Will your gender pay gap report be all pain and no gain?

Gender pay gap reporting could be damaging. But it’s also an opportunity to put diversity on the business agenda

In April 2018 all companies with over 250 employees will have to publish data from the previous 12 months giving a snapshot of employee pay by gender. Failure to comply with gender pay gap reporting will be seen as ‘an unlawful act’ and enforcement action can be taken. The general feeling is that the publication of figures will not be greeted in a wholly positive way. Although there is support for the principle, Mercer’s 2016 Gender Pay Reporting Survey suggests 61% of organisations are worried about the impact on their reputation due to the way the regulations are formulated. Though this isn’t about equal pay, it will still be interpreted as such, given there is a general lack of understanding of the differences.

It’s not just the media which is likely to seize on the figures: employees are the most likely to ask questions. Both the media and the government have failed to explain the nuances of the regulations and what they mean. Confusion is almost inevitable and equal pay claims may result. Senior leaders – with their name to the pay gap report – will inevitably have to pick up the pieces in response to any evidence that contradicts company policies of fairness and equality. No wonder then that many are already preparing the ground in advance to explain the results more fully and assure employees of their commitment to equal treatment. Indeed, Virgin Money, which has a female CEO and a commitment to a 50:50 gender balance by 2020, has already published its pay gap figures in March of this year. They have provided a significant narrative to openly explain their 36% gender pay gap, almost twice the UK norm.

Like Virgin Money, employers need to undertake analysis to assure themselves their reward programmes are consistent and that they do not have an equal pay problem. They not only need to prepare themselves for any possible challenges, but to ensure they can be confident that – despite what the gender pay gap might say – they pay men and women, doing the same work and of equal value, fairly. According to a poll by Glassdoor, two-thirds (65%) of women and 27% of men would not apply for a job at a company where men and women are not equally paid for the same work.

At the heart of this issue is that the gender pay gap is much more of a reflection of workforce profile than about unequal rewards for men and women doing the same job. It is about the work women do and their position in the company hierarchy – and in this area there is much room for improvement among UK employers. EU statistics show that 27% of UK board members in commercial organisations are women, according to the European Commission: Women and Men in Decision-making Database. Our own When Women Thrive research consistently shows female progression tails off at management level.

Employers can and should do more, but there is also much to be done in broader society in terms of the messages received by boys and girls about the world of work and their place in it. This is not wholly the responsibility of employers. Many companies in sectors where workforce competition is against them, for example engineering or high-technology where there are far fewer STEM (science, technology, engineering and maths) graduates, have spent many years encouraging female employment in their sectors. There is a risk that gender pay gap reporting will be seen to be a frustration rather than a helpful intervention.

Last March the cross-party Women and Equalities Committee made 17 recommendations including three months' paid paternity leave, flexible working and more support measures to get women over 40 back into the workforce. These proposals have been rejected by the government. Without them many believe that the government’s stated aim of closing the gender pay gap within a generation will simply not be achieved. As Francis O’Grady, the TUC general secretary has said: “The government needs to up its game and tackle the root causes of the gender pay gap – not ignore them.”

Leading employers get most value from focusing on this issue when they know that diversity and inclusion makes sound business sense. Companies have increasingly global workforces, customers and stakeholders, and intuitively know that diversity of talent is critical. But the empirical business case is surely now compelling. According to Catalyst’s The Bottom Line report, in terms of return on capital those companies with the highest percentage of women directors outperform those with the least by 66%. In terms of sales, the top outperform the bottom by 42%. EU statistics on labour market shortages point to the imperative of increased female participation in the labour market to drive value creation. Several studies point to increased team and organisational performance and innovation as a direct result of greater diversity.

A strong positive business case embraced by senior leaders who have a personal stake in success, are just two more key findings from Mercer’s 2016 When Women Thrive study, which identified the drivers of female progression. Additional drivers included engagement with men on the topic, creation of analytics to objectively monitor progress and achievement, and the development of pay processes to identify and address unexplainable pay differences.

Many women are denied early access to supervisory or stretching positions because of assumptions made by others. Failure to be fully and equally represented in so called ‘career feeder roles’ puts limits on women’s opportunities to get into positions with the requisite experience and profile to enable entry to the most senior positions. A full and thorough understanding and management of the pipeline of talent is therefore critical for women to thrive.

But let’s not forget men. A focus on diversity and gender parity is a much more compelling way to engage men in the issue than label this as a ‘women’s issue’. Right now if men, rather than women, have a disproportionate impact on hiring, promotion and rewarding people by virtue of dominating leadership positions then these are the most important people to engage and challenge to build a more diverse and productive workforce.

Gender pay gap reports, when published, may make for uncomfortable reading, and it won’t in itself be a solution. We know what can be achieved and the benefits of more diverse and inclusive work places, but businesses cannot do it alone. However, that doesn’t mean that individual companies can’t make progress and reap the long-term commercial benefits of proactive effort and progress. Diverse businesses make thriving businesses.

Chris Charman is a principal at Mercer

Read Mercer's explanation of the regulations

Hear how to go beyond reporting to build a narrative for change

Benchmark your D&I Strategy with Mercer's When Women Thrive analysis and report