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  • Luuk Jacobs
    Luuk Jacobs

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    What effect will the Gender Pay Gap legislation have?

    Spring 2017 saw the introduction of a new and significant form of reporting on the Gender Pay Gap which will have wider implications for the evolution of the workplace and workforce.

     

    The new legislation requires employers with 250 or more employees to publish statutory calculations every year showing how large the pay gap is between their male and female employees independent of position. As a result, this will have a positive knock on effect of increasing gender equality in senior positions.

     

    Equal Pay and Gender Pay Gap

    First, don’t be confused about these two terms; Equal Pay and Gender Pay, they mean two very different things. Equal pay deals with the pay differences between individuals who do the same or similar jobs, or work of equal value. It’s unlawful to pay people unequally because they are a man or a woman therefore companies should ensure there is absolute equal pay for equal position.

     

    The gender pay gap however shows the differences in the average pay between all men and women in a company. If a workplace has a particularly high gender pay gap, this indicates there may be a number of inequality issues to deal with, and the individual calculations may help to identify what those issues are.

     

    Where are we now?

    The current UK gender pay gap is 18.1% and is at its lowest level ever (Justine Greening, UK minister for women and equalities). There is however a significant difference in industries and for example the figure for financial services is 39.5% (Elexica March 30, 2017).

     

    Before however jumping to conclusions, let’s try to understand how the calculations work.  The base calculations are:

    • the hourly pay rates of all male full-pay relevant employees divided by the number of male full-pay employees and the same number for female full-pay relevant employees (ie the mean)
    • equally from the above data, the difference between the midpoints in the ranges of men’s and women’s pay (ie the median)

     

    You can reach the final figure by calculating the difference between the male and female pay, divided by the male pay and multiply it by 100.

     

    Put simply, if in an Asset Management firm, there are 10 female secretaries earning £10 per hour and 10 male fund managers earning £25 per hour, there is a mean pay gap of 60%. For Asset Management this figure is likely to be even higher for the bonus mean.

     

    What happens next?

    With the first official reporting due in April 2018, when companies publish their data and narrative, the possible course of action they will commit to in order to make the gender pay gap smaller will make very interesting reading.

     

    As we’ve already stated, equal pay for equal positions is bound by law, so it follows the main attribute of the gender pay gap is the way it highlights the unequal distribution of men and women in senior positions. Within the regulation, companies have the opportunity to further explain in a narrative the main reasons for the gender pay gap and this is likely to confirm this view.

     

    How do we solve this inequality?

    We are seeing an increasing number of women in senior positions through either (equal or even fast track) career progression or actively hiring women in more senior positions. With the last not a real macro solution as it would only reduce the pay gap in one company at the cost of the other.

     

    Research has already shown that career progression of women is often cut short by parental leave, care for parents as well as children (www.ILO.org “Women at Work, trends 2016”). So there need to be other elements tackled in parallel, and outside of the workplace, to ensure that women progress to higher paid (more senior) positions. Some solutions supporting this would be a comprehensive approach to harmonise work and family responsibilities by way of the introduction of (the legal possibility of) shared parental leave, free childcare either through government or companies direct and flexible working arrangements.

     

    What does the future hold?

    The Women’s Business Council has stated that by equalising the economic participation rates of men and women, the UK would add 10% to the size of the economy by 2030.

     

    What is not clear is the roadmap we need to take to reach this goal. It will be several years before the impact of the Gender Pay Gap reporting regulation becomes truly visible, what the key drivers for change are and also which companies are leading the charge.

     

    There is no doubt these leaders of change and reform will also be the most attractive to a changing (millennial) work force and it will be interesting to see what measures they take. The gender pay gap, or should we say “gender equality”, raises a further question on the increasing diversity of the workforce. In the next wave of regulation, should this reporting be extended to for example ethnicity, age, marital status or even sexuality? And would companies be willing to show this without regulation or at a minimum be willing to discuss it in the Board room?

     

    Only time will tell, but the first slew of reports published next year will reveal a reality which has been long hidden and hopefully shine a light on the road towards evolution in the workplace.



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