The company secretary of a financial services company recently admitted to me that the UK’s original 29 March deadline for leaving the EU would have been the perfect time to bury the firm’s second gender pay gap report, which showed worsening figures on the previous year. Diversity in UK business – or rather the lack of it – became an uncomfortable headline in 2018, as companies faced the process of mandatory gender pay gap reporting.
Many caught by the regime had no idea of the extent of pay disparity between men and women in their businesses. For many, it’s fair to say, the results were at best disappointing and at worst shameful. And this may well intensify further with moves to extend the scope of pay gap reporting (see box opposite). With the passing of the second anniversary deadline for companies to submit gender pay gap reports, the pressure is on to make sense of the number-crunching endeavours. Round one presented organisations with the unenviable challenge of extracting the necessary data to produce headline numbers.
This year, they also must explain how their strategies to redress gender-related remuneration imbalances have evolved, against a backdrop of impatient – and largely unrealistic – expectations of progress. The good news, according to Alasdair MacDonald, director of programmes at the Equality and Human Rights Commission (EHRC), is that the transparency offered by gender pay gap reporting has significantly increased scrutiny on gender equality in the workplace. “We have generally found that employers seek to comply with the spirit of the regulations,” MacDonald tells economia.
Less encouraging are the latest figures showing that many have made no progress and some, including Virgin Atlantic and Npower, reported bigger gender pay gaps than last year. Despite understandable worry about how the stagnant numbers might be perceived, experts urge companies to focus efforts on understanding the root causes for gender pay gaps and articulating in a meaningful way their strategies to tackle them in the guise of a robust narrative report and action plan. And yet that is where performance has remained patchy; while some businesses have provided a detailed narrative, some have opted for a highlevel overview and others nothing at all.
EHRC’s research points to a worrying lack of substantive action taken by employers to close their pay gaps, and almost half the employees it surveyed had not read or heard any information about their organisation’s own gap. “Employers need to be analysing their figures to identify underlying causes of their pay gaps and come up with solutions,” MacDonald says.
Ethnicity – the next pay gap focus?
Moves to broaden the pay gap focus beyond gender are apace following government consultation on ethnicity pay reporting, completed in January. This set out to gauge the views of employers about what information companies should disclose to tackle inequality in the workplace. Ethnicity pay gap reporting presents specific challenges – not all employees will choose to disclose their ethnic background, for example.
It is critical that organisations not only have high enough disclosure rates, but are also consistent in terms of the information they report to enable like-for-like comparisons. And yet Equality and Human Rights Commission research reveals that just 3% of UK employers measure their ethnicity or disability pay gaps. “That’s why we’re calling for the government to issue guidance on the data that should be collected, and for employers to be required to publish their ethnicity self-reporting rates as an important first step to transparency,” says Alasdair MacDonald from the Commission.
In its consultation submission, ICAEW said: “We encourage the government, when formulating the detailed requirements in this area, to be as consistent as possible with the mandatory gender pay reporting regime except in relation to the proposed scope, which we believe should be UK employers with 500 or more employees.”
Organisations are being advised to recognise the broader benefits of narrative reporting, not least as a mechanism to show how seriously they take the issue. Laying bare the results of your gender pay gap analysis may not make for a comfortable read, however, taking ownership of those numbers – and any problems that may emerge – sends out a compelling message and is perhaps the only way to drive change. There is no one-size-fits-all solution. Each organisation should carefully consider the most appropriate action for their business in order to ensure that change is meaningful and sustainable.
Flexible working and mentoring dominate proposed solutions, but you should look more broadly at your remuneration and recruitment policies, particularly where they support transparent and fair outcomes – for example, not asking applicants for details of their previous salary, which has been shown to perpetuate the pattern of paying women less. Reports should also highlight any management initiatives designed to address pay gaps, such as unconscious bias training, actions to actively encourage women to apply for promotion, as well as schemes to recognise talent and provide opportunities to widen experience.
To make a genuine difference, change needs to be led from the top, with senior management recognising the problem of pay disparity and committing to doing something about it. “This isn’t just about making bland statements,” says Jane Berney, ICAEW’s business law manager.
A narrative report to accompany your gender pay gap report is not a legal requirement and MacDonald is mindful of the fact that some employers will have greater resources to dedicate to it than others. Anke Janssen, group managing director at headhunter Carmichael Fisher, believes the investment will more than pay off; showing that you are focused on correcting the injustice will give you the upper hand in attracting and retaining talent.
“Companies may feel exposed, but by removing the emotion from the discussion and focusing it entirely on facts and statistics means we can take a much more constructive approach to overcoming the challenge,” Janssen says. Meanwhile, very high compliance rates last year were marred by the number of employers who left it to the last minute and then fell foul of the deadline for one reason or another. “Late submissions, which are marked on the public reporting website, don’t look good for an employer and might mean we prioritise our enforcement action against them should they breach the regulations again in the future,” MacDonald adds.
While there is no obligation for businesses with fewer than 250 employees to submit figures to the Government Equalities Office, those close to the threshold, and those with substantially fewer staff, may want to consider reporting, particularly if they compare favourably with larger organisations in their sector. “Job applicants will look at the data, partly out of curiosity but also to assess how an organisation treats its employees and intends to treat them,” says Barry Stanton, partner and head of the employment group at law firm Boyes Turner.
Experts remain divided on the idea of setting recruitment targets for women in underrepresented roles. Berney is in favour: “It helps focus the mind. It may be that you can’t meet targets, in which case you can explain why. That’s not a reason not to do it.” However, Innes Miller, chief commercial officer for Paygaps. com, believes that it is safer to set expectations and the tone. It may come as little comfort to those grappling with large pay gaps (see box), but companies that dwell on whether this year’s numbers are the same or worse are missing the point, says Miller.
“It’s a snapshot. You’re subject to the winds of change and statistical variance. It’s just one indicator. The whole retention, pay and recruitment system needs changing – it’s a longterm thing that will take commitment and resources.” Year-on-year comparisons should be taken with a pinch of salt, agrees David Ellis, a partner in EY’s people service advisory team. “It’s the fiveyear trends we’re interested in. Be bold and shout from the rooftops about the steps you’re taking.” Diversity and inclusion (D&I) isn’t a Friday afternoon task, says Stephen Frost, CEO of advisory firm Frost Included and author of Building an Inclusive Organization.
“This is not an HR issue. Get your baseline data sorted on all kinds of diversity. Think about how you can challenge decision making to be more inclusive and look at your recruitment and talent management systems to find the areas of bias.” And companies who think they can fix their problem by changing how they pay people are sadly mistaken, warns Ellis. “It’s about providing opportunities to people on an equal basis. Can you genuinely say that they all have the same day-to-day opportunities? People who aren’t busy in the same way tend not to get promoted or tend to leave.”
Reporting is just the first step, adds Brenda Trenowden, global chair of the 30% Club. “At its core, an inclusive culture is characterised by an atmosphere in which respect, fairness and positive recognition of differences are not only accepted but encouraged,” she says. “Hiring a diverse workforce is the first step, but that’s meaningless without an inclusive culture that allows everyone to thrive.”
Progress? What progress?
With around two out of five companies announcing year-on-year gender pay gap increases – and bearing in mind that the reporting requirements do not place any legal obligations upon employers to close the gap or even to justify why one exists within their company – it would be tempting to assume that gender pay gap reporting has failed in its objective to address pay disparity between the genders. Not so, says Alasdair MacDonald, from the Equality and Human Rights Commission. “Transparency has significantly increased scrutiny on gender equality in the workplace, but there is no quick fix.” The fact that many businesses are making positive and encouraging statements about closing the gap suggests that it will have an effect.
Having available gender pay gap information means that businesses want to ensure that they compare favourably with other employers. Inclusivity consultant Stephen Frost says his analysis shows that most companies are approaching it as something they have to do. On bonuses, it’s the Wild West, he says. “There’s less transparency and that’s a real indicator of culture. Companies are responding to the law but they’re not intervening in line manager conversations when things are negotiated. That’s where friends, favours and biases can be indulged.”
The complexity of the issues, particularly cultural, means a sudden improvement was never on the cards, says Duncan Brown, head of HR consultancy at the Institute for Employment Studies. Most experts suggest that it will take between three and five years for the fruits of new diversity and inclusion strategies to translate into an improvement in topline numbers.