The Gender Pay Gap reporting requirements

Over the last few weeks I’ve had the privilege of speaking with many HR leaders about the Gender Pay Gap legislation and its impact on efforts to improve diversity in UK companies. I am grateful to many people for their input as I’ve developed these thoughts, and owe particular thanks and apologies to the seminal 80’s rap group Public Enemy for a soundtrack to this paper.

Part 1: Bring the noise (1)

The next two weeks will be an extraordinary time for those people (like me)who have a passionate interest in helping organisations reflect the diversity of the communities in which they operate. By the first week of April, more than 5,000 companies in the UK will file their Gender Pay Gap reports on the government website, completing their statutory requirement set out in the Equality Act 2010 (Gender Pay Gap Information) Regulations 2017. They will be joining the more than 2,000 organisations which already have done so.

It’s been widely reported that many companies are choosing to wait until close to the 5 April statutory deadline to publish their data, in the hope that this will limit their reputational risk from the easy-to-write headlines about their Gender Pay Gaps. The image of penguins all rushing to the water in a group to confuse and evade the waiting leopard seals comes to mind. The short-term noise from so many companies all throwing their data into the public domain at the same time is only the start – unpicking the data and making sense of what it says about organisations and their real commitment to gender diversity is a more complex task.

Although we’re just at the start of this new period in UK corporate reporting, there are already some common themes. Most of these themes, unfortunately, add to the noise.

The Gender Pay Gap is not the same as Equal Pay

Paying women and men differently for doing the same jobs, or jobs of equal value, is illegal in the UK, and has been for many years.

The Gender Pay Gap data does nothing to establish or dispel concerns about Equal Pay, since the regulations require companies to calculate their pay gap based on all employees, regardless of the jobs they do. It’s not news that most companies will report a gender pay gap, as a result of differences in female representation across the organisation (particularly among senior or higher-paid roles).

However, dismissing the Gender Pay Gap regulations as meaningless bureaucracy is a mistake, even if the pay gap has an “obvious” explanation.

Mean vs Median – are you smarter than a 10 year old?

Parents of children who have been through Key Stage 3 of the National Curriculum (years 5 and 6) may remember their children needing to know the difference between the Mean and the Median of a set of numbers.

I will admit it’s great to have a concrete answer to “When am I going to need to know this in real life?” (a couple of years too late in my case). What’s more, there are certainly cases where having both the mean and median pay gap values illuminates what’s happening in the organisation. For example, if the requirement was to produce only the median statistics, Diageo Scotland’s median bonus gap of -263% (2) would not help anyone understand anything, and their mean bonus gap (9.6%) is a more meaningful figure. In many other organisations, the mean data is skewed significantly by highly-paid (and more often than not, male) employees at the very top of the company, and so the median gap is more representative of the company as a whole.

However, it is frustrating to have two answers to the question “what’s our gender pay gap?” and then to have a conversation why mean and median are different, when frankly, a revision of Key Stage 3 math concepts is not what we need.

Hidden figures

Prior to the GPG legislation, many organisations reported on female representation on the Board or the Executive Committee. This has the advantage of being easy to measure and describe, but this statistic just by itself has two flaws:

First, it is usually a small group – most UK boards and Executive Committees have between 8 and 12 members, so a material change in female representation in percentage terms can result from a change of only one or two people. It’s entirely plausible that sometimes the best candidate for a role previously held by a woman is a man, and that does not mean the company is no longer committed to gender diversity.

Second, although there’s ample research to show that companies with diverse boards are more successful over time, I believe that most of the people in organisations are more concerned with fairness and diversity for the people around them than they are with the diversity of the teams far above them in the company.

Most of the articles in the business press have honed in on the headline Pay Gap numbers, but there is perhaps a more useful statistic in the GPG reports for people genuinely interested in measuring progress towards a more gender balanced workforce: the quartile pay band data.

If I was looking at the data for an organisation which hires, retains, and develops employees fairly, I would expect to see a roughly equal proportion of men and women in the company overall, and I would also expect to see men and women equally represented at all levels of the organisation.

Although earnings is an imperfect proxy for ‘seniority’ in an organisation, the percentage of women in the top two quartiles (relative to their overall representation) is a clear indicator of representation and progression through the organisation.

Although these three numbers may not change quickly over time, they are a better indicator of sustainable progress on gender diversity than the headline pay or bonus gap.

As a example, try completing this paragraph with the numbers from your organisation, talk to a friend, a neighbour, or a child you know, and see if the conversation makes you feel proud of where you work.

Women make up ____A____% of our overall workforce. If we look at the best paid 25%, women are _____B_____%. Of the next best-paid 25%, women are ____C____%.

Is there a really good reason why your answer A is less than 50%?

Is there a really good reason why answers C and B are less than A?

Looking at the quartile band data is likely to bring a better quality conversation about what’s really happening in the organisation than just looking at the mean or median pay gap values.

Part 2 Don’t believe the hype (3)

Although it is not required by the regulations, many companies will take the opportunity to publish a narrative report explaining their GPG statistics and put their numbers into context. A cottage industry has developed among consulting firms of all sizes to help companies craft these documents, and the creation of the report has given a (sic) welcome opportunity for teams of people across the HR, Reward, Diversity and Inclusion, Legal, and Corporate Communications functions to work together, in some cases perhaps for the first time.

Already we have hundreds of professionally-produced and illustrated reports accessible through the .GOV website and the individual company websites.

While no two reports are exactly alike, many firms will report action across a range of areas, and a ‘typical’ report might include some or all of the following:

Corporate initiatives

? Commitment to reach external gender diversity targets (eg Women in Finance Charter, the 30% club, etc).

? Support for programmes designed to improve female participation in schools and universities in subjects linked to traditionally male-dominated fields such as engineering.

? Senior leadership commitment to mentoring high-potential female talent.

Recruitment

? Mandating gender-diverse or gender-balanced shortlists for external recruitment

? Requiring diverse interview panels for internal and external roles

? Reviewing external job postings for gender-biased language

HR Policy

? Improving/changing maternity leave benefits to encourage women to return after maternity leave.

? Improving support for employees (particularly female employees) returning to work after career breaks.

? Encouraging part-time working and job-sharing arrangements, especially for senior roles.

? Support for internal Women’s networks or other diversity advocacy groups.

Reward

? Linking a portion of leadership variable pay (bonus) to gender representation targets.

There’s no question that all of these actions are helpful, and with sufficient sustained commitment and investment, will drive the results that many of us are working towards. However, the real challenge is ensuring these actions feel tangible at all levels across the organisation and not just a PR exercise.

Unlike many other corporate reports which go into the public domain, the gender pay gap report relates directly to the lived experience of employees.

As an individual employee, every time I go into the workplace, I see how diverse my organisation is. With every joiner, leaver, job move or promotion, I can see whether my organisation is becoming more diverse over time.

If I don’t see tangible progress – women being hired, progressing up the organisation, and being recognised for their contributions, then a glossy report explaining how the talent management or recruitment processes are eliminating gender bias will not make me prouder or more engaged with my company. Quite possibly the opposite.

Part 3 Harder than you think (4)

The GPG regulations are an annual requirement, and many organisations will have pushed ‘submit’ on their April 2017 reports and immediately started to work on their reports for April 2018.

The key challenge for the second year of reporting shouldn’t be the collection and analysis of the data.

Instead, the key challenge will be to balance out all of the activity companies are doing around improving gender diversity against the likely slow change in the reported statistics.

The bonus gap statistics may be particularly problematic.

The regulations count as bonus any incentive plan which pays out in the 12 months prior to April 2017 – so companies with long term incentive plans granted in 2014 (or sometimes earlier) are reporting gains from these plans in their April 2017 numbers.

Where compensation is subject to deferral, the same rule applies. A company which awards bonuses exactly equally to men and women in respect of 2017 performance but which also defers payment (for example, banks which must comply with FCA requirements) would not see their zero pay gap flowing through until their 2020 reporting cycle.

Beyond the fairly technical point about bonus definitions, where the gender pay gap is really the result of gender representation, year on year progress will be dishearteningly slow. Gender representation can be the improved through fairer recruitment and promotion processes, but it’s also constrained by staff turnover.

Take, for example, a company where women make up 25% of the top earning quartile. If that company takes sets to deliver an equal, 50:50 split between men and women appointed to roles at that level, that would be a significant achievement: doubling the number of women hired/promoted compared with the baseline population. However, if staff turnover is 10% per year, then female representation improves to only 27.5%. If that looks like disappointing progress it’s worth noting that number many organisations may not be able to go from 75:25 to 50:50 parity quickly, and at senior levels, may have less than 10% employee turnover.

Part 4 Brothers gonna work it out (5)

It’s easy to sit back and comment on HR policy and employee data from a distance, but diversity is very real and very personal.

So what can I do as an educated, middle-aged, married-with-two-children white man do about diversity in the organisation I work in and lead?

It’s not enough for me to recognise that organisations where the people in them can fully contribute their talent, energy, and ideas are going to be more responsive to change, operate more safely, deliver better outcomes for customers, and be more fun to work in. That recognition only helps if I take action as a result.

Sure, I can be supportive of the actions my organisation is taking to improve diversity, and I may be able to influence company policy as part of my role.

I can take personal accountability for ensuring the hiring and selection decisions I make have considered diverse candidates and have been as fair as possible.

Most importantly of all, I can challenge my own biases about ‘what good looks like’ and create space for others to help me learn from their experience.

The Gender Pay Gap legislation can be much more than a corporate reporting requirement, if it creates a better quality dialogue about the kind of companies and the kind of society we all want to create. That dialogue needs me, if I’m ready for it. I know I am – how about you?

Alan Moore

Guildford, March 2018.

1 “It takes a nation of millions to hold us back” 1998

2 Diageo explains that the median-paid male employee works in a manufacturing role, which offers a lower variable pay opportunity than the office-based role where the median-paid female employee happens to work.

3 “It takes a nation of millions to hold us back” 1998

4 From “How you sell soul to a soulless people who sold their soul?” 2017

5 “Fear of a black planet” - 1990