The Importance of Pay Gap Reporting

25 April 2019

Jeremy Couper-Crane

As we reflect on the results of the second year of compulsory gender pay gap reporting in the UK, it’s a good time to consider everything those results mean to businesses across the country. While organisations have pledged to reduce the gap it’s clear it’s going to be a long journey, with fewer than half of businesses succeeding in narrowing the gap during the last twelve months. The median figure for all companies who reported results only reduced from 9.7% to 9.6%.

The problem is by no means limited to the UK. The World Economic Forum stated in 2018 that at the current rate it would probably take 202 years to fully close the gender pay gap. Women globally are paid 63% of what men are paid. The gap has narrowed over the past year but in fact the number of women in the professional workplace has fallen. The UK is around 50th in the league of 149 countries rated by the WEF, with Iceland now having the smallest gap, but there isn’t one country in the world where women are paid, on average, the same as men.

What other countries are doing to reduce the gap

The financial services sectors in Bulgaria, Spain and Italy are all focused on increasing the proportion of women working in their business, especially in senior management positions. Spain’s Plan Alcanza includes three leadership programmes directed at identifying and supporting women with high potential at key points in their careers.

Meanwhile, in an effort to bring more women into jobs in the engineering field, Engineers Canada has launched “30 by 30”, aimed at increasing the percentage of newly licenced female engineers to 30% by 2030.

Like many countries, France now has a requirement for companies with a workforce of at least 250 employees to report their gender pay gap figures. But from January 2020 that requirement will extend to companies with a staff of 50 or more. We’ll have to wait and see if this makes a noticeable difference to their results.

Klaus Schwab, the Executive Chairman of the WEF summed up the core reason for tackling the gender pay gap, “The equal contribution of women and men in this process of deep economic and societal transformation is critical. More than ever, societies cannot afford to miss out on the skills, ideas and perspectives of half of humanity.”

Ethnicity Pay Reporting

It’s important to remember that pay parity is more than an issue of gender. The UK government is now consulting on how best to implement ethnicity pay reporting. The objective of this being to enable the government and employers to move forward in a consistent and transparent way. Responses from this consultation will inform future government policy on ethnicity pay reporting.

Our working population is increasingly diverse, with more people from different cultural and ethnic backgrounds entering the workforce. This is good news for employers, who now have access to a wider range of talent. It’s also good news for the economy if we tap into this potential and ensure that individuals can find jobs that match their talent, experience and qualifications, regardless of their cultural background. Ultimately it will empower employees, as they enjoy greater job satisfaction and are better rewarded for their contribution to the workplace.

Reporting ethnicity pay information enables employers to identify and tackle barriers to creating a truly diverse workforce. If there is a consistent approach to reporting, they can also benchmark and measure their progress by comparing themselves to other employers and learn from them.

Executive Pay

The trend towards global accountability of pay means compulsory reporting on executive remuneration is now also on the agenda. Many countries are already proposing and introducing requirements for reporting CEO/employee pay ratios in order to hold businesses to account as to how they pay their staff and ensure pay practices are fair.

Indeed, from January this year UK legislation requiring companies with more than 250 employees to publish the pay ratio between their CEO and “average” employees has come into force meaning executive pay ratio reports will appear in early 2020.

In 2017 the ratio of median CEO pay in FTSE 100 companies to the median UK full time or part time worker was 167:1, so it’s no surprise there’s a widespread perception that executive pay has become increasingly disconnected from both the pay of ordinary workers and the underlying long-term performance of companies.

Conclusion

This inevitable increase in compulsory reporting means the administrative and regulatory burden on employers continues to grow and with it a need to find ways of remaining connected to employees. It can only be a positive move to ensure pay transparency in the workplace, but only if its reporting comes with a clear plan to improve the picture where results are less positive. To do this effectively it needs to be communicated in the right way, and that’s where we come in.

The most innovative companies of the future will understand the business value of equality. Those that work to foster diversity and inclusion will see significant financial gains as they maximise the potential of every employee and, as a result of that diverse workforce, will understand the unique needs of their many and diverse customers.