range of 10.8 per cent and 26.2 per cent; these figures have marginally improved in our spring 2019 edition, at 16.3 per cent with an interquartile range of 8.8 per cent and 24.7 per cent. The reporting deadline has unsurprisingly seen a surge in the number of respondents publishing their figures externally, from three per cent in 2016 to 69 per cent in 2019. With the requirement to publish comes the responsibility to consider how to act.
The bigger picture
Gender pay reporting dovetails with other equality and diversity initiatives that are being considered to effect cultural change. These initiatives, focusing on ethnicity, age, disability and the ratio between the pay of a CEO and the average employee, all look to monitor practices in place to make the workplace fairer. The spotlight placed on pay discrepancies between other traditionally under-represented groups of employees is a valuable way of building on this success.
Nearly half of respondents are actively considering how they can tackle wider equality issues within their organisations, beyond discrete initiatives such as the reporting requirements regarding gender pay and potentially ethnicity pay gaps. Overwhelmingly, 86 per cent of employers offer equality and diversity initiatives including:
- Networking groups (designed to bring together groups facing similar challenges to share their experiences and mutually support one another’s progression);
- Dedicated working groups (open to all employees to champion diversity within the workplace); and
- Coaching and sponsorship programmes (more individually focused to provide dedicated training and support).
However, there is an administrative impact that is important to consider. Whilst the regulations for gender pay gap reporting have a threshold of 250 or more employees, to avoid stretching smaller teams to provide this information, the impact of reporting regulations also varies across sectors and by the type of information organisations are being asked to collate. For instance, the administrative burden is high in the Facilities Management sector where work is won based on five to ten year contracts, which poses greater challenges when it comes to harmonising practices across their organisations; a number of payroll systems are also involved in gathering this data every year across thousands of employees. Organisations without this layer of complexity report that the calculation of the figures is challenging enough, with three in ten organisations submitting reports with errors.
Ethnicity pay gap reporting is set to be even more complex for organisations, given the lack of existing data available, as this information is often optional. The CEO pay ratio will also vary widely by sector, so thinking about the narrative is critical when it comes to the impact this will have on stakeholder engagement.
Inaccurate figures, with some organisations reporting a gap above 100 per cent or potentially leaving out key employees, and a lack of sanctions risk undermining the legislation that hopes to tackle pay inequality. 725 companies filed or resubmitted their figures since the 2018 deadline following enforcement letters from the Equalities Offices. The letters provide employers with 28 days to comply. If an employer fails to submit their figures by this date, the Equality and Human Rights Commission (ECHR) can apply for a court order, which could result in a financial penalty for the offending organisation.
The threat of a financial penalty alone has been incentive enough so far – the PR around consistently withholding this information is a reputational risk that many would not contemplate. Publishing on or around the deadline with the mindset of ‘safety in numbers’ has been the most common strategy for those with a large pay gap. It remains to be seen if there is a stage beyond financial penalty, as three offenders who failed to publish their data two years in a row have been publicly named as Typhoo Tea, Charlotte Tilbury Beauty and Northern Automotive Systems, who are now being investigated by the ECHR.
Maintaining momentum: a proactive approach
The gender pay gap often faces criticism for being a blunt tool, alongside the raft of potential regulations touted as the next administrative hurdle for companies. Some employers have published their gender pay gap nine months early, with Penguin Random House recently revealing a 9.1 per cent gender pay gap in 2019. Making your positive pay picture into a positive news story is one way of embracing an initiative that is here to stay. A year on year reactionary strategy might work in the early stages, but the gender pay gap figures are increasingly only the starting point in the journey to equality through transparency that employers must embrace.
Whilst 46 per cent of respondents in our UK Reward Management Survey are conducting further analysis to identify the driving forces behind their gender pay gap, one third of respondents are taking no further action. It is hoped this is because they are actively promoting equality in the workplace with a holistic strategy that combats all discriminatory practices as the pressure for employers to be upholding diversity in their HR practices grows. A reactive, year on year adaptation of the narrative, cautioning that closing the gender pay gap will take time, will need to be replaced by detailing proactive steps that ensure everyone has access to equal opportunities and equal treatment.
A commitment to equality across the business will ensure that the reporting regulations meet their aims and are much more than a storm in a teacup that organisations have to ‘manage’. Gender pay reporting is increasingly the tip of the iceberg in establishing a fair and open workplace.
To talk about how we can help you to calculate your figures for the next round of gender pay reporting and monitor your commitment to diversity across your business, please get in touch.