Pay Gap Reporting - NEDs Get involved NOW!

Gender/Ethnicity Pay Gap Reporting - Needs an Audit

When will the government ask companies to report their Gender Pay Gaps again and will your company go further and look into ethnicity/minority gaps too? If not why not? Do you even collect ethnicity data and / or care?

Understandably in March of this year, the Government Equalities Office announced that they were suspending the deadline for 2019/20 gender pay gap reporting due to the impact of the Coronavirus (COVID-19) on employers. 

Just in case you don't know the gender pay gap is the difference between the average earnings of men and women, expressed relative to men's earnings. For example, women earn 18% less than men per hour, nationally. See the image above for more information as the full time working pay gap is different again!

According to Spktral (www.spktral.com/), and their data analysis app (https://stats.spktral.io/), only 4,174 companies have reported their Pay Gap snap shot for April 2019 (as of 18th November 2020) versus around 8,500 companies who we know need to report. This means that 50% of large companies today, employing over 250 people, have chosen not to report their pay gap for 2019.

Yes I know that the government has given companies a reprieve, because of COVID-19, but given that we are over a year on from the calculation date (April 2019) for the March 2020 reporting deadline we can be fairly sure that thousands of firms do have the data and have crunched their numbers - meaning only one thing - they have chosen not to report.

Thus if you work for a none reporting organisation, who will survive COVID-19, you have in my mind given me, as well as your stakeholders (including your employees), a clear message that data is not important to you in regard to employee management and engagement.

Data is vital if you want to make good decisions. Which means you need to collect your hire, promotion, salary, bonus and diversity data. Without this you cannot benchmark, set targets and / or track your progress. Pay Gap reporting might be a simple measure but if you collect and report this data correctly it will ensure that you are thinking about why women and minorities are so under represented in your organisation. This is because anything that is published and reported, in general, needs to be understood.

For your interest these are the primary causes of gender pay gaps; 

• Society, cultural and family biases and expectations as to how people are expected to behave and what is perceived as OK for them to do. These biases and views are deeply embedded and are both conscious and unconscious. They are everywhere and start very early in our lives
• Biases within our education and sport organisations which do not always encourage and support girls and boys equally with regards to information and available opportunities
• Structural, occupational segregation – too few female engineers or maths graduates
• Operational – women and minorities often lack confidence, due to the first issue, and do not feel included. They therefore get stuck in back office jobs and are not at the P&L coal face
• Vertical segregation; women and minorities not getting promoted; promotion processes can be biased against people who do not ‘fit the historical’ look of a leader. 
• Intake – Poor recruitment processes, that are not transparent and often reliant on friends and family or poor quality head hunter briefs
• Poor childcare support and lack of flexible working combines with inconsistency of paternity equality between men and women, across UK firms, thus forcing women to be the primary carers.

Honestly it saddens me greatly the lack of data publication, regardless of pay gap law reporting relaxation, because current research is telling me that women and minorities are today more harshly effected during the COVID crisis (layoffs) and that without good decision making data, at department and senior levels, things are only likely to get worse as our natural bias come to the fore during stressful situations. Put quite simply - if you don't have the data (on who is employed where and why) then you cannot make effective lay-off and recruitment decisions.

The specialist pay data reporting team at Sptkral have additionally identified a worrying trend of non-compliant gender pay gap reports submitted by all types and sizes of companies (some FTSE 100 companies).

The most common errors we see in non-compliant reports include the reports not being signed with a written statement by a director/equivalent or not having reports on your website for a minimum of three years from date of publication. To me this further raises questions about whether leadership are taking responsibility for the report and assigning accountability correctly.

Yes, on the surface these may seem like harmless, minor infractions. However, if you are undertaking this internally and basic legislative requirements have been forgotten or ignored, this signals that other areas of the report may not be accurate.

So if you are a NED it is step-up time. NED/Governors and Trustees need to start asking a few questions; is this data, which is driving decision-making in your organisation, accurate and reliable? The quality of the input directly affects the quality of the output. AND further ask;

• Do we have enough data at the departmental/geographical area level?
• Are we able to show our pay gap data via our own seniority classification levels (not just quartile reporting).
• Do we have other data on Black, Asian and other protected minorities. If not should we start collecting it because without it how are we going to back up any statements we may of made during the 2020 BLM uprising. For example was our statement of support for BLM virtue signalling/flag waving, or are you going to ‘do something’ to improve equality, diversity and inclusion at your organisation?

Gender pay and ethnicity pay gap data is integral to decision making in the talent management area of any business. In the words of David Cameron at a previous CBI Annual Conference “If you don’t measure something, you don’t know how you’re doing, and if you don’t know how you’re doing, it’s very difficult to make it better and to fix the problem.”

Ethnicity pay gap reporting is far more complicated than a man vs woman gender pay gap report, and believe me snapshot reporting on purely gender is extremely complex to calculate correctly (part-time, days worked and hour all have to be considered and adjusted for in you one day snapshot report).

When looking at your ethnicity data for your workforce (even getting to this stage hosts its own array of challenges) you are looking at pay gap data through a complicated lens with 12+ categorisations of ethnicity in addition to considering the intersectionality of the data - e.g. Chinese women vs black man. 

So, NEDs please skill up, bring an expert and get involved. This is a business issue alongside a serious reputational risk if you get this wrong.

In my opinion your organisation should be treating pay gap reporting with the same due diligence that you afford your end of year accounts. Which is why you should consider using external specialists to audit and provide independent assurance of your data and insights.

Poor inputs generally mean poor decision making.

Most UK organisations have only just started to think about diversity. Great but I would argue what is the point in putting all this effort and only look at women verses men. In my view it is the time to go beyond simple gender reporting (quartiles) and produce something truly useful for decision making - thus giving you the information and evidence you need in order to actually get to work and start to reduce the gaps and improve diversity.

This is not just a 'nice' thing to do but vital for the long-term survivability of your business.

McKinsey’s latest ‘Diversity Wins’ report clearly shows that your chances of outperformance, relative to your peers, increases significantly if your executive team and managers below can lead collaboratively (and that your organisation has diverse views). Recruiting and retaining a diverse team is very difficult if you have a poor culture and your leaders, and line managers, cannot lead a diverse team. 

Persistent Gender Pay Gaps, alongside the Black Lives Matter movement, shows that inequality is still rife within our society. Organisations are still struggling to promote and retain women for a whole host of reasons (ref: Diversity Wins – McKinsey Report 2020) and quite rightly stakeholders are beginning to ask questions. 

According to this McKinsey report, the companies that are building diverse teams faster (Leaders and Fast Movers) perform significantly better and interestingly the Fast Movers have increased ethnic representation from just 1 percent in 2014 to 18 percent in 2019. 

By not reinstating mandatory Gender Pay Gap reporting the UK Government has not helped rectify the issues discussed.

To date, as shown above via Spktral's App approximately 50% of organisations who previously submitted gender pay gap reports have still not done so. If we are to see true change then all organisations should formulate a robust plan to ensure progress is made and if it is not NEDs need, in my opinion, to step up and get pay gaps onto a committee agenda.

Just so you are aware, to aid you asking your CEO a few starter questions, these are the most important common errors in existing pay gap reports (noted by the pay gap experts (www.spkral);

1. The report not being signed with a written confirmation statement by a director/equivalent

2. Only one years reports on your website where you should have a minimum of three years from date of publication

3. No link on the government's website linking to your website and / or not having the data on your website with a clear comment from a senior individual about not only your data but what you plan to do about it

4. Your pay gaps being statistically impossible (the numbers don't add up)

5. In correctly calculating the pay of part-time employees for comparison purposes

6. Lack of understanding as to who was working on the snapshot day (should be simple but it is not)

7. Failing to calculate correctly and not fully understanding that the bonus calculation is not a one day snap shot, of who is employed and what they were paid on the day, alongside confusion over what bonus data to include (bonus numbers are the sum of a 12 bonus pay, no matter when paid, and are not a one day snap-shot)

8. In correctly calculating and / or including those on career breaks (maternity for example)

9. Are leadership taking responsibility for the report? Is someone accountable for its accuracy?

Very few companies have experts in house and it costs very little to bring in an expert - my top tip get one and get one now.

My organisation Women on Boards UK does work with corporates extensively but we are not D&I consultants or Pay Gap experts. However if you are looking for employee career management and empowerment workshops alongside knowledge of the boardroom (7 reasons why board knowledge is beneficial) then get in touch.

This is a link to what we do, in-house, with corporate and information about who are our current corporate members => Corporate-Partners.

Fiona Hathorn

CEO - Women on Boards UK & WOB NexGenDirectors