April 2018 may sound a long way off. But from that date, it’s proposed that all companies with over 250 employees in the U.K. will have to report their ‘gender pay gap’—aka, the difference in pay between all male and female employees.
If you are in line for reporting your pay gap, you need to begin some analysis and get an action plan in place soon. This is because some of the data you’ll be reporting is going to be based on what you’re paying your employees right now.
Since the financial crash there has been a trend toward increased scrutiny and regulation of pay in the U.K. – for instance, we now have the National Living Wage and there are limits on variable pay for risk takers in financial services companies.
Gender pay is a hot topic in the media as well, and rightly so – it’s great that we’re talking about it and that the government is implementing measures to improve it.
Understandably, however, organisations are concerned about the impact this will have on their reputation with customers, investors, employees and the wider public.
We believe that, come April 2018, journalists will be there, ‘pencils poised’, ready to report big gender pay gap statistics to the country. There is preparation needed on your part: you must know your statistics, be able to explain why you do or don’t have a gender pay gap, and be clear on any measures you’re going to put in place to either maintain status quo or make improvements.
Gender pay gap is NOT the same as equal pay
A common misconception when you have a gender pay gap is that you are paying men more than women doing the same role. This is not true.
- Equal Pay legislation focuses on earnings for men and women doing the same (or similar) work. Any ‘gaps’ identified indicate that there are issues with pay management.
- Gender pay gap reporting highlights the difference between the earnings of men and women as a total. Any ‘gaps’ identified here more likely indicate talent and diversity issues because the figures are impacted by the numbers of men compared with women in high- and low-paid jobs.
Don’t panic! You can reassure stakeholders that the gender pay gap isn’t an ‘equal pay problem’ by checking whether there are gaps in pay for men and women doing the same or similar work.
What will I be reporting on and how big is the problem?
It’s not just base pay that will be reported—differences in variable pay (bonuses AND long-term incentives) will need to be published along with the number of men and women in high- and low-paying jobs.
There are very few statistics on what constitutes a ‘typical’ pay gap. The latest figures from the U.K. Office of National Statistics highlight a 19.2% average pay gap. But that doesn’t really tell us much. This ‘average’ varies by sector, and there are no figures for bonuses or the typical numbers of women and men in high- and low-paying jobs in an organisation.
Other than the pay gap figure, there is no real precedent for this analysis and the statistics the government is asking for are far from straightforward. The regulations are pretty specific about what constitutes pay (such as base pay and allowances) and what doesn’t (such as pension and overtime). They also stipulate the time period you need to look at – monthly (or weekly) pay for the pay figures and annual data for the variable pay figures. For the most part, taking a snapshot from your payroll or human resources information system (HRIS) and making the calculation simply won’t work.
So what can I do?
First you need to know what your pay gap looks like. If you’re worried it could look big, the sooner you check the better. If it looks big to an HR or finance professional, it will look even bigger to the wider public, and people will want to know why this is the case.
You can get ahead of the game by doing a ‘dummy run’ analysis of your statistics. This will help you to:
- Understand the challenges you’ll come up against when collating the data
- Highlight if you have a big gender pay gap and, if so, check if there is an equal pay problem too
- Compare your gap against the market
- Plan how you will explain your gap to the market come 2018
Understanding the gender pay gap
Gender pay gaps can be caused by a number of interacting issues. Ensuring your reward system doesn’t aggravate them is key. For example, most organisations employ a performance management system, but if this isn’t managed effectively problems can arise:
- Are performance outcomes in aggregate similar for men and women?
- Are bonus and pay increases similar for men and women at the same level of performance? If not, why not?
While most organisations review their performance-linked payments, making sure this is reviewed by gender can help identify any potential risk areas.
We have a robust reward system, so why is there a gender pay gap?
This is the real question that needs answered and the reason is simple:
For the majority of organisations, the number of men in more senior, well-paid positions still outweighs the number of women, an issue that continues to drive the gender pay gap. Reviewing talent management and diversity policies is key to tackling this long-standing trend.
- Who is being recruited, and are there differences in starting pay levels for men and women?
- What are your organisation’s promotion and succession policies?
- Do you have policies in place to reduce unconscious bias?
- What support do you have in place to promote diversity?
- What leadership commitment is there to a diverse workforce (which studies show has a positive impact on organisation performance)?
In many ways this area is vital in helping us understand and resolve any gender pay gaps, but it is also the most difficult. It involves understanding how people act and reflect on the overall culture and the employee deal of the organisation. In short, it is a much bigger question than one of simple pay statistics.
Here’s the good news
The rewards for getting talent and diversity management right are much greater than simply ensuring that you comply with legislation. Studies have shown that greater gender diversity at senior levels has a positive impact on company performance. So, it’s a win-win!
Note that this blog provides details of Willis Towers Watson’s view of gender pay reporting and equal pay legislation from a human resources professional perspective. It should not be construed as legal advice. We are not legal advisors. Any legal queries you have should be directed to your legal counsel.