Will Mandatory Gender Pay Gap Reporting Work?

Do employers feel that they have a responsibility to help close the gender pay gap? Surely most do, but the fact that so little progress has been made since the Equal Pay Act was introduced in 1970 clearly shows that they need to be more forcibly encouraged to play their part in helping address the problem. 
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In this context, the draft regulations on Gender Pay Gap Reporting that have recently been shared for consultation by the Government are to be welcomed as a step in the right direction. In this briefing we explain why.

Background to the gender pay gap

Gender pay inequality is rooted in three areas:
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Occupational segregation 
The tendency for women to work almost exclusively with women, typically concentrated in lower paid roles, and for male employees to work with other men in better paid occupations, is often traditionally put forward as a reason for the gender pay gap. However, pay structures that focus on providing equal pay for work of equal value across different jobs should overcome this.

Pay discrimination
This can be direct, paying a woman less because she is a woman, perhaps through the use of different job titles for similar roles. It is usually more indirect, such as because an employer doesn’t take account of certain job demands in their pay systems, like the emotional requirements involved in caring for others. Robust job assessment systems should overcome this.

Family responsibilities
While improved maternity and parental rights and flexible working arrangements have helped to reduce the effect on pay, family responsibilities have a greater impact on women than men.
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While there is no single solution to what is a complex issue, research has commonly pinpointed several areas that all need to be addressed to help reduce the gender pay gap. These include:

• Breaking down the segregation that confines women to lower-paying occupations and workplaces.
• Implementing pay and reward practices which ensure that equal work attracts equal pay.
• Improving maternity and parental leave arrangements (for both men and women).
• Opening up flexible working in senior jobs.

So what has the Government proposed? (updated September 2016)

The outline detail includes a requirement for employers to calculate gender pay gaps if they employ 250 or more employees. This will need to be based on their pay position at 5 April 2017 and annually thereafter, covering:

• their overall mean and median gender pay gaps.
• the number of men and women in each quartile of their pay distribution.
• their mean and median gender bonus gaps.
• the proportion of male and female employees that received a bonus.

​By 4 April each year, employers will be required to publish a statement on their website which is retained there for three years and sent to the Government, who, it is reported, will highlight the ‘best’ and ‘worst’ employers in a series of league tables. However, there are currently no penalties proposed for employers who fail to publish this information.

Anyone who has conducted an equal pay audit will know that the devil is in the detail and, as part of the consultation process, we have fed back some aspects where we feel there is room for improvement. These include:

• Definitions of pay - the proposals suggest that maternity pay should be included in the calculation of basic pay, meaning that the pay gap is likely to be exaggerated. We think a notional figure for basic pay would be more accurate.
• Bonus reporting - more detail is needed on how longer term incentive and share scheme awards will be taken into account. The reporting should also include median data, as in the standard pay calculations.
• Calculating quartile groups - clearer guidance will be needed so that this can be accurately presented.

So will Gender Pay Gap Reporting solve anything?

On their own, the Gender Pay Gap Reporting proposals will not address the causes of the problem and, in our view, the proposals don’t go far enough for the exercise to be meaningful. However, some data is better than none at all and the publication of pay gap data is likely to focus senior management attention on the gender pay issue.

From an equality perspective, the required data is too generalised to understand the causes of any pay gaps; from a business point of view, the headline information that employers will be expected to put in the public domain opens them to the possibility that they will be unfairly portrayed as equality discriminators.

We feel that more detailed analysis should accompany the headline exercise. Only by actively understanding the causes of pay gaps will organisations be able to identify whether their systems are encouraging it to persist - and then do something about it.

Employers may protest at the additional work involved (the Government estimates this will take HR managers about two days a year to compile), but the benefits that maximising the potential of all employees will bring (along with the obvious the moral perspective) means that a more detailed analysis of the extent of any gender pay gap within an organisation should be a no-brainer.

It remains to be seen whether the draft regulations will be modified, but we feel that progressive employers should use the introduction of mandatory Gender Pay Gap Reporting as a platform for exploring and addressing the root causes of any inequity in their organisation.

Extending equal pay analysis to conduct an audit based on job levels or grades will provide the evidence they need to make real changes to HR and reward practices that will make a real difference to the gender pay gap.
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Hopefully the Government will modify their proposals before they come into force in October 2016. In the meantime, we recommend that companies start to consider the steps they will need to meet the reporting requirements.

​We are helping clients with equal pay audits at the moment, so do let us know if you would like any advice on this.