31 October 2016 by Bernadette Barber
Boards need to develop an action plan to address the issues that contribute towards the gender pay gap
It is often said that what is measured can be managed. This is clearly the regulatory intention behind the gender pay gap reporting requirements that are to be introduced in the UK from April 2017 for companies employing more than 250 people. The regulations will be extended to larger public sector employers too.
By demanding that larger employers gather gender pay gap statistics and publicly report on them, the Government is clearly hoping that companies and public sector employers will find additional motivation to address shortfalls in pay and opportunity available to women.
The tactic appears to be similar to that applied in seeking to increase representation of women on boards – better transparency through reporting is demanded with a view to changing behaviours in order to achieve a stated objective. In this case, the Government’s ambition is to eliminate the gender pay gap within a generation.
The issue is important not only in terms of achieving fairness. With lower lifetime earnings, women’s pension prospects are also reduced, thereby increasing the risk that women are likely to need to rely financially on the state in old age to a greater extent. With an aging population this is a potentially costly issue for governments.
The campaign for equal pay for equal work gained momentum in the UK following 1968 strike action taken by Ford’s female sewing machinists who were paid less than men doing similar jobs. The Equal Pay Act 1970 resulted and was followed by other equal opportunities legislation introduced into the UK to ensure that women have the same chances available to them to access training and to progress in the workplace.
So, at least in theory, British women now reaching retirement age should have had the same opportunity as men within the same age group throughout their working lives to climb the career ladder and should have been as well rewarded for doing so.
Yet the reality is that despite girls, on average, leaving education with higher qualifications than
boys, they continue to do less well and earn considerably less over their career lifetimes. The gender pay gap starts early in working life and continues to widen right through to retirement.
According to EU statistics, the average gender pay gap in Europe is around 16%. Or to put it another way, women are effectively working for free two months of every year compared to men.
The significant gender pay gap that exists reflects two issues:
No biology lesson is needed to understand that there are some fundamental differences between men and women. There is no doubt that, not only do expectant and new mothers need time off work, but that there are still more women than men who choose, in the long term, to take time out from their careers to be at home with their children or to balance home and work responsibilities better by opting for a part-time job.
However, the basis on which a gender pay gap is calculated is specifically designed to remove the impact of those differences in working patterns by comparing what a woman is paid on average for one hour of work compared to the average a man is paid for the same hour of work. Pay in this context is measured gross and includes elements such as shift and geographical premiums, bonuses and on-call allowances but excludes overtime, salary sacrifice schemes, benefits in kind and redundancy payments.
On this basis, for a group of individuals performing similar roles, in the absence of discrimination, there should be no difference between the amount paid per hour regardless of gender, even though some individuals will work more hours per week than others.
Those who are taking a career break (for whatever reason, be they men or women) are earning nothing and therefore fall out of the equation altogether. A pro-rata reduction is similarly made for those individuals working less than full time. So the calculation of the gender pay gap statistics ensures that the figures are not skewed by career breaks and part-time work. The gender pay gap is designed to present a fair comparison.
That comparison is enhanced by an additional presentation of the gap between the pay of a typical female employee and that of a typical male employee, being the median earnings for each group. By requiring the reporting, on both the average and median bases, to be divided also into quartiles, the distribution of male and female staff across different pay bands provides further supplementary information.
Take for example, a business in which women are well supported, have access to training and promotional opportunities and are well represented at all levels of management. However, if more of the lowest paid individuals are also women, perhaps due to the nature of the work, the impact may be that the bare average and median statistics misleadingly indicate than men earn more than women.
This issue is alleviated by the requirement to divide and present the data into quartiles. In the above example, the gap that appears to exist when looking at the ‘whole organisation’ figures disappears when the data is broken down into quartiles. This demonstrates that, at each level in the organisation, men and women earn comparable amounts.
Another situation in which a simple average might not present the true picture would be where average pay is skewed by the high earnings of a minority of individuals. Representation of the median pay alongside the average dilutes this skewing effect by indicating where the realistic ‘mid points’ of earnings are for both sexes. The mid-point figure could be considerably higher or lower than the average for that gender depending on the actual distribution of hourly rates.
What can be seen from the above examples is that there is some danger in publishing the statistics and leaving the reader to draw their own conclusions. It is likely to be helpful for the figures to be presented alongside a voluntary explanation of the nature and cause of any apparent gap and whether any action to address the gap is being undertaken or planned. In order to provide that explanation and details of any action plan, employers will need to understand why those gaps arise.
There may be some particular features of the business which mean that more men than women (or vice versa) are employed in certain roles. A children’s day nursery may predominantly employ women, for example, whereas a building maintenance business may employ more men.
Even where such cases exist, an honest review of pay practices is still required. Such an internal review is likely to need to be more granular than the published figures, looking at the business by department or location, and comparing similar level roles across the business, to understand the information properly.
A high profile case against Birmingham City Council almost a decade ago highlighted that there is danger in failing to compare jobs properly. In that case, higher rates were paid for manual jobs frequently undertaken by men – street cleaners, refuse collectors and grave diggers – compared to similar level roles commonly undertaken by women – home helps, cooks and cleaners. As a result of this case, equal pay claims can now be backdated for up to six years, representing a considerable potential risk for some employers.
This, if nothing else, should be sufficient motivation for companies to ensure they adequately investigate and address the issue to ensure the business is not unnecessarily exposed to such liabilities.
Alternatively, if gender pay gaps are the outcome of practices which fail to properly support and promote women so that they are underrepresented at more senior levels, then action to address the backing given to female talent in the business should be considered. The organisation should be looking at what can be done to recruit, develop and retain more senior women, including through internal promotion.
By understanding and analysing the reasons for a gender pay gap, the board can develop an action plan to address any gap that should not exist. It can thereby mitigate the risk of reputational damage that might arise from publication of unflattering statistics and even future employment claims. Causes of inequality are complex and the actions needed are likely to be multi-faceted, but should in all cases be backed up by an effective communication strategy.
A communication strategy will equally be beneficial for those employers who are already shining examples of best practice. Those businesses will benefit directly, increasing staff motivation and satisfaction by demonstrating that their employees are valued and treated fairly and that opportunities to maximise their potential will be made available to them regardless of gender.
The UK is certainly not alone in addressing the problem. The gender pay gap is also under the spotlight at EU level, as part of its focus on inequality in the workplace.
There is time before publication of the first reports in April 2018 for all employers, whether UK based or with international operations, to move their organisations towards the goal of eliminating gender pay differences. Organisations should demonstrate a real commitment to addressing any shortcomings in current or historical practices revealed by unflattering statistics.