Gender Pay Gap Reporting : Facts and Fiction

You’d think we might have exhausted our capacity to argue at the moment but the ‘gender pay gap’ has been provoking a lot of outrage on my Twitter timeline.  The unlikely catalyst? An Institute of Chartered Accountants of England and Wales (ICAEW) podcast, ‘More Than a Number’ where a panel (admittedly, and I think unfortunately, comprising only women) discussed various aspects of gender equality including pay gap reporting. 

If you take a listen (https://podcasts.apple.com/us/podcast/4-11-9-mind-the-gap/id1481215817?i=1000453675296) you’ll hear how the conversation highlighted the complexities of the current reporting requirements and the all-too-frequent muddle between (legal) gender pay gaps and (illegal) unequal pay. The panellists (I wasn’t in the studio but contributed some pre-recorded thoughts) agreed that the choices women make contribute to the current reported pay gaps and debated the reasons behind those choices. We discussed why greater equality at home and at work might be beneficial for the economy, for companies and for the next generation of young men who don’t want to ‘outsource’ family life. And we talked about ways to speed up progress towards more equal lives. In short, it was definitely a conversation about ‘more than a number’. Yet the reaction suggests otherwise. 

I’m going to take my own advice, to take the emotion out and focus on the facts. Hopefully the following will show that this is one issue we really shouldn’t be arguing about. 

1.   The gender pay gap isn’t the same thing as unequal pay. It may be reasonable, it may be not.

Since the Equal Pay Act of 1970, it’s been illegal in the UK to pay someone less than another person of a different sex doing the same job. (A half century later, that doesn’t mean that unequal pay doesn’t exist, but that is a topic in itself).  A gender pay gap, on the other hand, is perfectly legal. If an organisation’s gap is in favour of men (the case in 8,113 companies out of 10,428 that reported for 2018) it means that men working there are (on average) in higher paid jobs than women (and vice versa of course). That is usually the result of many factors, from societal ‘norms’ (including work traditionally carried out by women that might be less highly valued than work traditionally carried out by men), personal choices, as well as possible biases within a sector or at an individual firm. Those biases might be related to the culture at a particular firm or they might be because, say, very few women are studying a subject at university that may be a prerequisite to success in the field. The number in itself doesn’t say why that gap exists or whether it is reasonable.  

2.   So just to be clear: a firm’s gender pay gap is simply a comparison between the average pay of its male employees compared with the average pay of its female employees. No more, no less. 

It effectively measures the gap in the value of the roles played by men (measured by their pay) compared with women. A company with a large gender pay gap is therefore likely to have relatively few female employees with high value, senior jobs or many with low value, junior jobs, compared with male employees. That gives everyone another metric to measure how that firm is doing, either within its sector or in absolute terms, to achieve gender balance at all levels. Overall, the ‘11.9% gender pay gap’ (see 4) is shorthand for what still needs to be done if we are to achieve gender equality (at work and at home).  

3.   In reality, the UK gender pay gap reporting requirements are quite complicated. 

The ‘gender pay gap’ isn’t just one number, however: companies with over 250 employees have to provide (and attest to the accuracy) of no fewer than sixsets of numbers each year: two sorts of averages – mean and median – for both hourly pay and bonuses, the proportion of men and women receiving bonuses and the percentages of men and women in each pay quartile. We’ve only had two years of reports so far and no one (that I’m aware of) is claiming that the methodology is perfect. The numbers are published on a government website: https://gender-pay-gap.service.gov.uk/ You can type in a company and get its raw figures (and any commentary or action plan if it’s chosen to provide one) and you can compare companies, but there are no tools e.g. to look at sectors as a whole. The idea has been to be more transparent about data, largely on the basis that ‘what gets measured gets managed’. 

4.    Median hourly and bonus pay gaps are the measures that tend to get the most attention – and the sometimes-somewhat-misleading headlines. 

The median is the middle number – so if you lined up all the men working at a company in order of pay you’d select the one in the middle and compare his pay with the woman in the middle of the female line. The median is often preferred because otherwise a few very high pay packages can distort the picture – in either direction. (A company with low representation of women in middle management roles might have a narrow mean pay gap if there are a small number of very highly paid senior female executives). The most often quoted 11.9% ‘gender pay gap’, for example, is actually the median hourly gender pay gap. This was the average (mean) result for all the 10,428 companies that reported by the deadline for 2018 figures. The 2017 average was 11.8%. Both the median and the mean hourly rates of pay are calculated in relation to all employees, regardless of whether they are full or part-time. This is one of the criticisms often levied at the methodology – that everyone is lumped together yet in practice part-time work tends to be less ‘senior’ and therefore the hourly rate is lower (as well as any bonus).In my view, the lower value (per hour) of part time work is a hangover from a pre-digital era; today, there’s often no reason why senior job shares can’t work. 

5.   The outliers do show us which sectors are particularly male or female dominated

Let’s look at the average figures in my own sector, investment management (compiled by PwC, who’ve done some great work in this area. See https://diversityproject.com/2019-10-03/mind-gap-investment-management-community-needs-apply-more-just-lip-service-pay-equality). The investment industry has the second worst gender pay gap figures of any sector (investment banking just ‘beats’ us). The median hourly gender pay gap is 31% but that doesn’t mean that a woman doing the same job is paid 70p for every ￡1 that her male colleague makes in salary. Instead, we know there are relatively few female fund managers (a highly paid role). We were aware of that already but the out-sized gender pay gap data has been a jolt, intensifying efforts to create more inclusive workplaces – and not for political correctness, but because the data suggests that the best investment results come from mixed gender (and more generally diverse) teams. Any individual company can drill behind their own numbers to establish whether they are just not attracting enough women in the first place or whether they are leaving, taking on less well-paid jobs, taking time out or not being promoted (which in turn needs investigating). Of course, companies could have done that before the reporting was mandatory but very few did. The gender pay gap data is a tool, not the answer but the embarrassment factor of having a large pay gap is an incentive to move faster.

6.   The gender pay gap data has exposed a gap between ‘diversity initiatives’ and results (the talk and the walk)

I’ve seen CEOs sometimes being quite taken aback by their company’s gender pay gap data. There are a lot of ‘diversity initiatives’ and it’s fashionable to talk about creating more inclusive workplaces. The gender pay gap reports have brought home the fact that in some sectors and companies – as well as societally - we still have a long way to go. None of us should be surprised really. Increased numbers of women on boards or a few more women in executive teams can give a false comfort that the whole company is becoming more balanced; a big gender pay gap dispels that myth. 

7.  The aggregate pay gap for fulltime employees aged between 18 and 39 is close to zero.

One repeated Twitter challenge is that women and men start off equally, and so any pay divergence caused by, say, motherhood or women having ‘other priorities’ in life is reasonable. The mandatory individual company figures aren’t compiled by age band, but separate country-wide data compiled by the Office for National Statistics shows that theaggregate gender pay gap for full-time employees is close to zero for those aged between 18 and 39 years. This is good news. It still seems reasonable, however, to challenge what happens after that point. There is no dispute that taking even a short time out of a career (for any reason) has historically impacted earnings and may well continue to do so (though it should have less impact if we are living and working for longer and making more career switches). But although women bear the children, they are usually shared by a couple. At the moment, it is financially (and culturally) dis-incentivising for most men even to share parental leave (irrespective of a couple’s preferences). I was involved with a study last year called Equal Lives (https://gender.bitc.org.uk/issues/equal-lives-partnership-santander-uk), which surveyed 10,000 people, mostly fathers with careers. Nearly 90% of them felt they should play an equal role in their children’s upbringing as their female partners, yet culturally they did not feel that was acceptable. We need to think about how to change that, so that more of us can make the right choices and contribute in the best way we can. 

8.     Work is changing. We need to change how we think about the roles men and women play in all aspects of life.  

The podcast asked if a gender pay gap was ‘inevitable’. I think it is if we continue to make only incremental changes, for example by ‘training’ women how to ask for pay rises. Today’s ‘system’ of work and careers is out of date with so many other aspects of our lives. Real progress would be if we take advantage of the opportunities afforded by technology and finally devise how to integrate meaningful, well-rewarded work into the whole of life – whether we are men or women. The podcast panellists had hopes for the next generation: young men who expect to lead quite different lives than their fathers or grandfathers. They expect to work hard, want careers and to be valued, but have also grown up in a world where intellectual contributions can be made anytime anyplace, where their sisters are clearly intellectual equals, where power structures are being rapidly dismantled and where artificial intelligence is taking over routine tasks. The linear, rigid career path no longer makes much sense. Diverse thinking, flexibility, the ability to build networks, to come up with ideas and to be able to convince others about those ideas are future success factors for both individuals and businesses. This is an environment where both men and women can change the system so that more of us can achieve more. 

Equality at work, including equal pay, won’t happen until we have more equality at home. This is surely something that both men and women would welcome. The gender pay gap numbers may be a blunt instrument but they help us to measure whether we are making progress towards that goal.