The new gender pay gap reporting regulations aims to make corporate Britain more equitable. As of today, employers with 250 or more staff will have to submit annual reports showing how large the pay gap is between male and female employees, based on a snapshot date of April 5 (or March 31 for public sector organisations) each year. They then have 12 months to publish the data on both their company website and a government site.
Failure to comply with the Regulations will not lead to any new civil penalties. However, it will be considered an ‘unlawful act’, which falls within the existing enforcement powers of the Equality and Human Rights Commission. Supporters have lauded this regulation as a starting point for diversity and inclusion, but critics say that Britain’s backbone is made of SMEs, to whom this regulation will not apply. They question if this tactic will actually be effective if it only applies to larger firms, and whether this, like so many other regulatory requirements, may devolve into a box-ticking exercise.
Dr Sumita Ketkar, senior lecturer in leadership and professional development at Westminster Business School, believes the legislation is a positive step towards solving a problem of ‘mindsets’ when it comes to equal pay, but needs to trickle down to the real economic heavyweights: the SMEs. Critics have widely debated its likely success, she says. Nonetheless, it is largely agreed that the upcoming reporting requirement takes us a step closer towards greater transparency and reduced wage inequality.
“Some companies have already started to release their gender pay gap figures. (In March), Schroders PLC was the first FTSE 100 company to reveal theirs (33 per cent), explaining the nature and cause of their gap was due to segregation of men in the high earning top jobs. As more companies publish their data, this will bring into focus the real issue – the stark underrepresentation of women in top positions as well as in the high-paying sectors. Some of this is due to the so-called ‘motherhood penalty’, particularly for women over 30, but also to society’s perception of women ‘roles’,” Dr Ketkar adds.
“We’ve known this for a while. However, the new regulation should facilitate a more open conversation about the pay gap issue as well as its underlying causes. Indeed the fact that gender wage inequality for people in their 20s has drastically reduced is proof of the slow but steady way in which our society is evolving. As the spotlight will be on companies – especially the ‘biggies’ – it will be interesting to see if substantial reputational damage will be caused by the mandatory reporting and whether this will impact hiring and employee engagement, as well as overall brand in the long term.”
Even if gender pay gap reporting doesn’t catapult companies into ‘setting things right’, it will certainly accelerate the conversation that started with the Equal Pay Law in 1970, Dr Ketkar explains. Calls for equal sharing of parental responsibilities, improved flexible working provisions and mentoring for women to reach the top are becoming louder and clearer, for example. “A holistic approach is needed towards solving a problem of ‘mindsets’ that have been embedded in our social fabric for too long. With more stakeholders including men roped into the ‘feminism’ narrative, it may just be that good times lie ahead.”
In a lot of ways, experts liken mandatory regulations to a similar scheme as quotas for women, where their efficacy may depend on voluntary effort rather than a government mandate.
MCSI’s Gaia Mazzucchelli believes it’s entirely dependant on the culture and expectations of each country. “Introducing quotas can be interesting. Targets can help businesses improve their gender make-up, and greater diversity at senior management positions. But the success of quotas depends on culture, and how and when the quotas are introduced. Countries like the Netherlands and Spain have optional quotas, so companies decide when to enforce it depending on a number of things. Firstly, companies should ask themselves if investors care about diversity. That’s the most important push that can make companies act. Secondly, they should look at how it’s incorporated in the culture. If this is something that has already been discussed for a long time, like in Nordic countries, then it is likely to be more effective. If it’s seen as something businesses have to do, it’s less likely to be effective,” she explains.
For example, France requires its listed companies to have at least 40 per cent of each board to be women, but this isn’t always effective, Mazzucchelli adds. “When we look at the workforce and senior management positions, the companies that achieve the quota at board level, don’t make as much of an effort with senior management and the larger workforce. It’s almost like a high glass ceiling,” she explains. “In some cases, CEOs may hire their sister or wife on the board just to meet quotas, and that’s not helping.”
The mandatory gender pay gap reporting regulation, however, is a linked but separate issue entirely. Recent research from NGA Human Resources reveals that over a quarter of business leaders don’t believe the gender pay gap is a real business issue, blaming the pay disparity on career breaks and part-time work. This suggests that both the pay and promotion gaps are tied to outdated biases that linger in the management style of senior leaders.
“As the compulsory gender pay gap reporting is coming into force today, it is cause for concern that a significant proportion of business leaders still do not take the gender pay gap seriously,” says NGA HR’s Geoff Pearce. “Progress towards closing the gap will only be made if firms are prepared to put in place meaningful programmes. The government’s recent funding for ‘returnships’ is a step in the right direction, yet it is up to individual businesses to develop them if the pay gap is to be reduced for good. By addressing their pay gap, organisations will not just have good figures to report on paper, but also the commercial benefits of a diverse and fairly remunerated workforce, which improves performance, productivity and profitability.”
Regardless of why the gap exists, and whether regulation can do enough to take on the decades-old wage disparity, Dr Jane Berney, ICAEW Technical Manager, Business Law, believes that businesses need to gear up for these changes by asking four key questions.
“It is now a legal requirement for organisations with over 250 employees to publish a report on their gender pay gap based on six different metrics . As a result it is likely that they will be expected to explain and act on the results. Organisations should be fully prepared not just to gather the data but to provide meaningful explanations and manage any possible backlash from employees, clients or other interested parties,” she advises.
Here are Dr Berney’s top four questions businesses must ask to meet the gender pay gap reporting regulations.
1. Who will prepare the data , produce the report and sign it off?
This is a key consideration when beginning the process. For some this may be a responsibility for HR, for some it may be the financial department. In either case, make sure everyone knows ahead of time who will be preparing the data, producing the report and signing it off to avoid any confusion or cross-over. This is a time-consuming process which may involve additional training of staff, so be prepared.
2. Decide how you will discuss the data with your employees
You should be prepared for a negative response to the data. There may be backlash from employees unhappy about pay. Prepare ahead of time to tackle potentially difficult questions and situations. If the pay gap is wide, companies must consider why this is so and how to tackle it. Discuss the best route for your company, whether this is handled on an individual basis or addressed in a company-wide briefing.
3. Who or what is included?
In line with the regulations you will need to assess who was employed on the snap shot date and what elements of their pay needs to be included in the calculations. Employees to consider include part-time workers, job share, those on maternity/paternity leave, overseas workers, agency workers and contractors. Similarly, consider what is counted in terms of allowances, bonuses and benefits.
4. Do you know your employees’ gender identity?
If an employee identifies as another gender than assigned at birth, they can be included in their preferred gender figures. Consider how to sensitively approach this in terms of discussion with the employee, whether the employer has the right to know, or what to do if the employee identifies with neither gender.
Dr Berney adds: “This is an important step to improve equality in the workplace. There will be challenges involved but making sure the data is reliable and transparent will result in the best outcome.”