The new gender pay gap regulations provide an opportunity for change, are companies seizing them the right way?
Last week, the Financial Times reported that “1 in 20 companies who have submitted their gender pay gap data to the government have reported numbers that are statistically improbable and therefore almost certainly inaccurate.” One of these companies is fashion brand, Hugo Boss (who have since changed their numbers and now reporting a 32.6% mean and 76.5% median gender pay gap), a MacDonald’s franchise, an international car-parts manufacturer and a branch of national charity Age UK.
In some cases, the reports were most likely due to error, in fewer still probably because of plan to deceit, but mostly this happened because of misunderstanding of what the gender pay gap is.
Want to hear more about general UK trends in the gender pay gap? Click below:
Following the report, only 3 of the 16 companies provided responses to the FT’s request for an explanation of their numbers. Two claimed (Summit Recruitment and Walter Davidson & Son) that their pay rates were set by position and not affected by gender. Pay rates set by position is more a reflection of equal pay practices and has little to do with gender pay gap. Put simply, it is about the average male and female employee in the company.
Let’s take a real-life example that we have seen at Gapsquare, my company that uses technology to analyse a companies’ gender pay gap.
Imagine a company that has a 50-50 workforce. For equal jobs, men and women are paid the same. However, they still have a pay gap of 35%. Why would this be, if men and women are paid the same for the same job you ask?
The gender pay gap takes the average female salary and compares it with the average male salary at a company. Most of the women in the company are clustered in lower paid roles, and most of the men in higher paid roles.
Figure 1 looks at the distribution of the workforce in four quartiles - one of the key metrics for gender pay gap reporting. The workforce is split into four equal groups, ordered by salary (lowest to highest). These quartiles therefore show the clustering of women in low paid roles (quartile one) and a higher concentration of men in the higher paid roles (quartiles 3 and 4), which contributes to an overall gender pay gap.
They have a strong number of women entering the workforce in their twenties, but looking at length of service and age, women after their 30s see an increase in the gender pay gap both by age and tenure. This is in fact a national trend. As women take leave to care for young children, the gender pay gap increases for each leave they take. When they return to work, the gap decreases slightly but never quite goes back to what it was before. In many companies, women return to opportunities that are below their skills and their wages decrease or stagnate.
Figure 2: Aggregated data from Gapsquare, showing how both age and length of service impacts the gender pay gap
All these reasons contributed to this companies’ gender pay gap of 35%. And why is this a problem?
Taking the societal case for equality out of the equation, there is evidence that supports the fact that gender diverse companies have a 35% higher return on equity, and a 34% higher total return to shareholders. For companies that want to outperform their competitors, closing the gender pay gap is good for business.
Further, for the business case for gender diversity, there is a growing war on talent, not just here in the UK, but globally. There are growing staff shortages, particularly in sectors that don’t employ a lot of women – for example STEM (Science, Technology, Engineering and Mathematics). To attract women (and men too), adopting a stance that values employees, cares about nurturing their talent and showing that they are taking valuable steps to tackle the gender pay gap is becoming increasingly important.
Looking back at the case of the 16 companies mentioned in the Financial Times gender pay gap article last week, the likely reputational and brand damage depending on how they handle gender pay gap accountability is huge. And so is share price, as Hugo Boss has seen a decrease in share price since Friday 8th of December.
In addition, reporting a large gender pay gap, or even worse - statistically inaccurate numbers sends a strong message about how these companies value their female talent and workforce. I certainly will be rethinking shopping in Hugo Boss this Christmas.
Ultimately, the gender pay gap regulations that came in this year in the UK are not just a tick box exercise, but in fact a great opportunity for businesses to understand their workforce dynamics, be able to explain and understand gender pay gap numbers, and put in place recommendations that will narrow the gap faster.
At Gapsquare over the last year, we have supported 122 companies that have received over 50 data-driven recommendations that will help narrow the gap, impacting some 150,000 employees across eleven different industry sectors.
The World Economic Forum stated this year that it will take 217 years for the gender pay gap to close. When companies understand what causes their gender pay gap, they can put in place data-driven decisions that will narrow the gap quicker.
Closing the gender pay gap isn’t improbable. It is actually much easier than you think. It is about understanding why it exists, and drive forward recommendations and decisions that cause the gap in the first place. At Gapsquare, we make this easy to do, and furthermore, we have saved companies that have used our software over 6,400 hours of staff time, allowing them to spend this time taking forward the recommendations to actually drive change. So really, there is little excuse for a highly improbable gender pay gap.