In the London office, we have been discussing this impending legislation with our clients for some time now. Immediate response to the regulations, from discussions I have had with clients over the past few days, has echoed the position we had already shared with the European Human Rights Commission during their joint consultation with the Institute of Employment Studies in November 2015.
This legislation will impact all employers in the UK with more than 250 full-time employees, including foreign multinational firms with UK operations.
We see several challenges with the proposed legislation from the Government Equalities Office as it currently stands:
- Reporting an average and/or median for the business as a whole is simple, but perhaps not very useful. It doesn't give any insight into gender distribution and 'real' pay gaps at similar jobs/levels. Without a like-for-like comparison, single figures can be misleading.
- A quartile analysis of salary bands, as proposed, will help identify male versus female distributions in an organisation (possibly testing and partially explaining some pay gaps),but won't help any cross-company comparisons across industry and the broader UK market.
For example, a small retail business with a quartile analysis representing low to medium paid staff and a healthy distribution may look better than a professional services business with a more skewed distribution, simply because women are not making it to mid and senior level roles, which is perhaps the bigger problem.
- Annual publishing may be burdensome and achieve little real benefit, especially in the absence of consequences other than potential reputational damage. Giving a year to fix any pay gaps may not be realistic for everyone.
For example, let's say a retail company identifies there are big gaps in their pay practices that require a deeper understanding of 'like work' comparability and current practices in bonus reviews and promotional decisions. Reviewing this properly would take time and money. Fixing it will take longer. Fear of needing to show 'progress' in a single year may result in knee-jerk fixes which will not really address the underlying problem and is likely to have unintended detrimental consequences. Add this to the new UK requirement to pay a living wage to all staff, which adds to their costs at the same time they are operating in an increasingly price competitive market, and the possibility of going out of business could be real if they were to try and fix everything in one year.
Our proposed approach to the Government Equalities Office is this:
1. Create four broad organisational level definitions for all companies to apply:
Support/Admin/Manual (repetitive tasks that are well-defined, governed by policy, and closely supervised);
Professional (qualified individuals contributing to and leading specific tasks - application led problem-solvers);
Managerial (responsible for people and/or teams, results and/or finances, driving policy implementation for their team/unit/department); and
Executive (company leadership, strategy contributors and developers, policy makers, business and corporate function heads).
Most, if not all, companies should typically be able to categorise their staff this way fairly easily. The application by each company doesn’t have to be perfect and will certainly be open to interpretation. However, despite these short-comings, the information submitted will be a lot more meaningful to analyse on a wider scale, making comparisons useful and progressing the debate in a much more constructive way.
2. Report total headcount and remuneration mean and median for each of these levels for males and females.
3. Compensation elements to be reported should include base salary, variable pay (bonus and vested long-term awards), and total compensation.
4. Include only full-time employees working (primarily) in the UK.
5. Disclose in the annual report or on a central government website once every two years, starting one year from the law being enacted. Every report to include explanations for why the gaps exist, along with a summary on progress made to close gaps and address causes to prevent them occurring in the future.
6. Part-time employees should be included at some point in the future.
7. Last but not least, there needs to be some clarity provided of legal implications of publishing pay gaps. Is there a grace period to correct/close gaps where gaps are identified before anyone can bring in a lawsuit? How far back would historical claims go?
The suggested approach is not miles away from the proposals that have been drawn up, but it is our belief that minor adjustments could save years in terms of the progress made to close the gender pay gap, and its underlying causes, and move the debate forward faster.
Regardless of the shape and specifics of the legislation, organisations must start, if they haven’t already, assessing the nature and scale of gender pay differentials in their organisations and take corrective actions to eliminate it if possible, before the reporting requirements come into effect.