Gender Pay Gap Gains UK Business Focus

Just as American 50s music spread across the pond and inspired the musicians who spearheaded the British invasion back into the U.S. in the 60s, Americans who are getting accustomed to #MeToo in the workplace should prepare for the next trend from England: United Kingdom businesses are preparing their annual report on gender pay gaps, and the buzz swirling about it the British media may reinvigorate the same discussions in the U.S.

BBC Graphic

By April 4, Britain’s private sector firms with 250 or more employees must publish data on the pay gaps between men and women. As the BBC reports (“Gender pay gap grows at hundreds of big firms,” February 20, 2019), the median hourly pay gap is 8.35 percent on average, ranging from just greater than 0 percent in the arts and entertainment sector to greater than 25 percent in construction. Seventy-four percent of the firms that have reported have a pay gap that favors men, vs. 14 percent where the pay gap favors women and 12 percent with no reported pay gap.

Gender Pay Gap Evolving 

According to Personnel Today (“Gender pay gap reporting 2019: Only half of employers are improving,” January 16, 2019), nearly half of the 561 organizations that had submitted their 2018 data reported a pay gap that had improved in favor of women, declining from 16.0% in 2017 to 12.0% in 2018. Curiously, at the 36 percent of firms where the pay gap had worsened for women, the change was also by 4 percent, from 9.8% to 13.8%. For the rest, the gap remained unchanged, at 5.3 percent.


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The changes toward greater pay equality are not accidental.  According to the Confederation of British Industry’s CBI/Pertemps Employment Trends Survey 2018, 88 percent of respondents see increasing diversity within their workforces as important or vital to their success. Consequently, 93 percent of responding firms say they are taking actions to improve gender diversity and reduce the gender pay gap. The most common actions reported are “plac[ing] greater focus on improving gender diversity at all levels of the business (50%) and introducing or improving data collecting and monitoring to understand barriers and monitor progress (40%).” Moreover, 33 percent say they are “placing greater focus on gender diversity in their organisation’s [sic] leadership,” while 24 percent report they are “placing a greater focus on improving gender diversity in entry-level recruitment.”

The Personnel Today article notes that one factor impacting the gender pay gap is the relatively higher number of women in junior positions and the relatively higher number of men in more senior positions (since the gap measure is based on median pay). In some cases, the imbalances are so significant that “the departure of a single senior female executive could lead to a 5% increase in [that firm’s] gender pay gap.”

The issue of gender imbalance is not only a matter for personnel; as the Times of London reports (“New battle looms in male boardrooms,” March 7, 2019), 74 percent of Britain’s 350 biggest listed companies have only one female director. These firms are liable to be “‘red-topped’ this year by the voting service of the Investment Association, the body representing Britain’s biggest investment groups. Red-top alerts tell investors that a company’s behavior [sic] raises serious concerns and usually signal shareholder revolts to come.” The column continues with this warning: “Everyone should know by now that 25 per cent female representation on boards is the minimum acceptable and should be at 33 per cent by 2020. Rightly or wrongly, the concern that quotas can be counterproductive and lead to bad appointments is no longer accepted.”

Gender Pay Gap & HR

As pay equality becomes a more public issue, firms can expect their overall HR bill to rise: it is far more likely that the firms will have to pay women more, rather than paying men less. The Times of London, in an article titled “Why being transparent on executive pay is actually making inequality worse” (March 5, 2019), argues that “transparency and benchmarking might create a ‘ratchet’ effect” insofar as when executives know what other executives are paid, they want similar amounts.

In the 1980s through the late 1990s, heads of companies earned between 13 and 44 times more than their average employee—a gap not that dissimilar to 1998. However, “Over the next 12 years, average earnings rose by 4.7 per cent a year while the bosses got 13.6 per cent more.” The reason? In 1995, Britain began requiring full transparency on executive compensation. (Even though the same report that recommended transparency also recommended that pay be tied to performance, companies appeared to have not taken that advice to heart.)

At some point, this wave of interest will break back upon U.S. shores. The Pew Research organization found that the gender pay gap in the U.S. has remained relatively stable over the past 15 years, most recently measured at 82 percent in 2017. Forty-two percent of women respondents say they have experienced gender discrimination at work. Women also are underrepresented on corporate boards; as of 2018, women held just under 20 percent of board positions in Fortune 500 companies[1]. State legislatures are looking at this issue, with California being the first state to mandate that every publicly-held corporation must include at least one woman on its board by the end of 2019. Particularly with the record number of female candidates running for higher office, the question of women’s pay and corporate representation is sure to become even more of a national discussion than it is now; U.S. firms would be wise to get ahead of the conversation now.


Citations

  • https://www.bbc.com/news/business-47252848
  • Personnel Today: Gender pay gap reporting 2019: Only half of employers are improving
  • http://www.cbi.org.uk/index.cfm/_api/render/file/?method=inline&fileID=C452C229-30A6-4362-B3A84049BED50507
  • https://www.thetimes.co.uk/article/new-battle-looms-in-male-boardrooms-h6qbrf0j7
  • https://www.thetimes.co.uk/article/transparency-may-not-be-the-best-answer-to-runaway-executive-pay-r2xclfh57
  • http://www.pewresearch.org/fact-tank/2018/04/09/gender-pay-gap-facts/

 

[1]KelloggInsight, “What Will It Take to Get More Women on Boards?” July 6, 2018.

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