Is gender pay gap reporting concealing the real issues?

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AAT, like most other responsible organisations, wholeheartedly supports the principles behind, and objectives for, Gender Pay Gap reporting.

Why support Gender Pay Gap reporting?

As the world’s fifth largest economy with a reputation for forward thinking and fairness, the UK should be leading the way in this area. It’s not just because it’s fair or right, there are many reasons why closing the Gender Pay Gap is a worthwhile objective.

For a start, it leads to a more diverse and inclusive workforce, broadens the skills base and can improve staff satisfaction and retention. A reduced gap will substantially add to UK GDP too. In fact, McKinsey estimate it could add £150 billion to UK GDP by 2025 and add 840,000 women to the workforce.

Despite all these positives, AAT does not believe that the way data is currently being collected is entirely helpful in raising awareness and understanding of the problem.

Can reporting be improved?

There is a strong argument for the extension of these requirements to smaller companies. 99% of UK businesses employ less than 250 people, reducing the pay gap at smaller companies is therefore likely to lead to more compelling outcomes.

In March 2014, the European Commission introduced recommendation 2014/124/EU which suggested every member should introduce compulsory company level Gender Pay reports for companies with more than 50 employees, not 250.

Of course, any reduction in company size reporting requirements must be balanced with the likely administrative burden this would place on those SMEs.

Turning to the data itself, this has created widespread misconceptions around men and women not being paid equally for the same work, which is of course very rare and illegal. Government needs to do more to highlight this but there is also a responsibility on employers and others – most notably the media – to make this clear.

The quality of the data leaves a lot to be desired. There are a range of statistical anomalies that whilst theoretically possible are statistically extremely unlikely and require thorough investigation. This is demonstrated by Primark, McDonalds and Starbucks all claiming to have a Gender Pay Gap of precisely 0%.

The likes of Unilever and BT have been shown to pay women slightly more than men. Having a Gender Pay Gap that favours women has been widely praised in the media as being a good thing and something responsible businesses should strive for.

However, the biggest Gender Pay Gap in the country is Yellow Dot Nurseries who pay women 81% more than men. So, a Gender Pay Gap in favour of women is good, but not if it is too big.

Some of the strange and often misleading data is simply a result of not asking the right questions.

For example, age plays a significant factor in pay levels – women in their 20’s earn significantly more than men on average and the distinction between part-time and full-time employment is not made anywhere, inflating the pay gap.

Women also earn on average 5.1% more than men in part-time roles. This is largely explained by the fact 41% of women have part-time jobs compared to just 13% of men.

Germany did not make the same mistake when introducing their Gender Pay Gap legislation – The Transparency of Remuneration Act which came into force in July 2017 and requires information about the full/part-time split at a company, so we know it can be done.

Conversely, the Government decision to allow the exclusion of partners (as they are not classed as employees) deflates the gap and should be ended. Most partners are male and are the most highly paid in their respective firms. Whilst the big four accountancy firms Deloitte, EY, KPMG and PwC voluntarily provided such information and should be commended for doing so, most law firms did not. Data quality should not rely on voluntarism.

Put simply, the primary reason for the Gender Pay Gap is that most companies employ more men in senior roles than women. That is the real issue that needs to be tackled.

The calculations bluntly compare the salaries of all working women to all working men in a single employer. Obviously, they don’t all undertake the same job. So, figures are not comparing like with like.

Kate Andrews of the Institute of Economic Affairs, perhaps best summarised the way in which data is being collected as, “… not good for well-meaning companies, which are having their brand name smeared, but it is particularly bad for working women who are being bombarded with misinformation about their standing in the workplace.”

Beyond reporting to closing the Gender Pay Gap

The ultimate objective should be for all companies to go beyond reporting their Gender Pay Gap to eliminating it.

This will inevitably be harder for some companies in some sectors than others and imposing blanket targets i.e. for all companies to have less than a certain percentage gap by a specified point in the future, whether 3, 5, 10 or whatever number of years is deemed appropriate, is likely to be less than helpful.

In the same way that “full employment” does not equate to there not being a single person unemployed, having “no Gender Pay Gap” should be considered anything less than 3% either in favour of women or in favour of men to allow for the changes in staffing that occur throughout the year.

There are precedents for such a figure, for example, 3% is a generally acceptable figure for most economists in relation to full employment terminology.

It also covers the likes of very large companies such as BT (2.3%) and Unilever (2.2%) who reported Gender Pay Gaps in favour of women.

At present, just over 12% of employers (1,268 companies) who have reported their Gender Pay Gap data meet this requirement of having a Pay Gap of less than 3% either way.

Common sense would dictate that those companies with a gap exceeding 50% would be working tirelessly to reduce this to less than 50% as speedily as possible in the first instance.

For the companies who have a gap above the national average of 18.4% but below 50%, reducing their gap to the national average should be the next goal.

For those companies with a gap below the national average of 18.4%, striving to have no gap at all (effectively 3% either way) should be their objective.

AAT’s view

In short, AAT believes that the new Gender Pay Gap requirements are a good start, have stimulated debate and have indirectly shone much needed light on the fact most companies employ more men in senior roles than women.

However, changes are needed to ensure data is genuinely useful, put into context and uniform (closing loopholes around partners etc.). The sanctions regime for failing to report needs strengthening too. Finally, employers now need to go beyond reporting their Gender Pay Gap to taking concrete action to close it. The world is watching…

Phil Hall is AAT's Head of Public Affairs and Public Policy.

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