The hidden consequences of gender pay gap reporting

With fewer than five months until the next gender pay gap reporting deadline, employers need to start thinking about their obligations. Angharad Schell reports

There has rarely been a time with more focus on gender inequality issues, in the wake of #metoo and the BBC pay disputes. Last year, there was significant press attention on gender pay reports and we anticipate the same will be true in year two.

By 4 April 2019, private sector employers, which had 250 or more employees on 5 April 2018, need to publish their mean and median pay and bonus gaps, the proportion of men and women who received a bonus and the percentage of men and women in each salary quartile. 

Employers can choose to, but do not have to, provide an explanatory narrative accompanying their gender pay gap report.

Why does it matter?

Addressing the gender pay gap isn't just the right thing to do. Employers are increasingly waking up to the fact that, if they do not take substantive steps to reduce their pay gaps, it will impact on their ability to recruit and retain the best staff. 

For example, a recent Glassdoor survey found that 63 per cent of respondents would not apply to a company where there is a pay gap between men and women for similar work. Anecdotally, we are aware of employers being asked questions about their gender pay gap by potential recruits in interviews. This trend is likely to continue and an employer's pay gap may increasingly be used as a factor by job applicants in determining where to apply and whether to accept the role.

Having a significant gender pay gap – particularly for employers that are high profile or perform worse than their competitors – can also adversely impact reputation. For example, the frequently maligned Ryanair revealed a median gender pay gap of 72 per cent, compared to British Airways with just 10 per cent. Not only does this impact on brand reputation; customers are increasingly making ethically aware choices and this could filter down to their spending decisions. 

For employers who tender for large scale contracts, there is already frequently an obligation to disclose information regarding diversity initiatives and whether they are the subject of discrimination litigation. We anticipate a move over time to including gender pay gap information as part of tender assessment processes. 

Presenting the information in the best light

Although there is no obligation to publish a narrative, it is advisable to do so. Where the year two pay data demonstrates a gap, employers can use the narrative to publicise any narrowing of the gap. If the gap has not narrowed (for example, because the employer has increased female recruitment at the junior end, which can exacerbate the pay gap in the short term), that fact can be explained.

And for employers who compare favourably to their competitors or have no pay gap, the narrative is an opportunity to broadcast the news, with a positive impact on brand and morale.

Employers need to carefully reflect on whether they have followed through on any commitments made in the year one pay gap report and set out their initiatives for the coming year. The government has conducted a review of the efficacy of various actions to address the gender pay gap. The most effective steps were found to be:

  • including multiple (not just one) woman in shortlists for recruitment and promotions. Where only one woman is included in shortlists, the chance of a woman being selected does not increase;

  • skills-based assessments in recruitment and structured interviews, each of which works to combat unconscious bias;

  • confirming salary ranges to job applicants, as women are less likely to negotiate on pay;

  • increasing transparency of promotion, pay and reward processes; and

  • appointing diversity managers.

Interestingly, some commonly used steps – such as unconscious bias training and diverse selection panels – were not found to have a demonstrable impact on female progression.

The marketplace for the best candidates, particularly after Brexit, is likely to be competitive and to attract the best talent, employers will need to have a positive gender pay gap story to tell.

Angharad Schell is an employment associate at TLT LLP