Louisa Withers | 10 Sep 2019

Understanding changes in gender pay gap figures

Just over 1,100 firms have already published their gender pay gaps ahead of this year’s deadline. This will be the second year that firms with over 250 staff have been required to publish statistics on the gap between men’s and women’s earnings in their workplaces. In recent days there have been numerous reports of gender pay gaps growing and here we explore how this occurs.

The gender pay gap is a calculation of the difference in men and women’s pay, usually based on average hourly pay but metrics can vary. The resulting percentage variation is the gap between average pay for men and that for women. However, this statistical calculation tells us nothing about discrimination or gender inequality per se and the figure can be affected by a range of issues that have very little to do with direct employer discrimination.

Occupational segregation – whereby women are concentrated in jobs that are less well-paid than those dominated by men – is one of the major contributors to the gap in earnings between men and women. Firms that have more jobs that are dominated by women, such as the ‘five C’s’ of clerical, cleaning, catering, caring and cashiering, are likely to have higher pay gaps even if the firms in question have equal employment (and equal pay) practices.

Finance firms, for example, employ large numbers of women in ‘clerical’ and ‘cashiering’ work who tend to sit at the lower end of the earnings distribution. However, the existence of ‘glass ceilings’ that affect women’s chances of promotion means they also employ relatively larger proportions of men in jobs at the upper end of the earnings distribution, affecting average pay for both women and men and resulting in higher pay gaps in favour of men than those seen in other sectors. Analysis of last year’s figures showed that financial services had a pay gap of 26.9%, while this year’s provisional figures indicate 27.0%. By comparison, construction showed the next highest gap at 21.8% last year.

It is also the case that changes in staff configurations within organisations can affect overall pay gap figures. Where individual firms have published a higher figure for 2019 than they did in 2018 this does not automatically indicate that over the last year they have been implementing discriminatory practices but maybe that something has altered in the composition of their workforce which has influenced the calculation.

Outsourcing of lesser-skilled functions, for example, can reduce the number of lower-paying roles and may have a disproportionate effect on the proportions of each gender employed. Female leavers among the senior leadership team can also tip the scales towards a change in the pay gap, as can widespread redundancies affecting particular departments or even business mergers.

If we take the example of Kwik-Fit, its figures have changed significantly this year from a positive gender pay gap in favour of women to an average gap of 12% in favour of men. Looking more closely at the company’s published figures, we can see that there are now fewer women towards the upper end of the earnings distribution than there were in the previous year. This is likely to have had an effect on the gender pay gap here.

 Changes

The Government recently published its response to the report of the House of Commons committee on gender pay gap reporting. The committee had recommended, among other items, that the employment threshold should be reduced from 250 to 50 employees, that the requirement for information on quartiles of pay be amended to deciles and that both part-time and full-time gaps should be required to be published.

 The Government responded that while it might consider these proposals, it would only do so in the light of consultation with employers and other relevant stakeholders. This is unsurprising and doubtless appropriate, but the impression created is that other issues are taking up most of the Government’s attention and therefore, further changes to the regulations might be unlikely within the current Government’s term of office.

 It follows from this that prospects for a widening in the scope of the current regulations on gender pay gap reporting might be greater in the event of a change in administration. Alongside the House of Commons committee’s recommendations, a further touchstone for any new administration that wished to enlarge the legislation might be a recent report from the Institute for Public Policy Research (IPPR), entitled ‘The Fair Pay Report: how pay transparency can help tackle inequalities.’

 Discriminatory

To some extent, this report mirrored the recommendations of the Commons committee. But it also recommended that in order to tackle illegal and discriminatory pay practices, for instance where workers are paid less than others for ‘like work’ or work that is rated as similar, large employers should be required to publish pay ranges internally to their employees. In addition, it says that employees should have a right to request comparison data on pay levels for colleagues doing similar work and a right to request an independent pay audit.

 This recommendation is aimed at tackling the issue of unequal pay for work of equal value, which is a key focus of equal pay law, and as mentioned above, is currently an omission from the regulations on gender pay gap reporting. Such practices can be unobserved factors in gender pay gaps, for example in instances where companies operate pay systems that are regarded as high-risk in respect of inequality.

 These approaches might include performance-related pay systems with broad salary bands, under which all pay movements are subject to high levels of local management discretion, where the criteria for scoring are to a great extent opaque to employees, and where management have had little or no training in unconscious bias. Such systems are also associated with a lack of transparency around pay, making it difficult for employees to obtain comparators. Paradoxically, more transparent – but still potentially discriminatory – pay systems have produced rather more equal pay cases, as in the current ones involving a number of major retailers.