Bridging the Gap - Reflections on the Gender Pay Regulations

Posted on 21 June 2018

Bridging the Gap - Reflections on the Gender Pay Regulations

For the first time in history, the spotlight has been shone on the gender pay gap within the UK's biggest employers.

The Gender Pay Reporting Regulations (the 'Regulations') came into force on 6 April 2017 and require all UK companies with at least 250 employees to publish annual gender and bonus pay gap data on the Government Equalities Office website. The Regulations require a historic 'snapshot' of workforce pay as it stood in the previous April. The snapshot must include: the difference in men and women's hourly pay (on a mean and median basis); the difference in men and women's bonus pay (on a mean and median basis); the gender breakdown of the workforce across four pay quartiles; and the proportion of men and women who received a bonus.

The deadline for the first year of reporting expired at midnight on 4 April 2018. The final day saw a flurry of last minute reports. To date, just over 10,000 companies have published their data. Despite a huge amount of press attention and widespread business awareness of the Regulations, more than 1,500 in-scope companies failed to report. The Equality and Human Rights Commission (EHRC) has said that it will begin public investigations designed to "name and shame" companies who did not comply. However, the EHRC currently lacks any direct power to fine companies for non-compliance. There is a concern that, despite increasingly loud barks, the EHRC lacks any meaningful bite.

Now that some of the initial fanfare has quietened, it is interesting to consider what we've learnt from the figures. What patterns emerged from the reporting? Can the data be used to drive positive change? What should employers be doing to get ready for next year's reporting?

Mind the gap

A huge 78% of companies who reported have a median gender pay gap in favour of men. The median gender pay gap across all published reports was 9.7%. Of course, for many companies the figure was far higher.

No single industry sector was immune to the issue, with all sectors registering an average gender pay gap in favour of men. However, the figures have revealed significant trends across industry sectors. Perhaps unsurprisingly, companies in the finance and insurance activities sector fared badly. Companies in the aviation, retail and professional services sectors also received considerable media attention. 

Having a gender pay gap is not in itself unlawful. It does not indicate direct discrimination and nor does it mean that men are being paid more than women to do the same job.  Indeed, many reporting companies have included narrative in their reports to correct any misconceptions and reassure the reader that they pay equal pay for equal work, regardless of gender.  Instead, the reporting has revealed more systemic inequalities in the hierarchy of UK workforces. It might be better termed a "gender seniority gap" since the gender pay gap is, in large part, driven by disparity in the types of jobs carried out by men and women respectively. Companies such as Ryanair explained their larger than average pay gaps by pointing out that pilots are almost exclusively men, whereas cabin crew are almost exclusively women. Retailers such as Phase Eight often have relatively large gender pay gaps because of a mainly female workforce on the shop floor, compared to a more evenly balanced management team at head office. Professional services firms cited similar demographic imbalances, with secretarial and support roles being performed predominantly by women. 

Despite progress in recent years, women remain under-represented in the top-paid jobs in organisations. On average, 30% of female employees are in the bottom quartile of their employers' payrolls, whereas just 19% make it to the top quartile.  This is true even in organisations which have a predominately female workforce. To take an example, HSBC Bank's UK workforce is 54% female, yet only 23% hold senior leadership positions. Conversely, women are over-represented in HSBC's junior roles, making up 67% of those roles.

Explaining the gap

Recent research from the Institute for Fiscal Studies (IFS) has tried to dig down further into the causes of the gender pay gap. Their findings will perhaps surprise few – a key reason cited for the pay gap remains the arrival of children. There is a gradual but continual rise in the wage gap after the arrival of a woman's first child. By the time the first child is aged 20, women have on average been in paid work for three years less than men and have spent ten years less in full-time paid work.

Part-time work remains dominated by women: around 41% of women work part-time, compared to just 13% of men. Part-time working tends to shut down wage progression for women, particularly for highly educated women, who otherwise would have seen the most progression. This is reflected in the average UK hourly pay: for full-time workers this is £13.94 per hour. For part-time workers it is £9.12 per hour.

The IFS is particularly interested in understanding why part-time work attracts lower wage growth over the course of a career relative to full-time work. Do part-time employees receive less training and development? Do part-time roles inherently allow for less accumulation of skills than full-time roles? Are part-time employees missing out on networking and promotion opportunities? Or is one explanation that companies simply fail to ascribe the same value to part-time employees?

An added bonus?

Whilst the new regime has provided a vital window into the problems, the Regulations are by no means perfect.

Companies have had particular difficulty in trying to accurately capture their bonus pay gap between men and women. The average bonus pay gap for most sectors has come out higher than their gender pay gap. However, these figures may not present an entirely fair picture. This is because many employees receive pro-rated bonuses because they (1) are a new joiner; (2) work part-time; or (3) were on maternity leave for all or part of the relevant pay period. The fact that bonuses would be pro-rated in such circumstances is unsurprising and yet there is currently no way of adjusting for this within the reporting regime. The Regulations do not allow for making full-time or full-year equivalent comparisons so as to avoid distorting the figures. This is likely to have produced artificially large bonus pay gaps, since higher proportions of women work part-time and have periods of absence due to maternity leave.

It is hoped that the government will respond to the criticism over the calculation of the bonus pay gap and explore ways for the published figures to better address these types of situations.

Divide and conquer?

Another problem is that the Regulations do not make any provision for group-wide reporting. Instead, each legal entity within a group must produce its own separate report. It is not uncommon for large organisations to have more than one employing entity within a corporate group structure for administrative reasons. Provided that no one single entity employs at least 250 people, the group may find itself outside of the regime altogether. The group could, in theory, have thousands of employees and yet escape the requirement to publish data. The Acas Guidance ("Managing Gender Pay Reporting") encourages employers to consider group wide reporting and additional narrative where it would be informative and appropriate but any such reporting would be done on a voluntary basis.

This loophole could even result in companies deliberately implementing creative payroll structures to hive-off senior male-dominated executive teams into alternative employing entities to enable them to report lower overall gender pay gaps. At the very least, it would seem beneficial for general anti-avoidance provisions to be introduced to deal with this potential problem.

Looking to the future – a bridge over troubled water?

Deloitte recently reported that, without action, the UK's gender pay gap will not close until 2069. It will be interesting to see how seriously companies take this issue and what steps they take to meaningfully reduce their own gender pay gaps.

The relevant 'snapshot' date for next year's reporting has already passed (5 April 2018 for private sector, 31 March 2018 for public sector) so there can be no quick fixes over the next year. However, companies looking for longer term solutions may focus on improving recruitment practices, developing reward and incentive structures, expanding family-friendly policies, and generally working towards developing a stronger pipeline of female talent.

If the reporting regime results in companies changing their culture and policies to facilitate greater female progression to senior roles, many would say the new regime has been a success. However, for industries with serious workforce demographic issues this step alone may not be sufficient. For many companies, action must also be taken within the lower pay quartiles. Perhaps a harder issue to address is how to challenge outdated societal norms of "men's jobs" and "women's jobs". Should Ryanair encourage more men to become cabin crew? Or should professional services firms aim to attract more men to become secretaries? Can private companies be expected to take responsibility for challenging sociological workforce trends?

Certainly the government's hope appears to be that change will be driven by the "nudge" of public scrutiny, rather than sanctions. Both the two major political parties committed in their 2017 manifestos to take measures to tackle the gender pay gap. Despite the government having launched some initiatives already (for example committing £5 million to help people back into employment after a career break), there is reluctance from both parties to present a coordinated strategy to address these issues. Any such strategy would likely have to address issues such as reform of shared parental and maternity leave; improving pay transparency (particularly around part-time work) and further moves designed to eliminate discrimination and unconscious bias.

That is not to say that such reforms would be easy or uncontroversial. However, if the gender pay gap is to move beyond a series of headlines, and towards meaningful and lasting change then additional action is needed. The publication of the figures has certainly laid the groundwork, but companies and the government must build upon this foundation going forward.

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