Gender pay reporting methods will mask the true problems
Caroline Carey, September 26, 2017
There are multiple ways companies can manipulate their gender pay gap results
The introduction of gender pay reporting has been widely celebrated in the mainstream media. However, the methodology set out in the regulations means that the disclosures will not be comparable across all companies, do not give a total gender pay gap, and there are multiple ways companies can manipulate their results without changing the total amounts they pay to their male and female employees.
One reason the results won't be comparable is the primary measure of pay (the hourly rate) is based solely on amounts received in April each year. This means that most, but not all, companies will exclude annual bonus payments. When comparing pay gaps the data will contain some companies who will have disclosed their gap in base pay only and others who will have disclosed their gap in base pay plus bonus and/or other incentive payments. It will not be possible to identify what the company’s data includes from the reporting.
The methodology also means that the actual gap can easily be distorted. For example, if a company with a high proportion of male employees in its senior management team paid executives' bonuses in March and more junior employees in April, it would report a lower difference in hourly rate of pay than the actual gap (as only the April bonuses would be included in the calculation). If the regulations are effective and companies with large gender pay gaps come under pressure, the difference in the annual rate of pay can easily be reduced by changing the payment dates of bonuses.
In addition, while the regulations require companies to report the difference in hourly rate of pay (base pay for most companies) and bonus pay separately there is no requirement to report the total overall pay gap. This is worryingly opaque – take a company where average male pay is £24,000 (consisting of base pay of £20,000 and bonus of £4,000) and average female pay is £27,000 (consisting of base pay of £25,000 and average bonus of £2,000). They would disclose a mean gender gap in the hourly rate of pay of -25% and a mean bonus gender gap of 50%. These disclosed numbers would be the same as a company where the men had an average pay of £60,000 (£20,000 base and £40,000 bonus) and women had average pay of £45,000 (£25,000 base and £20,000 bonus). The sector with the highest variable pay (financial services) has an evident gender diversity problem – just 14% of executive committee members in this industry are female. By not mandating that a total gender pay gap is disclosed the true extent of the gap is masked.
Other problems with the regulations include calculating pay after salary sacrifice (for example, some employee pension contributions) and excluding benefits (including employer pension contributions). Research suggests that there is a gender difference in saving for retirement. According to a survey by Aegon men are saving more than twice as much as women; £272 a month compared to £119. Given this, excluding employer and potentially employee pension contributions may downplay the gender pay gap. It could also disincentivise companies from encouraging female employees to save towards a pension (given this would negatively affect their pay gap).
If the government is serious about addressing the gender pay gap it could consider amending the regulations so that the hourly rate of pay is calculated using fixed pay only (no bonus payments) so that it is comparable across companies. Fixed pay could be pay before salary sacrifice and include employer pension contributions. The government could also mandate that a total pay gap (based on all amounts paid in the previous 12 months) is disclosed.
Caroline Carey is a director at a major consultancy firm