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Reporting requirements will take gender pay rows from the red carpet to the UK shopfloor. But do you understand the numbers? And could you explain them to perplexed employees?
It took a hack of Sony Pictures to bring the gender pay gap on the Oscar-nominated American Hustle to the attention of its star, Jennifer Lawrence. Her impassioned essay on how she’d “failed as a negotiator” in lagging behind co-star Bradley Cooper made equal pay in Hollywood a major talking point in 2016. But this year, while the sums on show may be more modest, the conversations won’t be restricted to A-listers.
From 6 April, British women (and men) will begin to receive an important indication of where their employers stand on the issue, as gender pay gap reporting regulations require companies with 250 or more employees to collect data on the difference between average male and female salaries and publish that information within the next 12 months.
While it’s hard not to support this push for salary parity by the government – the Office for National Statistics (ONS) estimates the current overall pay gap to be 18.1 per cent – many employers are becoming aware that both the mechanics and the implications of the reporting regime may be more significant than they anticipated.
One of the issues they struggle with is a frequent misconception that a gender pay gap is the same as an equal pay gap. The problem here is twofold: it means that employees will invariably take the reported gender pay gap in their business as an indication that women receive less for doing the same job. And at a societal level, it obscures discussion of the progression-related issues that stop women earning more, focusing attention instead on a metric that has more symbolic significance than realistic meaning.
“Different pay for people of the same grade doing the same job based on gender has been illegal since the 1970s,” says Ed Stacey, a partner in the legal group at PwC. “What the gender pay difference actually shows is a demographic pay gap, and the solutions to the two issues are quite different.” By taking the average hourly pay for all employees and comparing the difference in that metric for men and women, gender pay reporting is most notably about female representation in certain roles – not whether the man across the corridor earns more for the same job.
For services provider Sodexo, explaining this difference was a core part of the communication effort when it decided to publish its gender pay gap last year. It created a simple infographic to explain that equal pay meant men and women being paid the same for the same work, while the gender pay gap was the difference in average hourly earnings. “We explained it in an easy to understand way – we have a multitude of nationalities and people working at different levels so it needed to be simple,” says Mark Goodyear, Sodexo’s head of reward. So far, the company has only shared the high-level gender pay gap figure, which was 7.65 per cent. As around 80 per cent of staff are in customer-facing roles such as chefs and cleaners with a consistent pay rate, it was not a surprise to come in lower than the ONS figure, he adds.
Ensuring that the data was sufficiently clean and consistent to produce an accurate figure took longer than expected, however. “There were instances where we had data errors, where people were captured on the wrong ‘generic job’, so, when you’re looking at like for like, the reality is that someone is not actually in the same job as the next person, even though the data says they are,” explains Goodyear. “The devil is in the detail. It will take longer than you originally expect when you do this for the first time, so give yourself the additional time.”
The ONS has already produced an online tool showing pay gap differences for different occupations (some of these are summarised on page 29). But what’s concerning some employers is that the government plans to publish companies’ gender pay gap statistics in the form of league tables, though the format and timing has yet to be confirmed.
This has implications for employer brand, investor relations and, potentially, regulators. It will lead to a barrage of questions from employees. Yet while the figures might, in some cases, shine a light on troubling inconsistencies, they are by their very essence imperfect – for example, a higher proportion of women work in occupations such as administration and care, which tend to offer lower salaries.
Many financial services firms will have a double-digit gender pay gap because of lower female representation at senior level, while large retailers such as Tesco (which has published its own figure as just 1 per cent) could be at the opposite end of the spectrum because such a high proportion of its staff are clustered around national living wage levels.
Because of the way the figure must be calculated, it’s also possible employers will see a different percentage depending on whether they include or exclude part-time workers, before and after salary sacrifice is taken into account, and if there are variables such as individuals taking a period of unpaid leave.
“Coming up with a narrative around your figures is a must,” says Sheila Wild, founder of the Equal Pay Portal. “The fact that it’s optional doesn’t mean you shouldn’t do it. Think about the questions your employees would ask, or what you’d like to know about your competitors.”
Indeed, almost two-thirds of respondents to People Management’s survey on gender pay reporting (see box below) said that ‘careful communication’ around the results would be a priority when they published their figures. “Businesses will need to deal with a lot of broader reward communication,” says Ben Frost, global product manager at Korn Ferry Hay Group. “There may be employees who earn less than the median salary figure, regardless of gender, who feel they should be rewarded more.”
Frost adds that “it’s worse when it comes to bonuses”, referring to the added obligation on companies to report the difference in average bonuses between men and women, as well as the proportion of men and women to receive a bonus. “There are far fewer women in senior roles, and as your salary goes up, so does your percentage bonus. It’s a representation issue.”
There is an argument for complete transparency around the figures. But how much to publish beyond the legal requirements of the regulations is up to the employer, according to Kelly Thomson, legal director of professional services company RPC. “Drilling down to a job-by-job comparison would enable an organisation to better understand whether it has an equal pay issue,” she says.
However, Thomson adds that if equal pay issues do emerge as a result of looking at the broader issue of gender pay differences, publishing this level of detail could carry a legal risk. Following the ongoing case being brought by Asda employees against the business, and the successful (and hugely expensive) equal pay claim from thousands of Birmingham City Council workers, it’s understandable that 38 per cent of People Management readers think the regulations could lead to legal concerns for their organisations.
“Employers should take legal advice before undertaking any equal pay audit or review, bearing in mind that such audits are in themselves not required to meet an employer’s reporting obligation under the new legislation,” says Thomson.
There are lessons to be learned here from the public sector. Many local government employers have already undergone equal pay reviews as part of a move on to national pay scales. “We did it around nine years ago and we’re now reasonably confident we can say that people in the same role are paid the same,” says Sue Evans, head of HR and organisational development at Warwickshire County Council. “My advice to the private sector is to take a deep breath and get on with it. If there is a gap, own up and address it as, the longer it goes on, the more it’s likely to cost you.”
And while addressing any equal pay disparities should take priority, employees will also want to know what you’re doing to minimise the broader gap in future. “Companies need to get on the front foot, as publishing the figure may lead to a lot of questions,” says Charles Cotton, performance and reward adviser at the CIPD. “Explain what you are doing to attract more women, and how you’re addressing any gaps at particular grades. It will be hard to work out how well you are doing in the first year because you have no comparison.”
Don’t leave it until the last minute either, adds Wild: “Discuss it internally before you make the figures available externally. You don’t want your employees to find out from the local press, who’ve got the information from the government website.”
Initiatives such as Think, Act, Report and the recent Women in Finance Charter prove that many employers are already making huge strides in terms of both gender pay equality and the pipeline of women heading for senior roles. But there are a number of actions that can be taken immediately that will have a positive impact on your gender pay figures in years to come. That could mean unconscious bias training for managers who make pay and promotion decisions, so they’re not only awarding rises to those who bargain for them (typically men), but are proactively and objectively rewarding and promoting those who deserve it. Similarly, refraining from offering variable pay at graduate or school-leaver level means men and women are on an equal footing from the very start.
“Get diversity right because it’s the right thing for the business, not just because it’s a compliance issue,” advises Chris Charman from reward company Mercer. “So in IT don’t just promote [mostly male] technicians because there are more of them, when many women will have the attributes to lead projects. Or consider that, despite global mobility being a huge factor in career progression, only 20 per cent of expats are women.” Thinking towards the longer term, some employers are increasing their outreach in schools (particularly in areas such as engineering that have traditionally been male-dominated), or making apprenticeships more attractive to a female audience. EasyJet, for example, has a target of making a fifth of its new pilot cadets women by 2020 – currently only 3 per cent of commercial pilots are female.
In the coming months, though, the focus will be on reaching that all-important calculation; there are six metrics employers are required to disclose, including the difference in bonus payments between men and women and what the gap looks like for different salary quartiles. While there has been some suggestion that the government will ‘name and shame’ companies that don’t publish, the law itself does not impose any sanction for failure to comply.
Wild says we could see a situation where some employers choose to publish some but not all of the required metrics. “I don’t think there will be many companies that completely ignore the requirement, but there may be some that just do some of it,” she says. “Business groups lobbied for self-regulation rather than mandatory equal pay audits, and they’ve got what they asked for. It’s incumbent on them now to make sure it works.”
Reporting regimes that have been introduced in other countries have been broadly similar and self-regulatory – in France, companies with more than 50 employees must come up with an annual gender pay action plan based on a gender pay analysis of the workplace. In Austria, they must prepare a gender pay report every two years. With increased scrutiny in the UK around corporate governance and how much those at the top get paid, there’s certainly an appetite for transparency.
That said, it’s important to look beyond the calculation to a longer-term cultural change, says Goodyear: “The data is only the data. You only start to get results if gender balance, rather than just gender pay, is part of the strategy. You can have a great number but a poor culture – the number only tells a certain story.”
Refining that narrative will be high on the agenda for employers this year. In the meantime, Lawrence’s negotiation skills have clearly improved: she’ll reportedly receive $20m for her latest movie, Passengers, while co-star Chris Pratt will have to get by on just $12m.
Find out more about gender pay reporting at our ‘Discrimination and the law’ and ‘What’s new in employment law’ courses: bit.ly/CIPDCourses
What HR earns
Pay gaps in the HR profession illustrate some of the statistical anomalies of the reporting regime: the gap at senior level is skewed in favour of men but can be accounted for by the greater proportion of men in top roles. And the fact that women are more likely to work in HR officer posts, and to work part time, explains the gap in these roles.
What happens next?
The gender pay gap regulations come into force on 6 April 2017, and will require companies with 250 employees or more to publish data across six key metrics no later than 4 April 2018. Given that employers will need to start gathering relevant data in just a few weeks’ time, where should they focus their activities?
• Get some idea of the figure itself. Guidance is still expected from Acas and the Government Equalities Office on the finer details, but having an idea of the size of the gap means you can start to build a narrative around it.
• Ensure you can extract the right data from HR and payroll systems so there is consistency in the calculation. For smaller companies with less sophisticated HR systems, or those with disparate systems dotted across different units, this may take longer than anticipated. The calculation must be taken from a defined pay period.
• Smaller organisations will need to work out whether they will be captured by the reporting requirement by having 250 or more ‘relevant’ employees. The revised regulations, released in December, suggested this definition includes apprentices and certain self-employed contractors. Agency workers should be covered by the agency with which they have a contract of employment, and partners in a firm should not be included.
After publishing your figures
• Employees will want to know what you’re doing to address any gaps. Be as specific as possible, advises Chloe Chambraud, gender research and policy manager for Business in the Community: “If there’s under-representation in certain roles, give numbers, but also perhaps give targets for how this will change.”
• Be prepared for questions around reward generally, from why certain staff feel they should earn more than the average hourly rate to potential equal pay claims.
In the long term
• If you operate in a male-dominated sector, such as engineering, think about outreach projects in schools or aligning your organisation to government programmes aimed at bringing more women into these industries.
• If certain levels of seniority or areas of the business are dominated by men and your overall pay gap is high, consider how you are addressing the pipeline to these roles. Bringing in more women at a junior level could expand your pay gap in the immediate term (because there are more women earning a lower wage) but in years to come will even out the gender balance at the top.
• Address cultural issues. “It’s whether the culture is supportive of women that’s most important,” says Chambraud. “Are you using gender-neutral language in recruitment? Do you offer high-quality part-time opportunities or is it harder for women to progress?”
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