Long reads

Many employers' gender pay gaps have widened – but is it their fault?

25 Apr 2019 By Emily Burt

Despite their best efforts, a number of companies have published larger pay gaps in the second round of reporting. But where do they go now, and is the government’s flagship diversity strategy working?

In a world where accusations of ‘fake news’ abound, data can be a remarkably successful tool for shining a light on inequality. Because while it’s easy to disregard the opinion of a person you disagree with, it’s harder to contend with cold, hard, well-researched statistics. 

HR professionals have become particularly conversant with this idea in recent years, since the advent of the gender pay gap reporting regime. And now the second round of mandatory reporting for organisations with more than 250 employees has passed, complaints of inequality and disappointment at a lack of progress are back in the headlines. Second time around, employers may find explanations are harder to come by.

Pushbacks over pay disparity are justifiable: while gender equality is inarguably a long, arduous struggle, it’s unconscionable at a societal level that women are still steered into junior roles, more likely to work part-time than their male counterparts, and still take on the bulk of caring responsibilities. 

But gender pay reporting is not a perfect tool, and the data can often bury the nuance of a far broader – and more complex – diversity challenge. 

The numbers, as they stand, are broadly unchanged and by some measures are worse. According to data filed by more than 10,000 organisations, the UK’s national median gender pay gap for full-time workers in public and private sector organisations is 9.6 per cent, compared to 9.2 per cent in the first 2017/18 reporting year, while eight in 10 organisations pay men more than women. The mean pay gap has seen an incremental change in the opposite direction, narrowing from 13.4 per cent to 13.1 per cent. 

Anyone anticipating significant strides in closing the gap will most likely be disappointed. Sections of the media have been furious, and the figures have fuelled a broader debate about whether tinkering with pay gaps can ever significantly impact the broader equality agenda. 

But according to the experts, the data should be taken with a pinch of salt, at least in the short term. “The numbers are what they are – this process should be about what you do in response,” says Charles Cotton, senior reward consultant at the CIPD. “Some of the reasons for gender pay gaps are down to recruitment, training, how you design jobs, work and tasks. Some go beyond the workplace, like caring responsibilities, even the education people receive. The important thing is to get behind why the figures are the way they are, and take the necessary steps to reduce them.” 

If the first step in reducing a gap is understanding it, this appears to be a stumbling block for organisations. A recent CIPD survey of managers at more than 700 UK organisations eligible for gender pay reporting found almost four in 10 (37 per cent) said they did not know what their gender pay gap was. A YouGov study in September last year found only 35 per cent of men and 24 per cent of women understood the correct definition of the gender pay gap, with the majority considering gender pay and equal pay to be the same thing. 

“A lot of organisations still don’t understand the root cause of their numbers,” Tom Hellier, senior client partner at Korn Ferry Hay Group, says. “Looking back on the gender pay reporting from last year, even the raw data on the government’s website shows a lot of organisations had provided their numbers incorrectly.” 

The lack of understanding could be exacerbated by historical criticisms of pay reporting as a ‘blunt’ tool. Even without taking into account the fact that the 2018/19 reporting period relied on data gathered before any gender pay interventions could realistically have produced results, tiny changes to organisational structure can initiate dramatic consequences in the year-on-year data – particularly among smaller companies. 

App-based bank Monzo, which shifted its gap from 47.6 per cent to 14.1 per cent over the past year, is a clear example. The reason for its especially dramatic year-on-year improvement was a concerted onboarding effort that resulted in an altered team structure, according to head of people Tara Mansfield. “Our team more than trebled; some women joined Monzo in senior positions and women have also been promoted internally,” she said in its gender pay report. 

Information technology company Fujitsu, which narrowed its gap from 17.9 per cent to 16.4 per cent (slightly below the average for the tech sector), was taking the first steps in what diversity and inclusion lead Sarah Kaiser describes as a “determined move” to eradicate its pay gap in the coming years. “Over half our graduate entrants last year were women, which is partly causing our gap to narrow,” she says. “We’ve also been putting the work in place around female leadership, which should have a dramatic impact on the pay gap next year.” 

The organisation’s four-pronged action plan includes recruiting from diverse talent pools, inclusive management strategies, and the creation of a mentorship programme called FutureMe to support women in the organisation with ambitions to move into leadership roles. “A lot of companies with a gender pay gap say they have it because of men in high-powered roles, but that’s not an excuse – that is the definition of a gender pay gap,” Kaiser says. “You have to deal with the structural causes. This is not a problem you can solve by throwing money at it.” 

For other organisations, structural changes have caused gaps to move in the other direction. Cereal manufacturer Weetabix, which played an active role in the initial government consultations over gender pay reporting, saw its median pay gap almost double from 4.9 per cent to 8.7 per cent after several women in senior roles took career breaks to start families. 

“I’m genuinely disappointed and a little frustrated our median gap has widened,” says the company’s HR director, Stuart Branch. “But without wanting to put an overly positive spin on it, I feel it’s a product of us pushing our family-friendly reward and people policies.” 

As part of fostering an inclusive culture, the manufacturer has invested in enhanced maternity and parental leave policies over the past few years, as well as offering childcare vouchers and flexible working options, but this is not reflected in the data. “Something the government has not included in this process is the ability to include things like maternity pay as an element of calculating that pay gap, which is one of the opportunities for further enhancement,” Branch says. 

The majority of organisations have seen a less dramatic change in their numbers, but struggle with ongoing challenges around segregation among pay quartiles and progressing women to senior roles. Traditionally male-dominated industries such as finance (median gap 23 per cent) and construction (24 per cent) continue to record some of the widest gender pay gaps. 

“We are not complacent about our pay gap – while we are pleased it has come down, we understand there is more we need to do,” says Jennifer Tippin, group director of people and productivity at Lloyds Banking Group, which has an unchanged pay gap of 32.8 per cent (compared to 41.7 per cent at subsidiary Lloyds Bank PLC). It attributes this to a number of factors, including the proportion of women in senior roles. “One way we are seeking to address this is by being the first FTSE 100 company to set a gender diversity target to have 40 per cent of senior roles filled by women by 2020.” 

The target was implemented in 2014 and has witnessed an uptick of one or two percentage points year on year, with the banking group anticipating it will meet its 2020 target. At the other end of the spectrum, Lloyds directs a large proportion of its annual pay budget toward employees at the junior end of the payroll. “We have more women in those junior grades, so as we direct our pay budget to our junior colleagues in the branch networks and call centre roles, for example, it helps reduce our gender pay gap,” Tippin says. 

Yet even organisations where women make up the majority struggle with role dispersion. “As a workforce, we are predominantly female, with around a 75/25 split in favour of women – but like a lot of organisations, there is a real discrepancy when it comes to the proportion of men in more senior roles and women in less senior roles,” says Liz Laughton, head of human resources at the Royal College of Nursing (RCN), whose gender pay gap narrowed from 13.7 to 11.5 per cent. “Changes to the profile of staff in our most senior roles, and bringing more men into lower grades of the organisation, has helped narrow our gap – but that’s not wholly the result of tangible actions in the last year.” 

Organisations that seek to address the pay gap by fast-tracking women to senior roles or onboarding greater numbers of junior women are likely to face a short-term pain point, as airline easyJet found this year. Previously blasted for publishing one of the widest pay gaps on record (45.5 per cent) in the first reporting round, its median pay gap widened by almost 2 per cent this year after creating a scheme that increased the uptake of female pilots into junior roles. 

According to Laughton, it’s more important for organisations to work through short-term pain with longer-term aims in mind. The RCN has reported on its workforce characteristics since 2010, and diversity initiatives including competency-based interviewing, flexible working and paid carers’ leave have been bedded in since 2013. In the past 12 months, the college has rolled out equalised shared parental leave, which guarantees both parents up to six months on full pay, as well as transitional coaching . 

“We won’t see the impact overnight, but this is around recognising not only your pool of talent but the cultural and social norms that dictate and challenge the ways you work, tackling inequality where we see it, and making sure we are walking that talk,” she says.

If the broader aim of gender pay reporting is to start a conversation, it has been broadly successful, with increasing numbers of companies waking up to the importance of creating inclusive cultures. 

“Before we began, we thought we were inclusive, but when we started working with a provider to build on equality and inclusivity, we realised just how far this can extend,” says Olivia Hill, chief HR officer at the Association of Accounting Technicians (AAT). At the smaller end of the gender pay cut-off with a little over 250 employees, the outfit saw a minor narrowing of its median pay gap in the past 12 months. 

Since the end of 2017, the organisation has elected a team of diversity and inclusion champions to embed an inclusive culture, and has delivered unconscious bias training to employees as a standard part of their induction. 

To understand whether organisations are working to close their pay gaps rather than treating reporting as a compliance exercise, most experts agree there needs to be a focus on organisational narratives. “We strongly encourage organisations to explain their figures and treat gender pay as an opportunity rather than a tick-box approach that won’t result in engagement from employees,” Cotton says. “For organisations with a strong brand, it’s an opportunity to promote themselves to their investors, employees and customers.” 

However, there is currently no requirement to back up the numbers with data or any form of narrative context, with the government last year estimating that fewer than a third of organisations submitted legitimate supporting information. 

Some have attributed this to a lack of hard enforcement measures. Ann Francke, CEO of the Chartered Management Institute (CMI), argues that a ‘soft’ government attitude is a key driver of the lack of progress. “The publication of action plans should be made mandatory for all companies covered by the current regulations, alongside their pay gaps,” she wrote in a recent Telegraph column. “Fines and real consequences should be levied for non-compliance. I call it ‘transparency with teeth’.” 

While the Equality and Human Rights Commission (EHRC) sent enforcement letters to more than 1,400 organisations after the first reporting deadline over cases of non-compliance, no organisation has yet been fined by the courts. 

But CEO Rebecca Hilsenrath maintains that firms have been broadly responsive. “Around 1,500 organisations were non-compliant in the last round, but after commencing enforcement proceedings we did attain 100 per cent compliance, which shows people do take the enforcement process seriously,” she says. 

With the Recruitment & Employment Confederation (REC) estimating that £150 billion in GDP could be raised by closing the gender pay gap, there are reasons beyond a moral obligation for organisations to engage with reporting in a more holistic way. But there is an arguably stronger case that they should be investing some of the time that goes into gathering these numbers in confronting the broader challenges of a business landscape that is failing on multiple counts when it comes to inclusive workplace culture. 

“When we talk to clients, what we say again and again is that this is predominantly not about equal pay but about the make-up of your workforce,” says Michelle Sequeira, UK diversity and inclusion lead at Mercer. 

“Understanding the data and using it to figure out what you do next is important, but a lot of companies also need to scrutinise how they attract and retain a diverse workforce – because it’s one thing to attract a diverse workforce, but another thing to include them, and if you fail to do that they will leave.” 

This approach will also fail if it neglects to move beyond the concept of gender alone. “A company can have a perfect gender pay gap and still treat women and ethnic minorities like rubbish; it doesn’t prove anything,” says Mayokun ‘Mac’ Alonge, founder of diversity and inclusion consultancy The Equal Group. “What organisations need to be doing is creating environments that are intersectional and cognisant of the interlinking challenges that many minority groups can face – women, ethnic minorities and disabled people, those from a lower socioeconomic background.” 

Take a segmented approach without building in those considerations, he adds, and the result will be ‘arbitrary’ hires – a sentiment echoed by Chloe Chambraud, director of gender equality at Business in the Community (BITC), who warns the narrow scope of pay reporting will not be enough to drive the cultural change sought by the government on its own. “Gender pay is just one measure of inequality, and the figures are just the first step in tackling equality,” she says. “Culture is difficult to change – for that, organisations need to go beyond what’s mandatory to look at other problems, such as sexual harassment in the organisation, employee surveys and focus groups, to really understand the lived experiences of women. Some women will be really affected by this, like BAME women.” 

Reporting on ethnicity pay gaps is another incoming measure that could potentially diversify organisational approaches, but the measure risks becoming another blunt tool if it’s not approached in an intersectional way. “You have to win the hearts and minds of your employees in order to persuade them to disclose this information,” Cotton says. “If you’ve only got 10 per cent of employees giving you their ethnicity background then any data you provide will not be representative or accurate.” 

According to Hellier, organisations must take a multifaceted approach to drive sustainable change. “There needs to be two different processes – the first being structural inclusion and recognising that everything you do around gender pay feeds into the ways you manage people, bring them into the organisation, reward and promote them and exit them, rooted in equity and bias-free systems,” he says. 

“The second, crucial area is behavioural inclusion. It’s all very well to put structures in place, but if the people operating within those structures don’t come at it from a D&I-enabled mindset, they won’t work: people continue to have inherent biases inwardly and outwardly, and it will be ‘business as usual’.” 

Data, it seems, has its uses. But if the numbers from this second reporting round illustrate anything, it’s that cultural change never happens overnight, and viewing it through a short-term lens could frustrate a longer process of change. Genuinely closing pay gaps not only means understanding the differences between gender pay and equal pay, and committing to streamlining women out of lower-quartile roles, but understanding why women move into lower paid, lower productivity roles in the first place; and placing this among the other, numerous barriers that minority groups face to progression and growth. And that’s just the beginning.

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