Long reads

The gender pay gap – how to calculate it, explain it and eradicate it

25 Jan 2018 By Jo Faragher

People Management explains what HR needs to know, and reveals which sectors are performing best

January, for many employees, is a time of gentle reintegration into the workplace; when gym-going and furious dieting are the main topics of conversation, and stretched pay packets mean desperate enquiries on the date of the next salary run. For HR teams up and down the UK, however, this January has been more pressured than normal.

There are just weeks to go until the deadline for companies with 250 employees or more to publish their gender pay gap data. By the turn of the year, only 500 of an estimated 9,000 affected employers had done so. Some that did publish faced unwelcome scrutiny, others were accused of producing ‘statistically improbable’ figures, while those with above-average gaps were pilloried in the press and on social media. And all the while, the heat is being turned up on this vital issue; the resignation of BBC international editor Carrie Gracie has focused national attention on the broader discussion.

Most commentators agree that, to varying degrees, the introduction of gender pay gap reporting is having a positive effect on the quality of public discourse and in forcing business and government to act on the more persistent issues that underpin pay inequality – even if the measures used for reporting are imperfect, reflecting inequality in progression and opportunity rather than salary in most cases.

But the hard work behind the figures should not be underestimated. Elysia McCaffrey, head of the Women in Business division at the Government Equalities Office – the department in charge of shaping the regulations and their accompanying guidance – believes it’s natural for employers to be cautious as they approach this first round of reporting. “We know that many are still in the process of calculating and, where employers have complex payroll arrangements, this could take a bit of time,” she says. “Nobody’s non-compliant at the moment, so employers may want to wait until they’re confident with their narrative before submitting.” 

This also reflects the fact that many businesses fear facing difficult questions, whether from employees or from the media. Ingrid Waterfield from KPMG argues that many have sought safety in numbers rather than publishing early. “Lots of companies are taking a wait and see approach, particularly those that want to see how their own sector is doing. There is real concern about the reputational issues of reporting a significant gap given the recent press gender pay gaps are receiving,” she says.

The scrutiny some early reporters have been subjected to will also do little to reassure jittery firms. As People Management’s analysis of the first 570 submitted reports demonstrates, construction and financial services are the standout sectors with the biggest gaps, but other individual employers have been forced to add contextual commentary to particularly sizeable gaps. 

Airline easyJet, for example, has a 52 per cent mean gender pay gap, but only 6 per cent of its pilots are women, so it has publicly committed to a target that 20 per cent of new entrant pilots to the company should be female by 2020. Retailer Phase Eight attracted criticism as women are on average paid almost 65 per cent less than men, as male staff occupy the majority of head office roles while shop workers tend to be female.

If your company is still to report, a good starting point is to consult the government reporting portal, where other employers in your sector may have published their figures and, more importantly, links to their accompanying narratives. Clare Bye, executive vice president for HR at engineering software firm Aveva, believes it’s important to pick the right moment for your business – and hers is yet to report. 

“We decided to wait, and our narrative will reflect what we think is appropriate for our story, as we have several proactive initiatives in place. We’re also looking at ways other organisations are reporting,” she says. Aveva has been working for some years to bring more women into its specialist technical roles and its graduate and apprenticeship programmes. 

“We currently have a 70/30 male/female split across all jobs, but this reduces to 80/20 in some specialist technical positions,” she says. HR was approached by several women in technical roles offering to support the business in tackling the gender split. 

Together, they built a business case for a series of practical measures, including schools outreach and a bootcamp for women returners into technology. Bye is also considering tying gender representation targets to personal objectives, so that “managers have a ‘people P&L’ as well as revenue targets”. 

Many companies have benefited from a ‘dry run’ of calculating their figures. “As soon as we knew what the government wanted from pay gap reporting, we engaged with the process and did a dry run six months before the requirements came into force,” says Frances Duffy, UK HR director of IT giant Capgemini. “This meant the process wasn’t new to us; we introduced the topic to our employees, and asked them how they felt we were doing in terms of diversity and inclusion, and what we could do to improve.”

In general, the more you say the better, says Dési Kimmins, associate client partner at Korn Ferry. “One company we worked with had a significant gap but communicated its story very openly, describing the steps it would take to close it. This was received far better than some firms where the gap was lower but they didn’t communicate properly. It ended up in the news and blew up in their faces.”

Weetabix has been through the process three times as part of longer-term efforts to ensure pay and progression are fair. “We’ve been active for a couple of years via external legal counsel and went through the process before the final guidelines were announced,” says HR director Stuart Branch.

Having figures checked under legal privilege gives you an opportunity to ensure they’re fair and accurate, without inviting scrutiny too early in the process, he adds: “We decided to publish once we had done all of the work, had checked robustly and knew we had a good story to tell.” 

Its data, reported last October, showed a 5.4 per cent gap in mean pay in April 2017, down 3.7 per cent on April 2016. This lower-than-average pay gap is influenced by the fact that the majority of Weetabix staff are male and those who work in manufacturing plants receive the same rates of pay for similar jobs, meaning less variation. The company is still working on ways it can sustain a low gap or reduce it further, however – from summer hours to line manager training in handling requests for more flexible shift patterns. 

The CIPD, reflecting the industry it represents, had the opposite issue, as 69 per cent of its workforce is female. While there is an even gender balance in the senior leadership team and at board level, the influence of a male CEO and a concentration of women in lower level roles resulted in a 14.9 per cent mean gender pay gap, published in November last year. 

“The main thing for us was to look at our own dynamics – what can we do to reduce our pay gap?” says head of people Brad Taylor. “How can we ensure we have better representation of men and women at all levels?” The industry body is working with its local council and recruitment agencies to raise its employer profile and potentially bring more men in at all levels. It is also exploring options to make it easier for women to return from maternity leave and already supports men to work part time in key roles, levelling the gender playing field at senior level. 

One of the most common stumbling blocks encountered by employers has been in communicating the difference between a gender pay gap and an equal pay issue. “This is not a pay issue, it’s a representation issue,” says Nicola Paul, diversity and inclusion senior manager at the John Lewis Partnership. 

“In our narrative, we’re saying that our pay gap shows there are more men than women in better-paid roles. We’ve learnt it’s never too early to communicate the difference between the gender pay gap and equal pay. 

“As a large organisation, it’s important that line managers and figureheads from individual businesses are speaking about the gender pay gap and how it’s relevant to them.” With many retailers posting above-average gender pay gap figures, she also hopes the April deadline will prompt the sector to come together to work on finding solutions – mirroring initiatives in other sectors such as financial services, which has a Women in Finance Charter committed to raising female representation in senior roles.   

Deciding when to publish your pay gap figures may come down to financial reporting cycles, as it did for CYBG (the banking group incorporating Clydesdale and Yorkshire Bank). “We reported on 19 December as part of our annual reporting cycle,” says group HR director Kate Guthrie. “As part of listing regulations [the company is listed on the London Stock Exchange and Australian Stock Exchange] everything had to be published simultaneously when we published our annual report – so we had to announce our results externally and internally at the same time, as well as publish them on the government website.” 

The bank made headlines at the time, after revealing that it would raise its minimum salary to £17,000 as part of a drive to make pay more gender balanced across the organisation. Its gender pay gap was relatively high at 37 per cent, but Guthrie stresses that “this is not the work of a moment, it’s the work of several years”, and there are numerous initiatives in place to get more women into the pipeline to executive level, including a target to have 40 per cent of senior roles filled by women by 2020. “We’ve redefined our values and behaviours and apply that to how we recruit – we look for people who have respect for diversity – so we’re moving towards a cultural change,” she adds. 

For those not bound by regulatory requirements, running the figures past relevant stakeholders and communicating the final findings with employees before going public should be a priority. “It’s up to HR to get it right first, so as not to risk its credibility,” argues CIPD reward adviser Charles Cotton. “There are so many stakeholders involved that the final data will likely be pored over many times. Talk to your staff before you publish, because you don’t want them finding out via the government website or the newspapers. This is very much a story about them as a workforce, so it’s important they hear about it – and the company’s action plan – first”. 

The CIPD’s HR department ran the figures first, then showed colleagues – including those working on pay policy and corporate affairs – to respond to any initial questions. “We then took it to our board of trustees and remuneration committee; the numbers themselves were fine, but any questions they had have helped us to build our narrative and action plan. It’s important that the board and senior team in any business are fully behind the plan to reduce the gap and champion it,” says Taylor. 

The CIPD has now incorporated gender pay gap analysis into its pay review process for employees, as well as at the point of recruitment, to ensure it is a constant consideration for department heads and HR rather than an annual event.

So what ‘bear traps’ may be lurking in the calculation and reporting process? According to Chris Charman, senior principal at reward consultancy Mercer, there are several questions that have regularly cropped up with clients: salary sacrifice (Acas advises calculating after salary sacrifice but some employers may want to calculate the ‘before’ figure as it offers a cleaner view of differences between salaries); bonuses (not all employers realise that awards such as sign-on bonuses, referral bonuses and long-service awards must all be taken into account); and who is ‘full-pay relevant’ and eligible to be included in the calculation. 

“Abandon all your reward thinking and approach this as a new thing,” he advises. “For example, you may have to publish for several entities, but include a position for your overall organisation so these figures can be seen in context. Also, be careful that your narrative does not leave you in hot water. We’ve witnessed one company that’s effectively admitted [in what it published] that it indirectly discriminated against part-timers.” Another crucial piece of advice is good housekeeping, adds Charman: “Document how it’s done so it will be easier next time.” 

The figures themselves, of course, are just part of a bigger picture – a push for UK employers to redress decades of gender pay imbalance and a lack of women in senior roles. It’s the actions employers commit to that will make the difference in the longer term, so it’s vital they monitor the success of the promises they’ve made in their narratives. 

Aveva, for example, already collates data on areas such as early careers, attrition, engagement and whether women return after maternity leave. “We’re starting to get more information as to why we might have a leaky pipeline, and can use predictive analytics to stop us getting to the point when someone leaves,” says Bye. 

Kimmins believes there’s a lot that can be achieved even in the 12 months before the next reporting cycle. “There are three key areas employers can focus on: how you support individual women to gain the technical and political skills to progress into more senior roles; training line managers to help them navigate this process, as managers can often be the biggest bottleneck; and the whole organisation’s processes that might be stopping women’s progress,” she says. 

It’s also worth keeping an eye on future developments in pay transparency; the McGregor-Smith review last year proposed that businesses with more than 50 employees publish a breakdown of their workforce by race and pay band. This isn’t obligatory yet, but some firms (such as PwC) have already published their ethnicity pay gaps.

The EHRC’s enforcement plans are still out for consultation, so the details of how non-compliant employers will be dealt with are yet to be finalised. Kimmins argues, however, that those that go into gender pay gap reporting in a spirit of honesty are unlikely to find themselves named and shamed: “We’ve seen a difference between companies depending on their sense of urgency and how important they feel it is to report.

“Those that see it as an opportunity to raise their brand as an inclusive employer are seizing the chance to be upfront with their data, and they’re the most informed.” 

Charman agrees: “There should be no issue for employers that sincerely engage with the process – it’s the employers that wholesale non-comply that will be caught.” And they can at least be reassured – if you can come up with genuine answers to those tricky questions first time round, the conversations will be easier next time.

The CIPD’s Gender Pay Gap Conference on 8 March will explore what happens once you’ve reported, and the tools that can fix gender pay gaps in the longer term. Visit bit.ly/GenderPayConference to book

Discover further resources and information on gender pay reporting at the CIPD’s dedicated site.

My gender pay gap

Rachel Lock, Human resources director, TSB

We really had to take the time to get it right. It wasn’t an easy process and it took a lot of time and courage. From the start, we wanted to ensure our 8,500 employees understood the difference between the gender pay gap and equal pay, so we were very careful in our analysis to illustrate that we don’t have an equal pay issue.

Our communication was very transparent – we informed staff of the figures [a headline gender pay gap of 31 per cent] via our intranet and emails, by training line managers to understand the numbers and the reasons for them, and through a call to employees from our gender champion, Helen Rose, our chief operating officer. We haven’t had any negative feedback.

We have a lot of customer-facing female partners who work part time and flexibly, which is important to them and us. They have heaps of work and life experience and are the engine behind our fantastic customer experience in branches and on the phone. Eradicating that flexibility would reduce our gap but wouldn’t be authentic, or the right thing to do. 

We’ve exceeded the government’s target of 33 per cent of boards being female at 40 per cent and, although we’re not a FTSE 100 company, we’ve met the Hampton-Alexander target for 33 per cent of executives and their direct reports to be female. 

Some companies may be worried about their pay gap figures, and sometimes they won’t reflect where you want to be as a business, but this shouldn’t deter employers – it should encourage them to be more transparent with their staff about any gender pay issues they have, and what they are doing to improve them. Employers need to be brave enough to explain how they’re addressing the issues through signature actions – that’s the most important thing.

My gender pay gap

Andy Rogers, UK and Ireland HR director, Sodexo

We were looking at this before the regulations came into force, and we were keen to be early adopters and lead by example. Our reward and data analysis teams are great, and knew what steps they had to take, as well as what thought processes and mechanisms needed to be in place for reporting. 

It was essential that employees understood the difference between gender pay and equal pay, and that we do not have an equal pay issue. Achieving gender balance across the organisation in the long term is very important to us, so it is vital that line managers know which levers they need to pull and what information to share if their direct reports have questions about the figures and their significance. 

We need initiatives that drive change. We’re working to get more women into typically male-dominated roles such as facilities management, catering and security – we want them to have long-term careers with us. Sodexo also has a mentoring programme for female employees to receive support to help them progress to the next level of their career, and we are looking into improving our flexible working offering, as well as parental leave for both men and women.

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