Gender pay gap: Five tips for reading between the lines this year

Last year’s introduction of annual gender pay gap reporting forced every large employer in the UK to share its figures publicly for the first time for everyone to scrutinise and judge.

Many of the figures made for uncomfortable reading. They showed that, on average, women get paid significantly less than men. However, although the differential is largely a result of men being overrepresented in more senior roles and women being overrepresented in lower paid roles, it’s important not to jump to conclusions in every case.

As this year’s deadline passes, for year two of gender pay gap reporting for all UK-based companies employing at least 250 people, we should remember what purpose the figures serve and carefully assess year-on-year changes.

Reporting should provide a gauge of the landscape and incentivise efforts for progress. It should spell out how far we’ve come and what still needs to be done to move towards a fairer workplace that benefits everyone.

Most importantly, we should remember the raw figures might not always tell the full story and the most obvious explanation for a change may not always be the most accurate explanation.

Why budging pay gaps year-on-year is hard

The pay gap represents the difference in average male and female pay, expressed as a percentage of the male average. One obvious way to close it would be to indiscriminately give all women a pay rise. But the UK’s Equal Pay Act from 1970 enshrines the equal treatment for men and women in the same employment. Therefore, such action is clearly not appropriate and could result in an equal pay claim.

So what can be done? In most cases the answer will be to increase female representation across senior roles through a mixture of hiring and promotions. However, that process takes time, especially in companies where employee turnover is low. Some organisations may not see a profound change in the structure of the workforce for a very long time, meaning it could take many years to narrow - let alone eliminate - the gender pay gap.

It’s also important to note that a significant proportion of employers published their first pay gap reports within a month of the 5 April deadline last year. The data for the 2019 report is based on the status of pay during the month of April 2018. Therefore, it seems likely many were only just becoming aware of the size of their pay gaps before the relevant period for the 2019 reports. Those companies would have had little or no time to react to the numbers they published in 2018 and, as a result, it should be of no surprise if the figures show little change this year from last.

Why a bigger gender pay gap doesn’t always mean a company is going backwards

One strategy for achieving long-term, sustainable gender diversity throughout an organisation is to hire female employees at a junior level and nurture those colleagues as they climb the ladder. Hiring more relatively low paid women while there’s little movement amongst the best paid men, will make the mean gender pay gap worse in the short term. In the long run though, if that talent can be retained, the gap will become narrower and the organisation better balanced at every level.

Why headlines rarely tell the full story

Many companies, particularly within sectors such as financial services, have considerable gender pay gaps because senior staff members are predominantly male and women are over-represented in more junior, and therefore lower paid, roles. The mean gender pay gap for the whole company will provide only limited insight into the gender diversity at each level.

Understanding the gap in representation within each pay quartile is crucial to any appreciation of the extent of the issue, or how effectively it is being addressed. By law, companies have to provide a breakdown of the proportion of males and females in each pay quartile, so paying attention to those and how they move will help to reveal the whole picture.

Why bonus gaps can move more from year to year

The size of a bonus one year isn’t necessarily an indicator of how big it will be the next. Unlike base pay, bonuses can and do change significantly from year to year.  As a result of this, there may be greater scope for employers to make progress on the bonus gap in the short term.

Nonetheless, it’s also worth remembering that, exactly as for base pay, bonuses tend to be higher for individuals in more senior roles, and more senior employees tend to receive a larger proportion of their overall pay as bonus. As a result, in years when corporate performance is stronger, bonuses tend to be higher and the bonus gap will go up.

So while employers with an increase may look as though they are not tackling the bonus gap, their figures may actually be exacerbated by stronger year-on-year corporate performance.

Why no news may actually be bad news

Of all the likely changes we will see from year one to year two, no change at all seems the most unlikely and is perhaps the most statistically difficult to explain. Within a relatively small organisation, even a limited number of staff moves will have an impact on the overall figure. And for a large company, where a small increase may indicate efforts to achieve greater diversity by hiring at a junior level, and small decreases may be a sign of meaningful progress, it seems highly unlikely figures could have flatlined completely.

There are still only scant measures in place to check the accuracy of the gender pay gap data that organisations submit. Whether there are changes or no changes, it is important to understand why. In some instances, the explanations may come in the narrative organisations provide around the data they report, and even the most unlikely of year two reports may have a perfectly credible explanation.

Whatever data this year’s gender pay gap reports present, we must avoid subscribing to a predetermined narrative. We can’t afford to misunderstand the real problem, which might prevent organisations from implementing the right long-term strategies for sustainable change. At the same time, we shouldn’t hand out simple plaudits for improving the numbers without a real commitment to fixing the underlying issues.

Reporting is the first step in a lengthy process. Understanding what the figures truly mean is only the second step, but we must get it right before we can move on to bringing about real change. 

Luke Hatter | Reward & Employment Director
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