Ken Mulkearn | 03 Feb 2021

Why employers should really care about ethnicity pay gaps

By Ken Mulkearn, Director of Research, IDR, Dr Leroi Henry, University of Greenwich and Dr Kenisha Linton, University of Greenwich

It’s been two years now since the official consultation on ethnicity pay gap reporting closed, but the Government has yet to respond. As a result, the timelines are already much longer than around the introduction of gender pay gap reporting. An intervening election, fought mainly over Brexit, and a deadly pandemic have provided plausible excuses for the delayed response.

But following the killing of George Floyd in the US, the global Black Lives Matter movement has pushed issues of equality, diversity and inclusion – which include the question of the extent of ethnicity pay gaps– further up the HR agenda. As a result, many employing organisations are getting on with the task of collecting data on ethnicity pay, sharing the information with staff and – most importantly of all – deciding how to address the issues raised, particularly in cases where gaps are wide. Lloyds Bank is a recent example. Meanwhile, according to a leak of the results seen by the BBC, the official consultation shows that three-quarters of employers want large firms to be required to release data on the pay gaps between employees of different ethnic backgrounds.

In the Government’s favour, perhaps, is the fact that the area is a more complicated one than gender pay. And government bodies have at least been collecting and analysing data on the topic, which indicate some of the complexities. Different ethnicities mean there is more than one ethnicity pay gap, for example, and the experience of one group can often be different to that of another. For instance, while most minority ethnic groups, such as Bangladeshi or Black Caribbean employees, earn less than White British employees, in 2019, those in the Chinese, White Irish, White and Asian, and Indian ethnic groups all earned higher hourly pay on average than White British employees, according to the latest report from the Office for National Statistics (ONS).

An added complication is the way in which ethnicities intersect with gender in contradictory ways. Again, looking at the ONS data, the latest figures show that while men from minority ethnic backgrounds earned 6.1% less on average than White British men, minority ethnic women actually earned 2.1% more on average than their White British counterparts. These are just two of the matters that legislators will need to consider. But stakeholders are hopeful that a response will be forthcoming soon, and regulations enacted.

IDR’s recent survey of employers’ reward plans for 2021 found that nearly a fifth of respondents had already calculated their ethnicity pay gaps. A third of these have shared their findings internally with staff, and some have also published the figure(s) externally. Meanwhile other respondents, such as brewer Molson Coors, indicated that they have plans to start conducting such analysis regardless of progress or otherwise on the legislative front.

Why should companies care about ethnicity pay gaps? It is important that employers are seen to foster genuine diversity, equality and inclusion, and not just by staff, but also by customers, suppliers and service users. Since this means ensuring progression and promotion opportunities for minority ethnic staff, it includes having a strategy for the identification, analysis and eventual reduction of pay gaps at all levels. The barriers to advancement for minority ethnic staff that can produce pay gaps can also lead to disengagement among such staff to varying degrees. If employers engage all staff to the same extent, they will provide better places to work, which should lead to enhanced contribution from staff at all levels. Research from the CIPD highlights how increased diversity throughout organisations can lead to improved business performance, as well as retention of diverse talent, and increased employee satisfaction and well-being.

Some employers might be worried that calculating and sharing figures on ethnicity pay gaps could lay them open to claims of direct or indirect racial discrimination. To be sure, this could be one underlying factor behind some organisations’ gaps, but one of the lessons of the gender pay reporting regulations is that having such a gap is not necessarily the same as being guilty of discrimination.

The ONS report, which was released in October 2020, shows an overall ethnicity pay gap of 2.3% for 2019, and that this has narrowed since 2012, the first year for which the ONS has published data. As indicated earlier, though, the total covers a wide variety of experiences across different ethnic minorities, ranging from a gap of 16% for Pakistani employees, to a lead of 4.1% for White Irish employees.

In respect of age, the data shows a larger gap for older workers (aged 30 and above) than it does for younger workers, but this is partly because all younger workers, regardless of ethnicity, tend to earn less than their older counterparts. And again, the headline figures mask differences by ethnic group, with a gap persisting for Pakistani employees, for example. Analysed according to region, the gap is largest in London, and smallest in Wales, with a negative gap, that is, one in favour of minority ethnic employees, in the Eastern region, though this could be influenced by travel to work factors.

But these are national/regional figures, which arise, fundamentally, from the salaries that private and public sector organisations pay their staff. This is why the advent of organisation-level data is so keenly anticipated. Once firms know what their domestic gaps look like, they can start to examine the reasons for them and take steps towards reducing them.

The reasons for such gaps can be varied and complex. Often, at the level of individual employers, they are connected to informal barriers or what is sometimes called ‘cumulative bias’. This is a term for the demonstrably higher obstacles faced by minority ethnic employees throughout the different stages of their careers, including, for example, fewer development opportunities or reduced access to mentoring.

This aspect of ethnicity pay gaps is the one that should most concern employers. It is why, as well as collecting data, firms also need to identify strategies and actions that can remove cumulative bias. It is not enough to just provide diversity training for managers. Firms need to look at organisational cultures, structures and systems as well. This will help reduce ethnicity pay gaps, but it will also lead to improvements in diversity, equality and inclusion at all stages. If you employ minority ethnic staff, why wait for legislation?