Recently, we were privileged to have Duncan Brown, from the Institute for Employment Studies, speak at one of our Curo Coffee & Comp events. The theme was around equal pay reporting and his talk was entitled ‘Addressing Unequal Pay: Opening Pandora’s Box.’ What was clear to all was that there is no doubt that when the lid is lifted off the Pandora’s Box that is gender pay next year many evils will fly out, but it is also true that hope will be left. There will be far reaching consequences but will they necessarily be detrimental?
Last month, the UK Government Equalities Office (GEO) announced its follow up consultation to the July 2015 Closing the Gender Pay Gap consultation, inviting feedback on the proposed draft Regulations introducing mandatory gender pay gap reporting for private and voluntary sector employers in England, Scotland and Wales with at least 250 employees. Subject to the approval of Parliament, legislation is now expected to come into force on 1 October 2016. This will affect around 11.3 million employees, representing 34 percent of the total UK workforce. With these dates in mind, many companies are starting to prepare for compliance with the legislation.
This legislation follows several prior failed attempts to encourage employers to carry out equal pay audits on a voluntary basis. Participation levels were minimalist resulting in a hypothesis that either employers believed that they did not have a gender pay problem, in the absence of any evidence, or that they did, but didn’t wish to highlight it. The only way forward, to flush out the evidence one way or another was through compulsion. Hence the legislation.
An important, yet basic principle to understand is that this legislation supports equal pay for men and women doing the same work. However it is also key to recognise that there are potential and legitimate justifications for differences in pay including experience, location, performance, market forces, skills, responsibility, employee potential and red circling. These can be identified and acknowledged in any employer narrative associated with their raw gender pay reporting statistics.
The impact of the legislation will be to put employers pay structures under scrutiny with inequalities in pay and bonuses being open for both employees and the wider public to see. For employers, the consequential risks are:
Fines of up to £5,000 for non-compliance i.e. not reporting
For those who do report, and depending on what the numbers say:
An impact on employee engagement and talent attraction
Negative external publicity and reputational damage
Increased risk of equal pay claims
So how big is the gap in gender related earnings? According to the GEO, in 2014 the UK’s all-employee gender earnings gap was 19.1% compared to the EU average of 16.4 percent (European Commission 2012). According to the Institute for Employment Studies, this converts to an equivalent loss of over £360k in gross earnings over a woman’s working life, which is indeed significant.
The quantum of the earnings gap will also vary by sector and by level of seniority. In the banking sector, for example, the data is expected to show a pay gap which may be as high as 40%, whereas in the higher education sector, the gap was around 11 percent in April 2015 and narrowing. Across all organisations, it is expected that the gap widens at the higher levels of seniority.
Despite any legitimate and defendable reasons why there are differentials in compensation, what is clear is that for many employers, there will be a meaningful delta in their headline data on gender compensation inequality. Few, if any, would argue that this is fundamentally wrong and does indeed need addressing. It is not a ‘quick fix’ but one that the European Commission estimate may take up to 70 years to close. However long it takes, employers will be subject to mandatory annual and very visible reporting with pressure to demonstrate progression with respect to convergence and ultimately closure in their ‘gender pay gap’.
Fair and gender equitable
The legislation is not about naming and shaming. It’s about companies establishing internal and external benchmarks on pay inequality and moving forward year on year to establish a position in the market where they are seen genuinely as a ‘fair and gender equitable’ employer. Employers should embrace the new legislation and rather than simply doing the minimum to be compliant, they should also consider the many real benefits of being seen to be fair and transparent in the market including attracting new talent.
No doubt over time statistics and ratios will evolve. There will also be various market, sector and peer group comparisons that will be made available. Market data businesses will also create new commercial opportunities to benchmark gender stats within industries. Consulting opportunities will also emerge to help employers to close their gaps in an effective but affordable way.
However you look at it the direction of travel is absolutely clear. The legacy issues are big and need to be addressed, and in doing so, this will benefit both employers and employees.