Looking forward in 2019: gender pay gap reporting, the second wave

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Gender pay gap reporting became mandatory for private employers with 250 employees or more as of 6 April 2017. As the second reporting date approaches (5 April 2019) we take a look at what some employers have done over the last 18 months in respect of their gender pay gap, as well as actions the Government and the Equality and Human Rights Commission (EHRC) have taken to encourage publication of results in the first instance, and recommendations on improving the gender pay gap going forward.

Employers had 12 months from 6 April 2017 to collate their relevant data ahead of the first annual reporting date, which was 4 April 2018. Employers were also required to publish their pay gap results on their website and the relevant Government website. As a refresher, the "gender pay gap" is a measure of the difference between men and women's average earnings across an organisation, expressed as a percentage of male earnings.

The race to reveal

It is fair to say there was no rush of employers looking to publish their gender pay gap data throughout 2017. So much so that in early November 2017 Theresa May called for more companies to report on their gender pay gap to address the inequality in the workplace. She said that "the gender pay gap isn't going to close on its own" and that "we all need to be taking sustained action to make sure we address this." The Prime Minister's announcement at that time came in the wake of a report, published by the World Economic Forum, which showed that the UK has dropped from a ranking of 9th in the world to 15th in respect of its gender pay gap (where the UK has remained as at December 2018).

The encouragement continued into early 2018 with Rebecca Hilsenrath, chief executive of the EHRC, stating: "Let me be very, very clear: failing to report is breaking the law. We have the powers to enforce against companies who are in breach of these regulations. We take this enormously seriously. We have been very clear that we will be coming after 100% of companies that do not comply."

Employers were reminded in the run-up to the 4 April 2018 deadline that companies which failed to make the deadline would be named and shamed on a public list on the government portal. Companies which continued to avoid the requirement were told they might ultimately face a summary conviction, be subject to an unlimited fine and be forced to publish the data under a court order.

At the end of March 2018 only 50 per cent had revealed their figures on the Government Equalities website. Nevertheless, even the partial reporting up until that time exposed significant differences in gender pay across industries including finance, beauty and retail.

April 2018

More than 10,000 companies published their report by the deadline day. More than 1,100 companies published their report on the day of the deadline, which is more than the total number of companies who reported in the first 326 days of the scheme. Some argued that such late publishing was, in certain cases, a tactic to bury unflattering results in the last-minute flood of reporting.

From the data published by the deadline, we learned that 77 per cent of companies pay men more than women, 14 per cent pay women more than men and 8 per cent reported no gender pay gap at all. Perhaps unsurprisingly, the first year results showed men are paid more than women in every single industry sector, with construction representing the largest gap, followed by finance and insurance.

Why the gap?

In December 2018 the EHRC published a report entitled "Closing the Gender Pay Gap".

The concentration of men in senior roles was the main reason given for wide gender pay gaps (if employers gave a reason at all). The predominance of men in generally better paid industries such as finance, oil and gas, and IT is also a significant factor. Societal reasons such as the continued primary role of women as care givers to young children and older family members also has an impact.

Although there is no statutory requirement for an accompanying narrative explaining a gender pay gap, the EHRC describes this as "a valuable opportunity for employers to publicly set out the reasons for any gaps and also to explain what they intend to do through a time-bound and target-driven action plan". The EHRC's view (one of the key findings of the report) is that there are many benefits to explaining your pay gap including attracting and retaining talent, reputational and brand recognition, building trust and engagement with employees on action for solutions. Around 50 per cent of employers produced an accompanying narrative along with their results in 2018, but only some 11 per cent had set targets which would enable them to measure the progress of their plans year on year.

Executive pay

Under regulations which came into force on 1 January 2019, UK-listed companies with more than 250 UK employees must now publish certain executive pay data in their annual reports. The new regulations are part of the government's efforts to improve transparency and accountability in corporate governance, and are a response to criticism that companies should justify executive salaries.

Quoted companies with more than 250 UK employees must provide the following in their directors' remuneration report:

  • the ratio of their CEO's total remuneration to the median (50th), 25th and 75th percentile full-time equivalent remuneration of their UK employees; and
  • supporting information, including the reasons for changes in ratios from year to year and, in the case of the median ratio, whether and, if so, how the company believes this ratio is consistent with the company's wider policies on employee pay, reward and progression.

Companies subject to the new regulations are also required to illustrate in the directors' remuneration report how the growth in the company's future share price impacts executive pay. In addition they must provide a summary of any discretion that has been exercised on executive remuneration outcomes reported that year in respect of share price appreciation or depreciation during the relevant performance periods.

The new requirements will apply for annual reports produced for financial years starting on or after 1 January 2019. The requirement for companies to illustrate the impact of share price increases will apply to all new remuneration policies introduced on or after 1 January 2019. Companies affected by the new regulations should ensure that they fully understand what is required of the new regulations, and should begin the process of identifying the data that will be needed to provide the information required by them. It will also be important to consider how the information will be explained and communicated by the business, both externally and to the workforce.

Action to consider

If your 2019 results show a lack of improvement or only a slight change to your organisation's gender pay gap, there are a number of steps for you to consider in order to reduce this gap going forward.

Identify the reasons behind your gender pay gap

There could be many reasons for a difference in average pay between men and women. For example, you may employ more men than women in high-paying or senior roles, or you may employ more women than men on part-time working arrangements. Whatever the reason(s) behind your gender pay gap, it is important to understand each reason fully in order to action change. Whilst the gender pay gap and equal pay are separate issues, unequal pay can influence the gender pay gap and should be addressed. An equal pay audit is often a good way to uncover and remedy issues. The EHRC commented in its 2018 report that it was "surprised" by how few employers mentioned equal pay audits in their gender pay gap reporting, given that many claimed that they had no issues with equal pay.

Implement policies which enable change

The solution is not as simple as increasing pay for women in certain roles and seeing your statistics change overnight. Although pay may be something to review across the organisation, there are policies that could create an environment where men and women have an equal opportunity to progress.

For example, if you have identified that there are more men employed at senior levels in your business, you should explore the reasons behind this. Review your internal workplace attitudes: are women discouraged from applying for senior positions due to internal attitudes or the required working style? If so, can you change this? It would also be worth reviewing your historical data regarding the application and interview process for these roles: do women apply for senior positions but not get the role, or do you have very few women applying for these positions at all?

Policies which may instigate change in these areas include transparency as to job requirements at every level, internal succession planning and developing talent from within, implementing an internal mentoring system and ensuring you have positive role models for both sexes at every level.

If you have identified that one of the reasons behind your organisation's gender pay gap is that more women are employed on part-time working arrangements than men, it may be an apt time to consider implementing policies and job descriptions encouraging flexible work. This disparity is often because there are few senior roles available for those who wish to work part-time. You may wish to consider whether you could emphasise that more senior roles can be carried out on a flexible basis too. A commitment to flexible working must become cultural and not be seen as a "tick-box" exercise.

The EHRC recommends actively promoting shared parental leave to staff and considering an enhancement to the statutory minimum paternity leave, using other jurisdictions as an example of higher take-up among men.

Review your recruitment process

If one of the reasons for your gender pay gap is the higher ratio of male to female employees at your business, it may be a good time to review your recruitment policy and collect data surrounding your interview and offer statistics. Do you attract, and invite to interview, an equal number of male and female candidates for every role? Do you have transparent internal recruitment processes,
gender-balanced interview panels, anonymous CVs/application forms?

You should seek to remove bias from any hiring, or promotion, process and decisions regarding who to interview, who to make offers to, who to promote and who to award bonuses to should be made as objectively as possible.

The 2018 EHRC report gave details of a transport sector employer who targeted a broader range of recruitment events and partnered with an industry women's association in order to encourage more women to apply for roles where they were underrepresented. The report also recommends a wider consideration of apprenticeships, not just in the stereotypical male roles within the construction and engineering industry.

Whatever the reasons behind your gender pay gap, all organisations should make a concerted effort to understand why their gap exists and how it can be closed, and then take steps to close it.

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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