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Mind the (Gender Pay) Gap

Following the Government’s decision to suspend gender pay gap reporting in 2020, and the first half of the reporting period of 2021, Tuesday, 5 October marks the deadline for qualifying employers to report their figures. Despite heralding much optimism upon its introduction several years ago and following the recent period of stagnation, which implied it had lowered in priority, observers are now questioning whether the initiative is sufficient to bring about real change in closing the gender pay gap.

In 2017, mandatory pay gap reporting was introduced, which required any private sector organisation with over 250 employees to publish their gender pay gap data. At the time of its introduction, some observers speculated that this requirement could do more to progress pay parity in five years than legislation had managed to achieve in almost half a century, since the introduction of the Equal Pay Act in 1970. In 2017, almost 90% of women worked for companies that paid them less than male colleagues. In the worst sectors, construction, financial & insurance services, and education, male staff earned on average between 20% and 23% more than women. Banks, in particular, fell under intense scrutiny with pay differentials as high as 43.5% for certain employers.

Initial reports published in 2018 continued to generate significant media attention, shining a spotlight on an issue that employers had previously shied away from. Many employers were proactive in publishing the data, committing to reaching certain targets, undertaking equal pay reviews and some smaller employers, anticipating growth in the near future, voluntarily disclosed their data.

While there was no significant improvement reported in April 2018 to the average gender pay gap for full time employees, it was acknowledged that not all of the steps employers committed to in Year 1 would reap immediate change. The audit did shed light on a myriad of reasons for the gender pay gap, including the social element caused by education systems influencing gender “norms” around female education and career choices, channeling women into lower paid and/or lower skilled roles.  Employers and education establishments have embraced positive action here to effect change by focusing on women in STEM, as well as other initiatives.

Considering the significant momentum which this initiative had generated, it was all the more disappointing that the Government chose to suspend the requirement for companies to publish their gender pay gap reporting data in 2020. Although suspension was in response to the pandemic, the Government announcement was made so close to the reporting deadline (just weeks before publication was due), that the majority of work had undoubtedly already been undertaken by many employers. The data could have provided an important benchmark in measuring the disproportionate effects COVID-19 has had on women in the workplace. The disparate impact of COVID-19 is already well-documented; more women than men were furloughed and have undertaken more additional caring responsibilities, as well as the fact that a large proportion of employees in the heavily affected service sector are female. Interestingly, in the Government’s 2021 Report of the Commission on Race and Ethnic Disparities, it was recommended that employers voluntarily report ethnicity pay gaps, a rollback from the recommendation of the McGregor Smith Review in 2017. One can only speculate that this initiative may also have been a casualty of the loss of momentum in gender pay gap reporting.

Despite the significant attention garnered by the initiative and the early, promising outcomes, commentators are now beginning to question how effective mandatory pay gap reporting really is. The Global Institute for Women’s Leadership at King’s College London and the Fawcett Society recently published a report, Bridging the Gap, which analysed pay gap reporting systems in the UK, Australia, France, Spain, Sweden and South Africa. The UK system ranked joint last, together with Australia, in terms of effectiveness. The report emphasised three key recommendations of accountability and transparency, action, and enforcement. It pointed to the fact that whilst the UK system ranked highly in terms of its transparency, with employers displaying “almost perfect compliance”, the core failures of the system are glaring insofar as employers are not under any obligation to take steps to address their gender pay gap. Describing the system as having “no teeth”, observers may wonder whether the immediate fear of being “named and shamed” has worn off for employers, with many now viewing the system as no more than a monitoring tool.

Bridging the Gap notes that some employers may not necessarily be threatened by adverse publicity. Further, the benchmarking aspect of the reporting figures may, in fact, paint an overly positive picture of a particular organisation. This year, the pay gap for banks narrowed by just 1%. A bank may be in the position of legitimately claiming that their gender pay gap is lower than average for their sector; however, that, in itself, may be far from satisfactory in terms of their overall pay gap.

Gender pay gap reporting is not a perfect system. There are inherent deficiencies in the method of calculating the pay gap, including the fact that data is based on averages rather than comparing individual workers, there is no distinction between part-time and full-time employees, and there is skewing of data where companies have hired large numbers of female staff into lower pay quartiles. However, it is certainly a useful starting point, although its importance and significance should not be overstated.

Renewed commitment to narrowing the gender pay gap will be required. It must be demonstrated by the Government and by employers that this is a priority issue, and increased consideration must be given towards what the data collected may be used as a springboard for. It is imperative that this issue is not allowed to slip further down the agenda. The statement today from John Glen, economic secretary to the Treasury and City Minister that the government will be targeting individual city firms to explore with them why they have not got better diversity on their senior management and boards is the next challenge for financial services firms.  Within the discussion of ‘diversity’, Mr Glen expressly mentions a push for greater socio-economic diversity as well.   While it appears that the ‘deep dive’ will focus on financial services city firms, it demonstrates some commitment to keeping this on the agenda and an attempt to keep pace with measures being taken internationally to improve diversity amongst significant business decision makers.

If you are an employer and would like to discuss the impact and implications of gender pay gap reporting on your business, you have any other questions arising from this alert, or for specific legal advice on particular circumstances, please contact our Partner Emma Bartlett who specialises in employment and partnership issues for multinational employers, senior executives, partnerships and partners.

Read our Little Book of Employment Law here.

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