Gender pay reporting is likely to become law. It’s time for HR to get its house in order
“I should have pushed for more money from the start,” says Jo, a manager who’s been left to reflect bitterly on the vagaries of remuneration in her mid-size private sector organisation.
“I had been employed for just over a year with three times the size of team I was initially recruited to manage. The company employed two male managers on 20 per cent more money than I was getting. I had been making my case for a raise and was repeatedly turned down. They weren’t able to hire anyone else at my wage, so it seems they decided to meet the market price without bringing my pay into line.”
Jo’s experience is unlikely to be a rarity. There are plenty of employees in the UK who feel their salary is neither fair nor objective – many (but not all) of them women paid less than male colleagues. But light is gradually being shone into the dark corners of pay, and soon many HR departments will need to confront and justify salary discrepancies. For some, that will be a scary proposition.
The government has proposed that reporting gender pay gaps becomes mandatory for all organisations with more than 250 employees from 2016. The finer details of the plans are still being ironed out, but the expected result is that companies will be required to produce a ‘magic number’, accompanied by some sort of commentary, that explains the difference between what men and women are paid.
The issue has become so insistent partly because of increasing media coverage, but also thanks to high-profile equal pay cases. Employment tribunals involving female shop floor workers at both Asda and Sainsbury’s are still being processed by the courts, and experts are warning that other industries from the legal profession to the public sector could also be affected.
The ONS Annual Survey of Hours and Earnings confirms that men working full time in the UK earned £558 on average in April 2014, compared to £462 for women – at 19.1 per cent, this was still the narrowest pay gap on record. Yet the government convinced just five companies to voluntarily report their equal pay gaps under the Think, Act, Report (TAR) initiative last year (at present, the only legal requirement to conduct an equal pay audit comes when you are ordered to do so by an employment tribunal after losing an equal pay claim).
Anecdotal evidence suggests many organisations have begun conducting audits, but without union or staff involvement, meaning the data may never enter the public domain. Charles Cotton, performance and reward adviser at the CIPD, says there may be innocent reasons why companies are either not conducting or publicising an audit. The recession has restricted the resources available to many organisations to act on audits’ results, he says. “And to a certain extent, you can say the pay gap has been reducing anyway because the recession has also caused men’s pay to fall.”
An audit may not immediately uncover troubling disparities. “Most of the audits I have conducted have shown that companies pay women and men fairly for equal work, which is what the legislation requires,” says HR consultant Paul Andrew, who this year completed the Tyne and Wear Fire and Rescue Service’s first equal pay review, which will be soon summarised publicly. “The wider gaps will come when you look more widely across the organisation.”
Average base pay for both genders is relatively similar up to the 30-39 age group. “This is when women typically take on increased caring responsibilities, either for children or elderly relatives,” says Cotton. Despite a rise in the number of men requesting flexible working, 42 per cent of all women in the workforce are in part-time positions. It has also long been recognised that women are ‘clustered’ into certain sectors of the labour market, including the five ‘Cs’ of caring, cashiering, cleaning, catering and clerical. Because these roles are typically considered low-paid and low-skilled, they continue to perpetuate the pay gap. Ending ‘occupational segregation’ will have a far bigger impact than compulsory gender reporting, argues Cotton.
“Many of the ‘typically female’ roles have changed markedly but haven’t been reevaluated or upgraded, and those skills are seriously undervalued,” says Sheila Wild, founder of the Equal Pay Portal. “If you gave some guy a market enhancement 15 years ago because he was bringing scarce skills to the workplace, and now every woman has that skill, you have to change pay to recognise that.”
And then there’s the effect of personality archetypes. You can argue Jo should have pushed harder for a pay rise, but a number of research studies have shown women don’t negotiate starting salaries as hard as their male counterparts. “When people come into organisations with an inflated starting salary, it is then very difficult to close that gap afterwards,” says Charlotte Sweeney, an advisory board member for Women on Boards UK.
These issues demonstrate perfectly why the rigour of an audit is frequently essential – and daunting. According to the Equality Act 2010, employers are responsible for providing equal pay for equal work. This includes ‘like work’, or work rated as equivalent by an analytical job evaluation study, and work of equal value. But defining ‘equal value work’ is often an employer’s first hurdle, especially in the private sector, where job descriptions and responsibilities can change on a daily basis.
“In many companies there are few jobs that you can say are exactly the same without doing a job evaluation first,” says Sweeney. “A senior exec in one financial services firm, for example, could be conducting completely different work, and at a different pay grade, to a senior exec in another.”
Best practice guidance from the Equality and Human Rights Commission (EHRC) suggests organisations job-evaluate roles and define equal value work before conducting a pay audit. But this has been tricky for British companies, says Wild, because equal pay legislation is derived from European practices, where most organisations’ pay is job-evaluated.
Fortunately, thanks to the digitisation of payroll and increased use of HR analytics, the mechanics of an audit itself are relatively simple. A consultant will probably be required at first, but Sweeney suggests that if it is something that will need to be done regularly – and the likelihood is it will – it might be worth building the skills internally. The EHRC has produced a five-step toolkit to help employers. It starts with defining the scope: who should be involved and what skills and tools you’ll need. It’s followed by effective job evaluation across the organisation, then collecting pay data – this might involve combining HR and payroll data if you’re looking to analyse more than just base pay, says Cotton – and establishing the causes, before finally developing a plan to act on the findings.
“The best combination for moving things forward is having three skillsets on board,” says Wild. “A good HR manager who understands the entire set of HR systems and make-up of the workforce, a payroll manager who is bang up to date with what the market is doing, and a number cruncher. The larger the workforce, the more you need the number cruncher.”
Even so, an audit cannot take account of every variable. The biggest challenge for most organisations comes when bonuses are linked to performance – something that mostly affects the private sector, where individual performance-related pay (PRP) is far more prevalent. Industries that rely heavily on PRP for remuneration could come under fire: the financial services sector was subject to an EHRC investigation in 2009, which revealed that women working full time earned up to 55 per cent less annual average gross salary than their male colleagues.
Awarding PRP requires a robust and unbiased performance appraisal system – one that doesn’t rely on managers’ discretion alone, says Cotton – to ensure contributions from all staff are fairly rewarded. A 2014 Confederation of British Industry report suggested that the key to ensuring fairness was “to use managers’ training to raise awareness in particular of the agenda when it comes to discretionary pay”.
Businesses should also consider who is making decisions on PRP. “If the people handling the decisions are men in their sixties, they may not have up-to-date views on how to remunerate women,” argues Wild.
Senior leaders at Halifax Bank of Scotland were encouraged to come together to talk through the performance ratings they had awarded and explain why they wanted to give individuals bonuses, says Sweeney, who was formerly the bank’s head of diversity and inclusion. “We wanted to give a consistent message, and ensure that we could justify all of our pay decisions.”
It’s also important to remember that equal pay isn’t static. “You can have a really good process, and data might show you have a very small equality gap, but a merger or acquisition can have a sudden, massive impact,” says Sweeney.
It is, all agree, a daunting topic. But Andrew is one of many who points out it is much better to conduct an audit than to ignore the problem. Birmingham City Council found this out the hard way when 11,000 mostly female workers claimed six years’ back pay after courts ruled they had been discriminated against compared to men in ‘like’ roles. The equal pay settlements reportedly amounted to £1.1bn.
And ultimately, integrating the concept of equal pay throughout your organisation can be as simple as asking the right question during your interview process, says Sweeney. “When you go for a new job, you are typically asked about what your pay was in your last company. If there was pay inequality, there is a risk that it is going to continue into your next role.” The market might demand some talented individuals are paid above the going rate for their skills, but this is fine as long as it is justified and equally applied across all candidates.
The time to act is now. “If you don’t measure it, you don’t know there is a problem,” says Sweeney. “And as soon as you know there is a problem, you have to do something about it.”
What does an equal pay audit look like in practice? See peoplemanagement.co.uk
Mind the gender gap
The biggest pay discrepancies by industry
Accountancy:
Average male salary: £47,034 Average female salary: £36,432
29% salary difference
Banking:
Male: £25,377 Female: £20,800
22% difference
Energy
Male: £27,452 Female: £22,674
21% difference
Purchasing
Male: £29,555 Female: £24,796
19% difference
Sales
Male: £23,562 Female: £19,898
18% difference
Education
Male: £21,216 Female: £17,922
18% difference
Hospitality/catering
Male: £18,497 Female: £15,665
18% difference
Motoring
Male: £19,920 Female: £17,487
14% difference
Retail
Male: £16,851 Female: £14,951
13% difference
FMCG
Male: £26,948 Female: £24,125
12% difference