Equal pay – still minding the gender pay gap?

Equal pay – still minding the gender pay gap?

DISCUSSION PAPER, MARCH 2016 Stephanie Bird

“People will want to see one number – but there is no one number that makes sense.”

Group Reward Director, International Conglomerate

Copyright Š 2016 PARC Ltd. All rights reserved.

Published by PARC Ltd, One Heddon Street, Mayfair, London, W1B 4BD, UK. Telephone +44 (0)20 7432 4565 Apart from any fair dealing for the purposes of research, private study, criticism or review, as permitted under the Copyright, Designs and Patents Act 1988, this publication may only be reproduced, stored or transmitted, in any form or by any means, with the prior permission in writing of the publishers. Enquiries concerning reproduction outside these terms should be sent to the publishers at the above address.

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CONTENTS

Contents About PARC, about the authors and acknowledgements

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1

Setting the scene

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2

Executive summary

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3

The gender pay gap – where is it?

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Building blocks of gender inequality

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What’s happening in practice

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Future regulations – opportunities and concerns

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Data integrity and examples of current analysis

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Actions to change the picture

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Unintended consequences

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Conclusions and recommendations

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Appendices

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1. Professional services

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2. Financial services

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3. The legal profession

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4. Higher education

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5. The EU – gender pay gap statistics

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6. The legal evolution

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References and useful links

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ABOUT PARC, THE AUTHORS AND ACKNOWLEDGEMENTS

Audrey Williams

Stephanie Bird

Author of ‘The legal evolution’

About the author

Audrey Williams is partner in the HR law group at City firm Fox Williams LLP. She has particular expertise in discrimination, harassment and equal pay and is an experienced litigator and tribunal advocate. She has also worked closely with ACAS, Government (BIS and GEO) and Parliamentary draftsmen, as well as the CBI, on equality legislation.

Stephanie Bird has worked in HR, talent management and organisation change for over 30 years, and has held HRD/HR VP roles in a number of global organisations including KPMG, CSC, Dell and BP. She latterly spent four years at the CIPD as Director of Research, Public Policy, Professional Standards and Qualifications.

Audrey works with a number of not for profit organisations, including Business Disability International and was an advisory board member to Opportunity Now; she gave evidence to the Women & Equalities Committee in January 2016.

About PARC PARC was founded in 2004 to provide a centre of excellence for the development and management of high-performing organisations.

Through the provision of informative and challenging research and briefings, PARC enables HR and Reward Directors to engage with leading thinkers, expert practitioners and each other on the key issues affecting today’s organisational performance, reward and governance agenda.

For more details on how your organisation can benefit from membership of PARC please contact Richard Hargreaves, Commercial Director, on +44 (0) 20 7470 7287 or at richard@parcentre.co.uk.

Alternatively, please visit our website at www.parcentre.com.

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She is now Associate Director at PARC and CRF, is an Advisory Board member in the NHS, and is a Director and Trustee of CCE (Creativity, Culture and Education).

Acknowledgements A large number of HR Directors, Reward Directors and NEDs across different sectors were interviewed as part of this research. However, for most it is a very sensitive subject, and they spoke only ‘off the record’.

But you know who you are – and I would like to thank all of you for your time, patience and insights.

1 SETTING THE SCENE

SETTING THE SCENE The gender pay gap is currently a hot topic in the UK. All political parties have sought to improve the situation, in part by wanting companies to be more transparent in their reporting. The Labour government laid the foundations in the Equality Act 2010, but the coalition government favoured the voluntary ‘Think, Act, Report’ scheme. More than 275 companies signed up – but only five got as far as the ‘Report’ stage.

So through section 147 of the Small Business, Enterprise and Employment Act 2015, the Government introduced a provision which requires regulations to be laid by April 2016.

A consultation paper on this proposal was issued by the Government Equalities Office in July of 2015, “Closing the Gender Pay Gap”, and Government was reviewing the responses to that consultation in late 2015 and early 2016, and engaging with various organisations to flesh out the issues.

But at the time of writing, it is still unclear exactly what the regulations will be. What is the reporting entity? Who is included? Are we looking at median hourly earnings? Mean? Full time and part time separately or together? What about bonuses, which were a late policy announcement? What about long term incentive schemes? Award or vesting?

In the meantime, this discussion paper aims to summarise the main components. It will look at where gender pay gaps exist, and how the UK sits alongside global and EU comparators. Various challenges around reporting, together with unintended consequences, have been identified.

However, reporting is only one aspect, as for most organisations this is a talent pipeline issue, not a reward issue. In other words, this is not really about equal pay, although that, of course, is still important and a legal requirement; it is about the distribution of women in the hierarchy – too many at the bottom, and not enough at more senior levels. There needs to be a full understanding of the contributory factors to any identified gap, and a cohesive, wellexecuted, long term plan to achieve change – we share examples. We conclude with some observations and recommendations.

In the appendices, we give examples of initiatives being undertaken in different sectors, more details of gender pay gap actions in the EU, and a fuller version of the legal evolution and key recent cases.

Focus on women over 40 A new Select Committee, The Women and Equalities Committee, was appointed in June 2015 to fill a previous gap in oversight. Chaired

by Maria Miller, it will hold to account both the Women and Equalities Minister, the Rt Hon Nicky Morgan MP, and the Government Equalities Office.

In November it launched an inquiry to inform Government strategy on reducing the gender pay gap, focusing on women over 40 – the group most disadvantaged, but on which little attention had been placed. It is looking not so much at the reporting of the issue, but actions for change.

It covers three main areas.

• How effective will the Government’s proposals be in reducing the gender pay gap faced by women aged over 40?

• Are there changes to these proposals that would help to reduce the gender pay gap for this group more quickly or effectively?

• What could be done to improve the position of women aged over 40 regarding recruitment, retention, promotion and training?

The Select Committee is still in session (as at end January 2016), and will feed its findings and recommendations into the Government and the drafting of the regulations.

Committee Chair Maria Miller said: "The gender pay gap is mainly a problem for women over 40, and currently hits women in their 50s even harder. However, the measures already announced by the Government don't target this group. Our inquiry aims to fill this gap in Government thinking. We’ll be asking about barriers to promotion; recruitment and training; problems facing women in predominantly female sectors and non-professional roles – and much more. Our inquiry will make recommendations that will tackle the gender pay gap where it hits the hardest."

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2 EXECUTIVE SUMMARY

EXECUTIVE SUMMARY “Gender pay reporting potentially opens up a new front in reputational warfare.”

Senior Counsel, natural resources

The forthcoming gender pay reporting regulations will put into the public domain diversity inequalities that many organisations already recognise, but keep to themselves in order to manage associated litigation and other risks. Transparency over the numbers will lead to external scrutiny and questioning, with potential risk to reputation, employer brand and trust. Too many will leap from a headline percentage to assuming that organisations therefore underpay women – this simplistic view, and how to counter it, worries all our research organisations.

These are some of the other key themes.

Terminology There is a tendency for confusion around terminology – certainly in the press, but sometimes even within HR, where the silos between Reward, Talent and D&I are not always joined up. There needs to be clarity across the organisation on the usage of, and the distinction between, terms such as equal pay, gender pay gap, gender pay gaps by grade/band, occupational segregation, low pay occupations etc.

Gender pay gap Gender pay gaps do exist – but they vary by work pattern, age, sector and occupation.

• The UK gap is 9.4% for full-time, and 19.2% for all employees, placing us 7th in the EU. Part-time workers of both sexes earn considerably less than their full-time colleagues, and there is a much higher percentage of female part-timers.

• Female graduates are paid less than their male counterparts. 20% of men, but only 8% of women, earned more than £30,000 after their degree. Female law graduates earned 28% less than men. The average salary for male graduates was £22,500 vs £20,500 for women.

• Overall, there is a small or small negative gap up to age 40; at this point a wide gender pay gap develops, which widens more significantly again for those over 50.

• Gender pay gaps increase with seniority, and can be exacerbated by variable pay elements.

• The private sector gender pay gap is higher than the public sector. It is particularly acute in Financial Services, but Architecture, Professional Scientific and Technical, and Manufacturing occupations come high up the table.

• There are high gender pay gaps in skilled trades and process operator work, low gaps in administration, caring and leisure – which also tend to be low pay occupations.

• The perceived economic and societal value of low paid occupations, disproportionately filled by women, is unlikely to be impacted by the regulations.

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2 EXECUTIVE SUMMARY

Reporting and narrative • Getting to accurate reporting will present challenges for many organisations, particularly those which are fragmented, or with a history of acquisitions, outsourcing and legacy systems. Many systems are not sufficiently robust to produce the granularity of reporting that may be required, and this will clearly have resource implications for HR and Finance in particular.

• The issues are compounded the further away from base pay the reporting requirements are set. The inclusion of bonuses, whilst in many ways logical, will provide extra challenges around timing and reporting.

• Changes to the business model and structures will impact on the gender pay gap from year to year.

• Detailed narrative will be required, to show a pathway through what is likely to be a complex reporting picture. Organisations with very different divisions or sub-businesses will have a particular challenge, depending on the reporting entity.

Risks • There is universal concern that the press and other media will not always want to understand the full scenario, with a risk of reputational damage even if all the right things are being done.

• There is a further concern that organisations that are seen to have large gender pay gaps will lose out to their competitors in the acquisition and retention of skills and talent.

• There is a risk that existing employees will lose trust and engagement with companies that are perceived to have large gender pay gaps – communication needs to be internal as well as external.

What next?

• It is clear that for the majority of organisations, this is a talent pipeline issue, rather than a reward issue. Improving diversity at the ‘getting in’ stage is good in most organisations, but all are struggling with the ‘getting on’ part – retaining and progressing women to the most senior levels.

• Reporting of the data should not overshadow initiatives to ensure that a more diverse talent pool progresses. Actions need to be put together in a holistic way, need managing and have consequences for non-achievement.

• The reporting requirements will put the subject under the spotlight. Hopefully, it will provide a catalyst for forcing the pace of demographic change more effectively than voluntary efforts have done to date.

• However, the changing nature of the world of work, and the rise of the gig economy, may challenge that optimism, and the regulations will also not address the value that society and the economy put on the low paid roles and occupations that many women fill.

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3 THE GENDER PAY GAP – WHERE IS IT?

THE GENDER PAY GAP – WHERE IS IT? According to the Fawcett Society, 9 November 2015 was Equal Pay Day – women effectively worked for free from then until the end of the year…

Newspaper headlines and articles quoting gender pay gap statistics abound – and unfortunately, they often seem to give conflicting pictures of what is happening. This is probably not entirely surprising, as they are derived from a variety of sources. In the UK alone, there are reports from The Office for National Statistics (ONS), The UK Commission for Employment and Skills (UKCES), the Equalities and Human Rights Commission (EHRC), the Chartered Management Institute (CMI), and one-off surveys by consultancies, to name but a few. Methodology and the sampling can be different – as are the editorial and political policies of the media. The combined effect can be lack of clarity as to where the problems lie, what causes them, and what action is needed.

But digging into the robust data sources reveals some straightforward themes.

The UK data is provided by the April 2015 ONS figures, based on median hourly earnings, excluding overtime.

• The full-time gender pay gap is 9.4% (down from 9.6% in 2014), and has decreased gradually to this since the survey began in 1997. The gender pay gap for all employees is 19.2%, unchanged from the previous year. Both male and female part-time workers earn significantly less than their full-time equivalents – hence the gap for all employees is greater than that for full-time alone.

• Although median hourly earnings for female part-time employees were 6.5% higher than for men, the much higher proportion of women working part-time (41% vs 12%) has a big impact on the gender pay gap.

• The private sector has a bigger gender pay gap than the public sector – 17.2% vs 11.4%, although the private sector figure is decreasing slightly, whilst the public sector is increasing.

• As The Women and Equalities Select Committee noted, the gender pay gap varies markedly by age – the gap is relatively small or negative for full-time employees under 40.

From 40 upwards, the gap is much wider, and over 50 it widens again. Of working women over 50, some 50% work part-time, with the follow-on pay consequences.

• Time spent out of the labour market, time spent on flexible and part-time arrangements, and early educational and career choices, will all have had an impact on the pay gap for the older cohorts. It is interesting that the gap for full-time employees aged 40-49 has fallen from 24% in 1997 to 12% in 2015, potentially reflecting different choices and support available for younger generations.

• Occupation and sector matters – pay gaps are smaller in occupations where a large proportion of employees are women, although the pay levels themselves are lower.

So, for example, there are very large gaps for skilled trades (25%), and process plant and machine operatives, but gaps below 10% in administration, caring and leisure – lower paid jobs where many women work. Other notable pay gaps for full-time employees are financial and insurance (34%), architects (25%), professional, scientific and technical (20%), manufacturing (19%), and health and social work (17%).

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3 THE GENDER PAY GAP – WHERE IS IT?

• Despite the small or negative gap generally for employees under 40, for graduates it is a different story. The Higher Education Careers Service Unit (HECSU) commissioned an analysis of the 2012 salaries of over 17,000 recent graduates in full-time work. They found that one in five men were paid more than £30,000 after their degree, compared with 8% of women. Female law graduates were paid on average 28% less than men – around £20,000 compared with £28,000. And the Higher Education Statistics Agency found that the average salary of male graduates was £22,500 – but £20,500 for women. These figures were recently also confirmed by the EHRC. • The top decile of earners has a relatively consistent pay gap of around 20%. A survey of 72,000 UK managers by the Chartered Management Institute came up with a similar set of figures – women earning 22% less than men. Or to put it another way, working for free for 1h 40m a day – or 57 working days a year. And again, the gap widens with both seniority and age.

• Although a low pay, not a gender pay gap issue, Research by Race for Opportunity found that black, Asian and minority ethnic (BAME) workers make up a disproportionate number of people in low-paid jobs, with almost a quarter (23%) of Pakistani employees and a fifth of Bangladeshi, Chinese and Black Caribbean workers earning less than £25,000 per year.

Figures from the Low Pay Commission found that 15.3% of Pakistani/Bangladeshi workers earned the minimum wage – more than twice the number of white workers in minimum wage jobs.

In summary • the gender pay gap rises markedly for those over 40 • the gender pay gap increases with seniority • part-time work pays less than full-time for both men and women • the private sector has a bigger pay gap than the public sector • occupation and business make a very real difference.

Therefore the impact of the gender pay reporting requirements will be felt very differently by organisations in different sectors and with different demographics. The narrative explanation needed may be complex – and the actions needed to close the gaps raise questions not just for the organisation, but for society and the economy as a whole.

The global picture The OECD figures give a global picture, using median full-time earnings. The latest data available, for 2012, shows that • the UK sits at 17.8%, against the OECD average of 15.2% • most countries have a gap in the range 10-20% • there are some notable outliers in Korea at 36.3% and New Zealand at 6.2% • the widest gaps are in the Asian countries, and Estonia – the narrowest in Europe are Belgium, Luxembourg, Denmark and Norway • Belgium, Norway and Denmark have compressed wage structures with low levels of inequality generally • small pay gaps for Greece and Spain seem to be caused by only the most highly qualified women remaining in the workforce, artificially raising female earnings • gender pay gaps have generally been narrowing over the years – there was a decrease from 2000 to 2012 in 24 of the 27 OECD countries • gender pay gaps are bigger at the top end of the earnings spectrum – 19.7% at the top, versus 15.2% at the median, showing the persisting issue of fewer highly paid women • at the bottom end of the labour market, the gaps tend to be narrower – reinforced, for example, by pay floors, minimum wage regulations and collective agreements.

Detailed EU data is provided by Eurostat, and a fuller picture is given in Appendix 5.

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4 BUILDING BLOCKS OF GENDER INEQUALITY

BUILDING BLOCKS OF GENDER INEQUALITY “The Board and Exec are really focused on getting gender balance in a stronger place – it’s a heavy industry, and there are naturally more guys than gals. There’s a real push to increase the diversity mix – pay is 3rd or 4th order.” Performance and Reward Director, extractive industries Gender inequality at work shows up in multiple ways, and is both complex and multidimensional. Often, even those in HR use similar terms to describe different things – starting a conversation about gender pay gaps can morph into discussions about equal pay followed by a diversion into occupational segregation or flexible working or company culture. So it may be helpful to summarise the issues into four building blocks of contributory factors used by UKCES – and these will vary in weighting by organisation and sector.

• There is the persistence of an economy-wide gender pay gap, particularly acute in part-time work. Within this, there is a consistent undervaluation of roles traditionally performed by women – what is sometimes referred to as the 5 Cs – caring, cleaning, catering, clerical and cashiering. And as women become a greater share of the workforce in previously male occupations, pay for everyone in that occupation falls.

• There are still some gender pay gaps for equal or equivalent work. This can arise from gender biased recognitions of different sets of skills in job evaluation or performance management – for example, risk taking vs communication or team skills. It has also been shown that time out of the labour market for childrearing is more detrimental to pay than time out for unemployment.

• Occupational segregation is a big factor: less than 10% of engineers are female, but in caring and allied health occupations there are not many males. This is an interesting one, as those occupations with the highest or predominant proportion of women have lower levels of pay – but a smaller pay gap. But why are those occupational choices made? It can come from poor careers advice, educational choices from an earlier age or generation, social expectations, stereotyping, workplace cultures, availability of parttime work and methods of attraction and recruitment to name but a few.

• Women are under-represented in management and senior roles – this is a common factor in our research organisations, and the many case studies available publicly, and many initiatives are being put in place to bring on the female and other minority talent pipelines.

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5 WHAT’S HAPPENING IN PRACTICE?

WHAT’S HAPPENING IN PRACTICE? “At its heart it’s a good agenda – but the mechanisms and processes for going about it are all wrong.”

Reward Director, Technology Company A

Discussions with a wide range of organisations covered areas such as • Future regulations – opportunities and concerns • Data integrity and current analyses • Actions to change the picture • Potential unintended consequences.

These are the emerging themes.

FUTURE REGULATIONS – OPPORTUNITIES AND CONCERNS Whilst organisations could understand and support the intent, most believed that the reporting of a single figure was too simplistic – not enough thought had been given to what is a complex area. Interviewees felt that there was still not enough understanding that it is not just about equal pay per se, but about talent pipelines and demographics over time – grade distributions, entry levels, top cadres etc.

‘Politicians feel under pressure to do something – but this is such a blunt tool’. For example, it would be perfectly feasible to have a company with a low gender pay gap, but with low or poor pay practices, and little diverse talent advancement – and one that was ‘doing the right things’ to have a much worse looking single figure. Low pay gaps can also occur where sheer numbers of low-paid women outweigh highly paid male executives.

The content of the consultation had surprised people – it felt ‘very bland’ and ‘like a fishing trip’, ‘they don’t know what they’re trying to do’ – where the background knowledge of what really happens in reward and organisations was not understood. The drifting of timescales, whilst therefore not unexpected, generated both anxiety about potentially shortened timeframes for implementation, together with a degree of cynicism about the practicality of the eventual outcome.

The late inclusion of bonuses into the regulations was universally regarded as ill thought through – no thought seemed to have been given to timing (e.g. when does a bonus get paid vs the year for which it is awarded), other incentives or long term plans, award date vs vesting date, other variable pay elements (e.g. commission payments, and those over very different timeframes) etc. In financial services, the variable element has a significant impact and can come close to doubling the gap, particularly as senior people are more highly leveraged.

Regarding scope, there was agreement that reporting at the legal entity level rather than Group made more sense, and avoided double-counting, but there were still concerns that businesses and divisions could have very different sizes, shapes and outcomes – definitions would be key.

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5 WHAT’S HAPPENING IN PRACTICE?

“My biggest concern…is reporting complete and utter nonsense – or it becomes so burdensome that it all bogs down – and helps nobody.” Group Reward Director, international conglomerate

Scope raised two other major concerns. Firstly, whether it would apply only to UK based workers – ‘…will start a cottage industry of consultants making thousands of dollars from us…’, and secondly what the definition of a ‘worker’ is anyway. A creep to contingent workforces such as agency/consultants/interims/seasonal ‘…would be a nightmare…’.

Some commented, though, that just as companies had to get to grips with the compulsory reporting of CEO pay ratios, they knew how to ‘get their heads round what would be required’ here.

None of the interviewed organisations which had signed up to Think, Act, Report had got as far as the ‘Report’ stage. They were cautious in publishing data in advance of the regulations, which might turn out to show that ‘maybe we wouldn’t have been as golden as we thought’.

The reporting requirements were still a big concern – not just because in the absence of guidelines, companies were investing significant resource in analysing data in a myriad of ways, but that it generated an uneven playing field. There was a concern that competitors were working out ways to finesse numbers, and that true comparisons could not be made.

All of the issues contributed to the need for excellent narrative to accompany reporting.

However, Directors recognised the media may still leap to more headline-worthy stories and assumptions from the raw data, with reputational risk consequences. Poor external perception of the reported numbers would also present a risk to talent attraction.

They also noted the conflict between trying to simplify Annual Reports, and give clear narrative, with one saying: ‘The granularity with which we might be asked to report goes against the grain of trying not to make Annual Reports too complicated…good businesses will want to explain, but it will be really detailed. Good intentions – but it will mean longer, more complex reports, more footnotes – less light!’

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5 WHAT’S HAPPENING IN PRACTICE?

“Data for the core business is good – but our outsourced and acquired businesses are all over the place – a mishmash of spreadsheets and other systems.” Reward Director, Technology Company A

DATA INTEGRITY AND CURRENT ANALYSIS With the exception of one company which was very confident about its global systems and data robustness, the accuracy and integrity of data was not without its problems for many organisations. The core data for most was good, but was of varied quality in acquired, outsourced or other legacy parts of the company. Most major markets had good data on fixed pay, but away from this, towards all emoluments, there was less confidence – ‘beyond that things unravel…systems not built to cope’. There was nervousness at the thought that the reporting might be extended to other protected characteristics, as the data would be very hard to reach and track, as much relied on self-reporting.

One organisation recognised that getting to data would be very challenging, and would require working with Finance to provide agreed data packs. The sizes of their divisions and businesses varied dramatically, and as they had considerable autonomy and localisation, there was no one system of job evaluation or clear job role/career structures, indeed if any, across the organisation. They realised that even in Head Office, levels and grades had last been looked at seven years ago, and there were many new roles and functions since then.

There was a common recognition that the small numbers of women in some roles and at some levels meant that any numbers were extremely volatile.

In most organisations, there was already considerable gender analysis being undertaken and reported around base pay, bonuses and other incentive pay, so they are already, in effect, preparing the narrative. However, one organisation commented that the depth of analysis varied by business and country ‘Business X – back of a fag packet; Business Y – to within an inch of its life; US – avoid being sued’.

Of course, any change in business model can create a big swing – offshoring, divestment, on shoring and acquisition will happen for strategic business issues, regardless of the impact on gender pay reporting.

A common comment was that the Executive Team and Head Office had some of the largest pay gaps. In most of the organisations, the CEO and the CFO were both male, and this outweighed any female pay on the Executive Team. In Head Office, Finance and IT (mostly male) were better paid than HR and CoSec functions (mostly female), although all were benchmarked to market.

It is interesting to note that for the HR profession as a whole, at the most senior levels men earn more than women. Perhaps the profession has work to do on itself too, as well as solving organisation issues.

Gender pay analysis Technology company A currently looks at salary and bonus data in four ways.

• Salary – which is analysed rigorously, by business, by grade, by age bands. They also undertake a low pay review – looking at the lowest in each range, and spending a small amount of money to close up some gaps.

• Bonus input factor (i.e. target bonus %) is the same regardless of gender, so no analysis.

• Bonus business factor – is driven by the business results, so needs no analysis by gender.

• Bonus personal performance factor – is very heavily analysed! By gender, by grade, by manager, looking not only at the performance ratings, but also at what pay judgements get made if there is a discretionary range.

They have also done sensitivity analysis at some levels – for example, what happens if overall numbers change, or certain sets of males or females leave, and what happens to part-time workers.

Technology company B analyses their data globally – taking the view that it is something that should be looked at as ‘we’re going to do what we think is the right thing, regardless of whether it is required or not’. They analyse by bands and grades, looking at both comparatios and averages. They track the top 200 at HQ, and give guidelines to the rest of the business. They track the progression of promotees/new hires through the pay bands (say to 95% or so after three years) – and if they are not progressing, check to see what is going on and if there is any bias involved.

They look at performance distributions by country and band, and with a gender overlay, before pay decisions are signed off.

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5 WHAT’S HAPPENING IN PRACTICE?

“Philosophically the trick is to work out how to use gender pay gap reporting to force the demographic change – don’t just moan about it.” Group HRD, Financial Services

RBS – targets to pay consequences At their annual meeting in June 2015, RBS Chief Executive Ross McEwan set out challenging goals for the organisation – to achieve 30% female representation in their top 600 jobs, the top three levels, within five years. The business case is built on research that shows that gender diverse organisations outperform others by some 15%.

These goals are built into the formal objectives of the ExCo and all the individuals on it. They have not made this easy for themselves – this is not an aggregate target to be taken across the whole organisation, but has to be achieved in each of the different business areas, and will have performance (and pay) consequences. Their current publicly quoted stats range from 30% in HR, to around 15% in parts of the investment bank. They have a further informal target of being 50/50 at all levels by 2030.

They have backed this up by specific measurable activities, for example, unconscious bias training and employee-led networks.

ACTIONS TO CHANGE THE PICTURE Most of the organisations were clear that their gender pay gap was caused by not having enough women in the most senior roles. It was a talent pipeline question – bringing in a good and diverse talent pool, and ensuring that they could progress through to the highest levels of the company. Most were using a variety of initiatives to progress this; ‘getting in’ seems mostly to be on track, but it’s the ‘getting on’ where more needs to be done to prevent the fallout. There is a wealth of material, and this could be a separate report in its own right, so this section is a light touch summary only.

Targets – setting targets for the % of women in the top jobs and levels. Targets were typically around 20-25%, although the timeframe for achieving that varied. One company was targeting 30%, as they believed that it is a ‘magic number’ and will naturally force a change in culture. They also noted that where they had countries or businesses with a female CEO, the leadership team had often become gender balanced as a consequence. In 2015, HSBC set a target of equal numbers of men and women in their 550 most senior UK roles by 2020. And see sidebar for RBS targets and consequences.

Attraction and recruitment – most organisations are being creative and inventive.

Engineering and technology companies recognise the need to work right down to the school level, to influence more girls to choose STEM subjects, and to provide less stereotyped careers and ambition advice. Most have challenged agencies to be more creative in bringing through female candidates into Technology roles – they do not accept male only short-lists. Many recruit more women than men at graduate intake, and are offering apprenticeship pathways as an alternative route in. Recruiters receive unconscious bias and other training.

Culture – this was frequently mentioned as a challenge, particularly in technology, heavy industry and some areas in Financial Services. A wide variety of approaches is being tried, from unconscious bias training to workshops, to direct intervention.

“They’re starting to ‘get it’ about the culture not being conducive to women. Asking the question ‘would you like your girlfriend to work here’ brings it home to them.” NED, interdealer broker

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5 WHAT’S HAPPENING IN PRACTICE?

“It will all depend on (their) desire to be seen to be forward thinking and diverse. They’ll want to do the right thing if it affects reputation and access to talent.” VP Performance and Reward, Technology Company C

Working practices and patterns – flexible working policies abound, but many organisations still have historic working arrangements in practice – early and late meetings, ‘all-nighters’ etc, that make roles, and particularly senior roles, unattractive for those with caring responsibilities. And for part-timers, those in professional services and some financial roles risk losing their clients, assets under management and perceived value-add to the firm.

Those whose roles involve international travel talked of needing to set boundaries around which days those were, to avoid weekend disruption.

Career development – this was still a difficult area, particularly in global organisations where direct experience of, and exposure to, different markets and countries was a necessary part of progression. One person shared their perception of less support available to women with a ‘trailing spouse’ than vice versa, and that children multiplied the complexity. ‘It’s the whole network/nannies/nannies friends etc. as well as the money.’

Women’s networks, mentoring – many organisations have these as an aide to helping women progress. One company used a series of meetings to educate women about how to get on – running sessions that included in-depth briefing about the business, successful behaviours and even how to negotiate better on pay. However, it is still the men who shout louder!

Talent management at senior levels – again, most organisations had full scrutiny of moves into (internal and external candidates) and within their top levels, and one had a need for justification for any male being appointed. Ensuring women were on short-lists for roles, both for internal and external appointments, was common.

Other – Vodafone takes a global policy approach to many of the issues that could help progress women’s careers and retention. They have set a ‘minimum standard’ in some policies – they can be exceeded, either because of local legal requirements or because local management wishes to do so, but they cannot be undercut. For example, there is a minimum of 16 weeks paid maternity leave; this is obviously exceeded in the UK, but it was well ahead of requirements in the US. In addition, for women returning to work full time, they are only required to work 30 hours a week for the first 6 months, even though on full pay – and there are a variety of patterns by which this can be done.

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5 WHAT’S HAPPENING IN PRACTICE?

“‘Fit’ is a dangerous word – organisations are built by men for men.” HRD, public sector

UNINTENDED CONSEQUENCES As with all plans, there are usually unintended or unforeseen consequences alongside the desired outcomes. The organisations who had already done detailed analysis and modelling all raised similar concerns around the unintended consequences of ‘doing the right thing’ i.e. actions taken to improve the pipeline of female talent for the long term could widen the gender pay gap in the short term, either overall or in grade.

They gave a variety of examples.

• One company had modelled the effects of recruiting 2000 younger generation female team members to replace an ageing, predominantly male, population. It found that the gender pay gap swung from being slightly in favour of women, to slightly in favour of men.

• On promotion, people are usually paid at the lower end of the band/grade – hastening the promotion of women can therefore increase the gender pay gap (see PwC case study in appendix 1).

• The pay gap in executive teams is often driven by the salaries of the CEO/CFO, who are usually male. Trying to achieve better gender balance by bringing in more women, on lower salaries and time in grade, will make the gap look larger in the short term.

• Promoting women faster to hit the headline targets, with insufficient pipeline coming on behind, risks a ‘see-sawing’ against the targets, as some cohorts get hollowed out.

• In grades with relatively small numbers of people, small movements in either the male or female population can have a massive impact on the gender gap in grade.

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6 CONCLUSIONS AND RECOMMENDATIONS

CONCLUSIONS AND RECOMMENDATIONS Conclusions The gender pay reporting requirements are not finalised at the point of writing – but when they are, many organisations are well placed to deliver against the first reporting cycle. They have already interrogated their data, and have a reasonable understanding of where the issues lie.

A few have gone further than this, and have modelled various workforce changes, and the impact on the numbers. Indeed, some have gone further and looked at structural ways in which problems might be solved e.g. putting various low paid workers into alternative vehicles.

There are still some, who, for whatever reason – maybe thinking that the regulations will not apply to them – have done little preparation. They will be playing catch-up within an organisation that is not primed to measure and explain.

This is an area of reputational risk, and as such, there needs to be understanding and accountability at the highest level, and integration of approach across all the functions who need to be involved – finance, HR, communications and legal for example. And within HR, Reward, Talent and D&I need to be joined up too.

As has been said before, this is as much a talent pipeline issue as a reward and report issue – the recommendations are therefore generic, and need to be ‘personalised’ to the complex set of conditions and stage of development in each organisation.

Recommendations Managing the disclosure • Ensure clarity of terminology across the organisation, so that there are no misunderstandings between functions e.g. finance, HR, communications, legal.

• Understand your data availability, accuracy and integrity now – don’t wait for the regulations to be finalised, or reporting deadlines to come close. There will be many professional services firms and others willing to help you!

• Understand what the data is, what it is not, and what it really means. Do you know how you compare with others who may have a similar business model?

• If possible, model what happens to the data under different business scenarios, or actions taken to improve the gender pipeline for the long term.

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6 CONCLUSIONS AND RECOMMENDATIONS

Managing the narrative • Know your headline number, and anticipate how you will respond to any unhelpful ‘headline news’ stories about it, including in social media?

• Plan your communications rigorously, both internally and externally. You need to have your employees on side, and helpful communicators of your position and actions to progress.

These are complex problems, and the narrative will need to be broken down into bite size messages, and communicated in multiple ways.

• Are there any industry wide issues where it might be helpful to have common messages?

For example, work done in trying to persuade more young women to study for and enter into, STEM careers at various levels?

Managing the actions • Generate and communicate a cohesive and comprehensive action plan. What problems are you trying to solve first, and why? What are the targets and how will you measure progress against them? What are the consequences, and for whom, if they are not achieved? What will make a difference in the future, if it hasn’t changed the game already?

• Ensure that actions are based on the reality of your own situation, and are not clouded by outdated views; a recent KPMG/YSC/30% Club report looked at the myths and realities of progression for women, and challenges lazy assumptions.

• Look at examples of initiatives from other sectors as well as your own, to see whether any good ideas can be adapted and personalised for your situation.

• The role of culture is key in achieving change is key – women need to want to progress in the organisation. Do they like what they see when they look upwards, and what it will take to belong? Do people adapt to the prevailing culture and biases, or does it become more inclusive for all?

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7 APPENDICES

APPENDIX 1: PROFESSIONAL SERVICES PwC and Deloitte PwC have conducted Equal Pay Reviews for the last 10 years, and was one of the many organisations who signed up to the Think, Act, Report scheme. They were one of only five organisations, and the first in their sector, who went on to publish their data externally – in their 2014 annual report, and again in 2015. In addition to reviewing by gender, they also review pay and bonus by ethnicity and working pattern.

In FY15 their single figure gender pay gap was 15.3% (FY14: 15.1%). The single figure does not take account of other reasons for pay difference, (e.g. grade, location or performance level), so they also publish an adjusted figure (see sidebar for methodology), as they have more men than women at the highest grades – this brings the gap down to 2.8% (FY14: 2.5%). They commented on the slight rise, saying that the difference was a net effect of several factors. These included the higher proportion of males in high-growth areas such as technology, but also the impact of advancing the rate of promotion of women – they were progressed to the lower end of the band above.

They publish their workforce profile alongside. Support staff and client account staff are predominantly female (87% and 66%). For their professional staff, the female percentage is over 40% up to Senior Manager (Associate 42%, Senior Associate 43%, Manager 50%, Senior Manager 43%), but at Director and Partner it drops significantly to 31% and 17% respectively. 19% of their Partner admission in 2015 were female – they have a target of 30% for 2016. At the input stage, they hired 44% female – with a target of 50% by 2017.

In the Corporate Sustainability section they give many examples of commitments to promote Diversity (and other workplace issues) over the long term, together with a progress report. These include the setting of targets, continuing equal pay reviews, and developing and delivering the Open Minds diversity campaign on inclusive leadership.

Deloitte were the second professional services firm to go public with their figures in August 2015, at the same time as their annual results. David Sproul, senior partner and chief executive said ‘Deloitte’s gender pay gap stands at 17.8%, around 1.3% below the national figure. However, when looking across the organisation as a whole the pay gap between male and female employees at each grade is significantly lower, at 1.5%. This illustrates that for Deloitte, the issue is far less about how we pay our people and more about the number of women employed at senior grades.’

Calculating adjusted figures PwC confirmed they calculate pay gaps as follows.

The single figure pay gap is our starting point for assessing pay gaps within the population. It is calculated as: Average salary for males – Average salary for females Average salary for males

This does not allow for the relative numbers of employees at each grade e.g. a higher proportion of males in senior grades which would skew the overall pay gap. To address this problem, we calculate an equalised pay gap. This is a hypothetical pay gap calculated as the pay gap assuming that all individuals (male and female) within each grade are paid the same salary (which we take to be the average for that grade). This pay gap cannot be caused by inequalities in pay, and must be attributable solely to the demographics.

We calculate the closable pay gap as the difference between the single figure pay gap and the equalised pay gap.

The closable pay gap is a measure of how much of the pay gap is caused by inequalities in pay, and how much is caused by other (still important) issues. The approach to calculation depends on the order in which differences are analysed. It can also be distorted by actions taken to address some of the demographic inequalities. For example, in 2014 we promoted a greater proportion of female senior managers to director, and this will have increased our closable pay gap.

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APPENDIX 2: FINANCIAL SERVICES “If you don’t set targets in all areas, and these targets don’t have performance consequences, then you won’t get change. We track progress against the targets year on year, and it does impact on pay.” Group HRD, Financial Services The position in 2015 The latest ONS statistics show that the Financial and Insurance sector has one of the highest gender pay gaps, at 34% for full-time employees. But the headline number can lead all too swiftly to false assumptions. This is not (with rare examples) about equal pay for jobs of equal value per se – but about the demographics, with more women at the bottom than at the top.

Although 66% of recruits are female, they comprise only 33% of middle managers, and 18% of senior managers. In July 2015, the Treasury asked Jayne-Anne Gadhia, CEO of Virgin Money, to lead a review into how women are represented in senior roles in Financial Services.

Her final report will be published ahead of the March 2016 budget, but the November 2015 preliminary recommendations include • make the remuneration packages of a firm’s executive team dependent on gender balance • ensure financial services firms report publically on their gender diversity • firms should appoint an executive responsible for gender, diversity and inclusion.

She said ‘It should be a wake-up call to everyone in financial services that fewer women progress to senior levels than in any other industry in the UK. There are many views as to why that might be. Motherhood, remuneration, the ‘old boys’ network’ are all mentioned, but only scratch the surface of an issue that has been hidden for too long.

Businesses will increase productivity and improve results by encouraging more women into senior roles. But the approach needs to fit the individual organisation and the women involved.

My report proposes addressing the issue in a way that the City will recognise. Make it public, measure it and report on it. What gets published gets done.’

EHRC research in 2009 – has much changed since?

This delved into the size and shape of the pay gap and pay trends, and the attitudes and practices that contributed to it.

Then, the overall gender pay gap for annual basic earnings was 39%. The most memorable gap, however, was for mean annual gross earnings – 55%. There was evidence of gender bias in the distribution of bonuses and performance related pay – the gap for discretionary performance-related pay was over 45% in over half the cases. Unsurprisingly, both basic and performance-related pay were higher in revenue generating roles – where women were significantly under-represented.

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“Just appoint more women and shut up.” Group HRD, Financial Services

The gender pay gap could not be explained merely as historical legacy; the salary analysis for new recruits showed that in 86% of the cases reported, women had lower salaries than men, with the likelihood of it continuing throughout their career.

Women were concentrated in the lower-paid jobs, and in areas where there was little scope for advancement. There were other differences within sub-sectors – more women than men worked in building societies, and more men than women in fund management and securities. Men occupied two-thirds of managerial and senior jobs, and nearly threequarters of professional jobs. Recruitment and selection processes helped perpetuate occupational segregation.

Whilst the use of job evaluation was associated with a lower gender pay gap, it was only used in a third of the cases. Pay transparency was generally poor, particularly in relation to performance pay criteria – where there was a recognised trade union of staff association, pay arrangements tended to be more transparent.

The report identified a number of ‘softer’ issues that impacted on retention and progression – whilst not specific to financial services, the impact of them is more extreme than in the economy as a whole.

• There was an emphasis on ‘cultural fit’ for high level jobs – with colleagues and clients who are mostly male.

• Networking was seen as an important career enabler – but mostly through male-orientated activities; an overall lad’s culture.

• Great policies did not always help progression – maternity leave policies were undermined by management attitudes, re-allocation of clients, less favourable performance ratings.

• The high proportion of younger workers, the 25-39 age group, combined with the attitudes, made it harder to pursue a viable career.

• Promotion decisions were usually taken by men.

• Working practices, particularly long working hours and presenteeism, marginalise those with family or caring responsibilities.

• Women did not negotiate as well or demand reward as did their male colleagues.

It will be interesting to see what recommendations Jayne-Anne Gadhia will make to change these seemingly entrenched difficulties some six years on.

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APPENDIX 3: THE LEGAL PROFESSION “Firm X has had D&I initiatives for five years but they’ve made no difference. They’ve now agreed targets of 20-25% in 5-10 years. It’s still very difficult and a long way off – but at least the Board have committed to targets, and an action plan.” NED, law firm The Law Society The Law Society publishes regular research on the diversity of the profession, across a number of factors, including an attempt to track socio-economic background.

Their latest report, published in June 2015 (based on 2014 stats), found that the number of practising certificate (pc) holders is now split 51.8% male and 48.2% female. Since 2004, the number of pc holders has risen by 34.8%, but the number of women has increased by 60.3%. The mean age of male pc holders was 45.6 years, and 39.8 % for female pc holders.

The pipeline from post graduate education is strong and diverse.

• Of 2014 graduates, two thirds achieved a first or 2.1. More women than men achieved this – 68.6% vs 63.9%.

• This carried through into new trainees – 60.8% of them were women.

For the past 20 years, women have comprised more than 80% of new entrants to the profession, so the pc stats are likely to continue to rise. However, since 2004 the age profile of pc holders shows that although for those under 35 there are 1.6 females to every male, this reverses over time. Over age 61, there are 5 males for every 1 female. In essence, pc holders and the profession become more male with age, with disproportional drop-out from women in the 35-45 year range.

Looking at where this happens by grade, female participation in the profession stays strong up to Associate level, where it is still 60.4%. However, this drops dramatically to partner stats of 27.5%. Whilst these partner level stats have improved over time, it is only by some 3-4% over the last 10 years, despite a myriad of initiatives.

The Law Society itself is committed to helping the profession to be more diverse, and to that end has established a Diversity and Inclusion Charter (together with BT and the Society of Asian Lawyers). Its aim is to help practices turn their commitment to D&I into positive and practical actions, and the publication of best practices. Over 300 practices have signed up to the Charter.

In November 2015 they published Equal Pay guidance, and an accompanying toolkit for firms.

However, there are still significant barriers to overcome – not only within the firms (culture, resistance to flexible working, presenteeism, and billable hours as a key performance measure) but also from clients and their demands too.

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“Lawyers also don’t manage well – you can sit and underperform on a high salary for a long time. It goes back to performance management – but it’s a club, and performance isn’t managed.” NED, law firm

The Bar Council The Bar Council publishes similar reports for barristers, the latest in 2015, and the trends are very similar to those for practising solicitors. Gender is not a barrier for entry into the profession – some 44% of pupillages are held by women, and Call to the Bar has held constant at around 50% since 2000. However, getting on in the profession is different.

The female population drops slightly to 44% for new tenants, and again to 35% for the practising bar. Only 12% of QC’s are female, and 24% of judges. For barristers with children, 57% of women are the primary carers vs 4% of men.

Again, the profession hollows out with age – for every woman with 22 years call to the Bar, there are 4 men. This has implications for the talent pool for the judiciary, Silks and chambers politics (their cultures, policies and practices).

The Bar Council recognises that on current trends, there is little likelihood of a 50/50 split in practising barristers being achieved. The main reasons cited are the inherent difficulties of managing self-employment alongside caring responsibilities, particularly with the reduction of legal aid and the increase in childcare costs, and the women being pushed into more traditional ‘women’s practice areas’.

The Bar Council is exploring further initiatives to encourage retention, for example expanding the Bar nursery to the circuits, and extending and developing mentoring schemes to help more women build and sustain their practices. In addition, the Bar Standards Board requires Chambers to have parental leave and flexible working practices – although the implementation of these can fall down in the face of entrenched cultures and attitudes both within Chambers and outside.

Joint Firms and Chambers league table The Black Solicitors Network, supported by the Law Society and the Bar Council, has developed an annual Diversity League Table – a demographic survey of the legal profession across both Firms and Chambers. The latest and 10th report was launched in November 2015, and, in addition to gender, makes findings on ethnicity, disability and sexual orientation Overall, as probably expected, their findings are very much in line with those for the Law Society and Bar Council. However, they noted that at least more firms and chambers now had the ability to report on data in the various categories – a positive change from a few years ago.

Their report also gives details of D&I stats and policy examples for individual respondent firms and chambers.

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APPENDIX 4: HIGHER EDUCATION

As part of the 2014/15 settlement the New Joint Negotiating Committee for Higher Education Staff (New JNCHES) included a commitment to establish a joint working party on gender pay in Higher Education. It established two main goals • to build on the data from the Equal Pay Survey 2013 with more qualitative information, with a view to actively promoting good practice • to collect qualitative examples from with HE and beyond, to better understand the nature of any gender pay gaps, possible reasons, and the measures being taken.

The report, published in 2015, included a detailed table on the gender pay gaps by grade/role, and detailed case studies of six HEIs (Higher Education Institutions) of varying sizes and maturity.

The report commented that HEIs seemed to be more transparent in their data than the private sector – all the case study organisations disclosed their full data, and many other had been moving to full publication of their data and action plans online. This contrasted with only five private sector organisations who had reported under Think, Act, Report. There were some issues of concern, as the 2013 survey highlighted that 31 HEIs had not conducted an equal pay review since 2010 – and seven had never done so.

Overall, from HESA data, the median pay gap for full-time academics dropped from 11.1% in 2004/5 to 3.6% in 2013/4, and for professional services from 12% to 5.8%. The report notes that factors contributing to this include the retirement of higher paid males, improvements to family friendly policies and the Athena SWAN charter mark. Although HEIs are covered by the public sector equality duty, and this is even more prescriptive in Scotland, most HEIs believe that the Athena SWAN charter mark has been a bigger driver of performance, and will be even more so as it has been broadened to cover all areas, not just STEMM (Science, Technology, Engineering, Maths and Medicine) subjects.

In-grade pay gaps are generally under 5% up to professor and professional services equivalent roles – but there are then some gaps well over 10%. In addition, of course, there are also significantly fewer women in the higher level roles. Small numbers of leavers in those grades can shift the figures significantly at the institutional level.

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Many of the HE case studies highlight the work being taken to encourage women to progress careers to more senior levels. Here are some examples.

• Setting targets for F and BAME candidates at all levels, and tracking against progress.

• Recruitment – more balanced recruitment policies, processes and tracking, particularly to increase the numbers of women in under-represented groups – from security to Pro Vice Chancellors. Recruitment forms worded so that all roles can be part-time. Unconscious bias training for recruitment panels.

• Starting salaries – detailed published policies that appoint to the bottom of the grade, to avoid any potential skew by offering discretionary higher salaries to men.

• Promotion – women are often more cautious of putting themselves forward for promotion, so HEIs are using mentoring, promotion workshops etc. to encourage them.

Many HEIs are ensuring that promotion criteria include factors such as pastoral responsibilities, teaching and other features in addition to the research work on which promotion has generally been based. Some are establishing a full teaching career track to Professor as an alternative route. Promotions to some levels e.g. Principal Lecturer are being based on business need and stricter criteria, rather than individuals self-applying to be appointed to the next band.

• Support around career breaks – when women take a career break, their research is often the first area to suffer, and as teaching commitments take priority on their return, this exacerbates the problem. Some institutions are therefore experimenting with the use of research assistants to do the preliminary work. Others have looked at lessening the teaching workload for a time after return to work, thus allowing focus on the research aspects of the role. Childcare payments for ‘keep in touch’ days.

• Flexible working – assuming that flexible working is the default option unless there is a really strong case against it. Also challenging the perceptions that flexible working means that people are less available for conferences and associated networking that could adversely impact on reputation and CV. Initiatives include financial support for childcare for academics to attend conferences etc.

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APPENDIX 5: THE EU – GENDER PAY GAP STATISTICS The best source for gender pay gap data in the EU is Eurostat (the statistical office of the European Union) – a link to the latest (2013) data, released in March 2015, is given below.

There is not a direct read-across to OECD global figures. http://ec.europa.eu/eurostat/tgm/table.do?tab=table&init=1&language=en&pcode= tsdsc340&plugin=1 The calculation is based on the difference between the average gross hourly earnings of males and females as a percentage of the average gross hourly earnings of males – and on that basis shows that the UK has the seventh highest gender pay gap in the EU, at 19.7% versus 16.4% for the EU as a whole. There has been slow progress – the EU average was 1.1% higher five years ago. This narrowing of the gap was most marked in Lithuania (21.6% to 13.3%), Poland (11.4% to 6.4%), the Czech Republic (26.2% to 22.1%), Malta (9.2% to 5.1%) and Cyprus (19.5% to 15.8%). In contrast, the pay gap rose in nine member states – the most significant being Portugal (9.2% to 13.0%) and Spain (16.1% to 19.3%).

Reporting and pay transparency feature in several European countries, although the details of content, frequency and publication vary. Whether it has made much of a difference is debateable. A sample of countries is shown below.

Country

Austria Belgium Denmark Finland France Germany Portugal Spain Sweden

Threshold No of employees ≥150

All employers (extra measure for ≥500) ≥10 ≥30

≥300 (slightly less required from smallest companies) ≥500

All employers – slightly different regs for public and private sectors ≥250 ≥24

2008 %

2013 %

25.1

23

10.2

9.8

17.1

16.4

20.5

18.7

16.9

15.2

22.8

21.6

9.2

13

16.1

19.3

16.9

15.2

Clearly, as Eurostat itself reports, the gender pay gap is ‘the consequence of various inequalities (structural differences) in the labour market such as different working patterns, differences in institutional mechanisms and systems of wage setting. Consequently, the pay gap is linked to a number of legal, social and economic factors which go far beyond the single issue of equal pay for equal work.’

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APPENDIX 6: THE LEGAL EVOLUTION

History & Current Law The legal provisions on equal pay are now contained within the Equality Act 2010, which replaced the Equal Pay Act 1970 from 1 October 2010. Whilst it is generally unlawful to discriminate in pay and benefits on grounds of any protected characteristic under the Equality Act, the specific gender pay discrimination protection has been consolidated into a section of the Act known as “Equality of Terms The 1970 Act was revolutionary at the time and we have just celebrated 50 years since its introduction; it was so revolutionary that employers were given five years to prepare for it. It predated any European law obligations for the UK and, one might argue, it is a sad indictment that special provision needed to be retained in 2010 and we are still working to close the gender pay gap.

The Equality Act did more than just repeat the previous legislative provisions; it also sought to codify some of the previous case law.

Legal Framework The general principles remain the same: a woman should receive equal pay where she is undertaking equal work to that of a man in the same employment. Work is deemed to be equal for these purposes if it is the same or similar, rated as equivalent under a formal grading scheme or of equal value (the latter was a key amendment to the 1970 Act as a result of European law).

Legal Trends Equal pay claims in the UK have led to large scale litigation during the last decade, in some cases extending over eight to ten years and at the cost of many hundreds of millions of pounds, as back pay claims can extend to six years (five years in Scotland). Whilst traditionally claims of this nature have been brought in the public sector, particularly against local authorities and in the NHS, larger employers remain vulnerable and there has been a recent move towards claims of this nature being brought against private sector organisations.

Certain sectors are likely to be vulnerable, including financial services, retail banks, insurers, retail and fashion. There are a number of reasons for this vulnerability, not least the sheer number of employees in these sectors, but also the gender profile, job roles and occupational segregation in these types of organisations. Currently there is a large group claim of inequality in pay being brought against ASDA/Walmart; these involve store staff (predominantly female) seeking to claim pay equality with employees working in warehousing and distribution (predominantly male). The ASDA litigation is progressing through the UK tribunal system and it is likely to result in 18 months to two years of litigation and perhaps set new law.

Class Actions?

Mass claims of this nature are not new but are generally unique to equal pay claims – the closest that employment rights get to these types of class actions have been in cases of holiday pay under the Working Time Regulations, but they have not been on the same scale. Although these claims are often called class actions, unlike in the US where an action can be brought by the Equal Employment Opportunity Commission on behalf of an employee group (or class), in the UK claims of this nature can be supported by trade unions or employee representatives, but have to be issued in the specific name of individual employees. This means that rather than bringing a class action on behalf of an occupational group in an employer, each claimant employee has to be specifically identified and named (although it is possible to do this on one Claim Form rather than issue one form for every individual!).

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With the advent of fees in the employment tribunal, the fee structure for group claims is modified and economies of scale can be achieved. Ordinarily, an equal pay claim requires payment of a Type B (more expensive) fee of £250 to issue the Claim and £950 for the hearing. For group claims, this becomes more cost effective: Claimants

Issue Fee

Hearing Fee

For between 2 – 10

£500

£1900

For between 11 – 20

£1000

£3800

Over 200

£1500

£5700

Mass claims are often combined so as to be dealt with together, and actively case managed so that a sample of lead claimants are selected as a cross section of the group, to be heard as test cases, in order to make such litigation more manageable.

Recent Key Cases There have been some significant cases in recent years, clarifying the scope of the legislation and somewhat surprisingly, dealing with fundamental points and HR issues such as the distinction between discriminatory pay and a discriminatory bonus, as well as looking at the impact of TUPE and legacy terms.

• Hosso v European Credit Management Limited [2009]. This Employment Appeal Tribunal case had an unfortunate outcome for the claimant Ms Hosso. She brought a claim under the equal pay provisions rather than complaining of sex discrimination (at that time when the respective legislation was contained in the Equal Pay Act 1970 and the Sex Discrimination Act 1975). Ms Hosso claimed she was not granted as many share options as a male comparator. Fundamental to this decision is the equal pay remedy on a successful claim, which is that a successful claimant has an equality clause written into her contract giving her the same entitlement as the male comparator. The difficulty for Ms Hosso was that both she and her comparator already had a right to participate in and be granted share options – thus their contractual terms were the same. According to the Employment Appeal Tribunal, this meant that what she was actually complaining about was the exercise of the discretion about how many share options would be granted to each.

This was not a complaint about inequality of terms but of discriminatory treatment which was clearly covered by the direct sex discrimination provisions. Time limits apply for bringing such claims and Ms Hosso had only brought an equal pay claim; the time limit in which to bring a claim for direct sex discrimination (three months) had elapsed by the time this issue had been determined.

• Under the equal pay provisions, an individual needs to point to a comparator of the opposite sex who is being paid more but doing equal work. A particular area of difficulty can arise when negotiating an individual’s starting pay. This is because either in the heat of negotiations and the keenness to get someone on board, figures can increase, or alternatively the market for certain skills may have moved with changing economic cycles. Care needs to be taken to ensure that adjustments to pay compared to an individual’s predecessor can be explained and quantified (to satisfy the material factor defence as a legitimate defence to any potential equal pay claim). The Court of Justice of the European Union has made clear that a female employee can bring a claim relying upon a comparator of the opposite sex who “now or in the past…performed comparable work” (Coloroll Pension Trustees Limited v Russell [1994]).

More recently it has been suggested by the Employment Appeal Tribunal that this has some limits and that an employee cannot bring a claim using as her comparator her successor even though section 64 (2) of the Equality Act makes clear that the comparators are “not restricted to work done contemporaneously”. The lesson here is that if a new recruit’s pay and benefits are moving above those of his/her predecessor and there is a gender difference, the reason for the increase must be made clear and market data produced to support the decision: not just the increase itself but the amount of the increase.

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• In some sectors incremental pay scales determine how an individual progresses through the pay points in a grading structure. In others it may be due to experience – which is often used as a short hand for length of service. Challenges have been brought due to the fact that the use of the length of service can be indirect sex discrimination. The principle established from the case law is that as a general rule, service and experience are legitimate bases upon which progress can be measured and pay increased, as it should translate to better job performance. The courts have said that this is generally acceptable and justifiable unless an individual can cast serious doubt on this generally accepted proposition. We have not as yet had any cases successfully challenging this but the reality is that the length of time to progress from the bottom to the top of the pay band should not be excessive, and the longer it takes the less likely an employer will be able to show service goes hand in hand with increased experience and better performance i.e. the link becomes doubtful. See in particular the cases of Cadman v Health & Safety Executive [2006] and Wilson v Health & Safety Executive [2009].

• In environments where there is significant M&A activity, organisations will acquire groups of employees and under the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE), be obliged to honour their existing terms and conditions, including their pay and benefits. This often creates immediate disparities in pay arrangements, legacy terms and leads to conflicting legislative obligations: on the one hand to honour the TUPE’d terms but on the other hand ensure equal pay for equal work. Thus the courts have grappled with the interaction of the two provisions and new principles have been established o it has been made clear that honouring the TUPE obligations is an acceptable material factor defence to an equal pay claim (Skills Development Scotland Co Limited v Buchanan and Other [2010]) o in the same way as a new starter can rely on their predecessor, in a TUPE situation the new/transferee employer can inherit equal pay claims from the old/transferor employer with the transferring employee being entitled to rely upon a male comparator in the legacy business even if that comparator has not transferred o at a practical level this means that the risk of such claims has to be considered as part of the commercial terms and negotiations on the deal: Gutridge and Others v Sodexo Limited and North Tees v Hartlepool NHS Foundation Trust [2009].

Market forces Market forces and demand for skills in particular professions or disciplines, can also influence pay levels or the benefits which an employer may provide to incentivise individuals. There is a need for such enhanced payments and additional premiums to be analysed carefully and evidenced: in order to be in a position to defend an equal pay claim an employer has to be able to show that the reason for the difference is genuinely due to the market forces and accounts for the whole of the difference. This means there must be some ability to analyse not just the fact that more must be paid but how much that premium demands. With some skills there is also the risk of indirect sex discrimination operating; a need for IT specialists, for example, resulting in enhancing their pay, is likely to mean that as a predominantly male group, more men than women will be in receipt of higher pay (an employer will be importing from the market gender bias). In addition to demonstrating that the reason for the pay difference is not down to gender but due to the market, where indirect discrimination occurs, the employer must go on to show that the pay differential is necessary, appropriate and justified.

The question then becomes what evidence has the employer got of the skills shortage and that the level of pay commanded is at the desired level? Putting in place approval processes, and ensuring contemporaneous market research to support entry pay decisions, and retaining the information, will protect an organisation.

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7 APPENDICES

Recent legislative changes In addition to the codification of some key aspects of equal pay case law in the Equality Act 2010, there have been more recent efforts to strengthen the equal pay legislation through the extension of powers given to Employment Tribunals. Key areas of change include: • Pay Discussions – empowering individuals to have the confidence to ask about their pay levels and reward package and those of others and protecting them from being penalised for doing so. Section 77 “Discussions about Pay” renders void any prohibition within a contract which prevents an individual from disclosing information about their pay. Since the 1 October 2010, clauses of this nature – including those which cover bonus payments – are unenforceable. Interestingly, this provision is not limited to discussions which may occur because of the suspicion of gender pay discrimination but extends to any pay disparity due to a protected characteristic (or suspicion thereof). This gives explicit victimisation protection in relation to pay discussions concerned with discrimination within the work place, with the stated aim of encouraging greater transparency.

• Equal Pay Audits – with effect from the 1 October 2014 employment tribunals were given the power to order an employer who loses an equal pay claim brought on or after that date, to conduct an equal pay audit. It will be for the tribunal to set out the parameters for that audit, identifying what elements of pay need to be analysed and indeed which categories of staff are in scope. However, in addition to conducting the audit itself, the tribunal provisions and order will require publication of the audit results on an employer’s public website and an employer must also notify all employees who are included in the audit, where a copy of the audit can be accessed (unless to do so would result in a breach of a legal obligation): Equality Act 2010 (Equal Pay Audits) Regulations 2014 No. 2559.

• Gender Pay Reporting – the final new area is one that has yet to be implemented but which now seems to be on the horizon.

Section 78 of the Equality Act enabled the Secretary of State to introduce new obligations on large employers (of 250 or more employees) to publish details of their gender pay gap. This provision has lain dormant for 5 years but through section 147 of the Small Business, Enterprise and Employment Act 2015, the Coalition Government introduced this provision which requires regulations to be laid by April 2016. The start date for the first reporting cycle is not yet identified. A consultation paper on this proposal was issued by the Government Equalities Office in July of 2015 “Closing the Gender Pay Gap” and Government was reviewing the responses to that consultation in the last quarter of 2015, after which draft regulations are expected.

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8 REFERENCES AND USEFUL LINKS

REFERENCES AND USEFUL LINKS

All online materials accessed week commencing 18 January 2016.

Sources for gender pay gap statistics Global stats by OECD http://www.oecd.org/els/family/LMF_1_5_Gen der_pay_gaps_for_full_time_workers.pdf

UKCES Research Briefing paper November 2015 ‘Opportunities and outcomes in education and work: Gender effects’ https://www.gov.uk/government/publications/o pportunities-and-outcomes-in-education-andwork-gender-effects

EU stats by Eurostat

Professional Services

http://ec.europa.eu/eurostat/tgm/table.do?tab =table&init=1&language=en&pcode=tsdsc34 0&plugin=1

PwC annual reports http://www.pwcannualreport.co.uk/ourpeople/gender-pay-gap

UK stats from the Annual Survey of Hours and Earnings (ASHE) by ONS (2015 release)

http://www.pwcannualreport.co.uk/files/PwCTransparency-Report-2015.pdf

http://www.ons.gov.uk/ons/rel/ashe/annualsurvey-of-hours-and-earnings/2015provisional-results/stb-ashe.html

KPMG, YSC, 30% club: research into the myths and realities of women’s progression, 2014

Survey indicates that discrimination can start with pocket money http://www.theguardian.com/money/workblog/2013/aug/07/gender-pay-gap-pocket-money HR gender pay gap http://www.hrgrapevine.com/markets/hr/article /2015-12-03-female-hr-professionals-earn-11less-than-men?utm_source=eshot&utm _medium=email&utm_campaign=HRM03/12/15

‘Cracking the code’ https://www.kpmg.com/UK/en/IssuesAndInsigh ts/ArticlesPublications/Documents/PDF/About/ Cracking%20the%20code.pdf

http://www.parliament.uk/business/committee s/committees-a-z/commons-select/womenand-equalities-committee/ House of Commons Library briefing paper on the gender pay gap, November 2015

http://www.lawsociety.org.uk/supportservices/practice-management/diversityinclusion/diversity-and-inclusion-case-studies/ Law Society: publication of Equal Pay guidance and toolkit http://www.lawsociety.org.uk/news/pressreleases/law-society-publishes-equal-payguidance-for-law-firms/ Bar Council: publication of data on gender at the Bar, together with the experiences of women barristers http://www.barcouncil.org.uk/mediacentre/news-and-pressreleases/2015/july/gender-and-diversity-at-thebar/ Diversity league Table 2015 – a demographic survey of the legal profession http://satsuma.eu/publications/DLT2015/

Financial Services Equality and Human Rights Commission Inquiry: Sex discrimination and gender pay gap report 2009 http://www.equalityhumanrights.com/sites/def ault/files/documents/financial_services_inquiry _report.pdf

Other Select Committee – The Women and Equalities Committee

Law Society case studies on good practice in large and small firms, taken from their D&I Charter submissions and Excellence Awards nominations

Higher Education ‘New Joint Negotiating Committee for Higher Education Staff (New JNCHES) Gender Pay Working Group Report’ July 2015 http://www.ucea.ac.uk/en/publications/index.cf m/njgender

Legal Profession Law Society Report: diversity in the profession 2014 (published June 2015) http://www.lawsociety.org.uk/supportservices/research-trends/diversity-in-theprofession/

http://researchbriefings.parliament.uk/Research Briefing/Summary/SN07068

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