Mind the pay gaps...plural!

According to the Trade Union Congress, using the average rate at which the pay gap has closed since 2011 "it will take until 2073 to achieve parity". This is a bleak prospect, although analysis by The Pay Index does indicate that Britain's gender pay gap has fallen since the introduction of mandatory gender pay gap reporting (from 21.5% to 12.5% during the six months from March 2018).

In a drive to boost ethnic diversity at work, the government has now launched a consultation on mandatory ethnicity pay reporting to gather public views. A new Race at Work Charter has also been proposed, to be signed by more than 80 high-profile businesses (reportedly including Lloyds Banking Group, NHS England, Saatchi & Saatchi, KPMG, RBS and the civil service). This announcement comes one year after the government published findings of its Race Disparity Audit, and 50 years after the Race Relations Act received royal assent.

Organisations which pride themselves on their inclusive culture and progressive employment practices risk considerable damage to their public profiles if they are perceived to be insufficiently invested in fair pay for all. So what do you need to know about reporting requirements and what steps could you take now to boost diversity (and protect how your business is perceived)?

Widening the pay gap disclosure net to include ethnicity

The government consultation on ethnicity pay reporting will close on 11 January 2019. Points of focus for the consultation include:

• what ethnicity pay information should be reported (for example, whether one pay gap figure should apply, or several, or by pay band or quartile);
• how data can be collected (as there is no legal obligation for individuals to disclose their ethnic group or on employers to collect ethnicity data);
• whether a narrative with an action plan should be published alongside the data (similar to voluntary narrative for gender pay gap reporting); and
• what threshold for reporting should apply (for example, should the legislation only apply to employers with over 250 employees, as for gender pay gap reporting)?

Since the launch of the public consultation, the NHS has announced a new goal to eliminate the ethnicity pay gap, with black, Asian and minority ethnic background (BAME) representation in senior leadership to match that across the rest of the NHS by 2028. Figures indicate that senior white NHS managers are paid thousands more than managers from ethnic minority backgrounds, with fewer BAME staff reaching the most senior levels.

Private employers are also setting ethnicity focused targets. For example, Channel 4 has announced it aims to reduce its BAME pay gap by 50% by 2022, as well as having BAME employees make up 20% of their top 20 earners.

Voluntary disclosure

Previously, some employers have taken the voluntary decision to publish details of their BAME pay gap. For example news production company ITN released its BAME analysis in July 2018. The figures were not good: ITN's median hourly pay was 20.8% lower for BAME employees than that for their white colleagues; the mean BAME pay gap was 16.1%; and the mean bonus gap was 66%.

ITN also announced a range of initiatives aimed at tackling inequality. John Hardie (Chief Executive Officer of ITN at the time) explained "we must recognise that certain groups have faced systematic disadvantages in the past, and in order to address this imbalance, we need to put procedures in place to remove barriers to entry or progression".

One initiative mirrors what is known in American football as the "Rooney Rule", which requires that at least one BAME candidate be interviewed for every role at every level moving forward. This policy has previously been adopted by organisations such as the FA and BBC, although only at manager level and above.

Other initiatives included the creation of a "salary check procedure" (enabling staff to have their pay confidentially reviewed by a third party if they are still unhappy after an internal review by management), a reverse mentoring scheme (partnering staff with senior leaders "to share what working at ITN is like for them"), as well as training in unconscious bias for managers. Senior management bonuses, the company reported, will take a direct hit if gender and diversity targets are not achieved, regardless of the company's financial performance.

Pushing for greater transparency and accountability: what can employers do?

Addressing unconscious bias is a crucial challenge. Reports indicate that job applicants with exactly the same CVs received 29% fewer expressions of employer interest when they had supposedly "foreign" or "ethnic" rather than "British"-sounding names (Wood et al., 2009). The Royal Academy of Engineering found that 71% of White engineering graduates find full time jobs after just six months compared with just 51% of BAME (2016). Unconscious bias training for managers can help to redress the balance and better equip them for ensuring fair recruitment procedures are in place.

Transparency around pay is a significant issue. After all, if employees have no sense of how much others are receiving for doing the same job, it is difficult to assert with any conviction issues in respect of what they are paid. Transparent salary banding is one step towards overcoming this. In some job roles and sectors, such as the NHS and teaching, salary bands are publically available (for example, online). That said issues of employee privacy and confidentiality (both from a contractual and statutory perspective) are clearly relevant, as many employees may not wish for details of their salaries to be widely available, even if just internally to the company and in a banded format. Actively involving employees in discussions and decision making around internal policy changes can help to promote a more inclusive culture.

Increasing accountability across the business and monitoring talent pipelines on a more regular basis are also key. In 2016 the Parker review called on FTSE100 firms to appoint at least one ethnic minority director by 2021. The review noted that although ethnic minorities make up 14% of the UK's general population, they represent just 8% of FTSE100 board directors. There is an increasing drive towards accountability particularly for those in senior roles, as shown by the introduction of the Senior Managers Certification Regime (SMCR). The SMCR will extend to insurers, reinsurers and managing agents from 10 December 2018 and will be rolled-out for all other firms regulated by the Financial Conduct Authority on 9 December 2019. We have developed an SMCR web tool, which is free to use, and assists in determining the scope and application of the extended SMCR regime to your business.

Organisations like ITN and PwC blame their pay gap on the lack of non-white people in the highest ranking roles, so improving rates of progression to senior management levels and retaining junior BAME employees are clear priorities if your organisation is in a similar position.

What are the current rules about gender pay?

Large private and voluntary sector employees (those with 250 or more employees) should have already published their first set of gender pay gap statistics, as the deadline was 4 April 2018 (and for public sector employers, 30 March 2018). If they then met the reporting criteria on the "snapshot dates" of 5 April and 31 March 2018 respectively they will need to look again at their gender pay gap analysis to re-publish by the deadlines in 2019.

The updated information needs to be published in the organisation's annual report, which must be available on the organisation's own website for at least three years. The information must also be uploaded to a dedicated government website.

Specific information should be published in relation to gender pay: (a) mean and median average hourly pay for relevant employees; (b) the proportion of men and women in each of four pay bands (quartiles), based on the employer's overall pay range; (c) information on the employer's gender bonus gap (ie the difference between men and women's mean and median bonus pay); and the proportion of male and female employees who received a bonus. Read our further articles on the gender pay gap.

Publication of the first batch of gender pay gap results was met with widespread public interest, often outrage, with many high profile figures speaking out publically about the disparities between male and female pay. Overall, figures revealed a median gender pay gap of 9.7%, with the finance sector reporting a gap of 35.6%. Looking ahead, pressure is sure to intensify on those organisations which, come the next reporting deadline, are not seen to be doing enough to tackle their gender pay gaps. It was noticeable that groups other than those representing women's rights, used the publication date as an opportunity to raise their concerns about pay equality for other sections of society.

Recommendations from the EHRC

A report published by the Equality and Human Rights Commission last year ("Fair opportunities for all: a strategy to reduce pay gaps in Britain") stressed the importance of not just looking at gender. It pointed to the huge economic benefits of decreasing a range of pay gaps. For example, the report estimated that improving participation and progression of ethnic minorities at work would add £24 billion a year to the economy (BEIS, 2016). It also noted the significant disability pay gap – which stood at 13.6% in 2017 - and proposed actions to drive change.

Earlier EHRC guidance on "How to improve board diversity: a six-step guide to good practice" (2016) gave useful pointers, recommending that employers:

• use transparent competencies for roles;
• advertise senior and board roles widely rather than relying on personal networks;
• use positive action to the full extent permitted to develop a more diverse pipeline for senior appointments;
• encourage individuals from under-represented groups to apply;
• address under-representation at the appointment stage where candidates are equally qualified; and
• increase diversity in the pipelines by setting targets for board and senior level appointments with action plans that include making career paths more flexible so that those who want to can progress, even if more slowly, or through alternative routes.

So why care?

Looking ahead, large employers (those with 250 or more employees) will need to publish their gender pay gap figures again by 4 April 2019. Some employers are also opting to voluntarily disclose details of pay beyond those which are mandatorily required. Many have criticised the "lack of teeth" in the existing gender pay regulations, as they do not currently include any enforcement mechanism, nor sanctions for failing to comply with the reporting obligations or for publishing inaccurate or misleading reports. No doubt this will also come into consideration in relation to ethnic pay gap reporting.

There is no doubt though, that creating an inclusive and diverse working culture feeds into brand value. Businesses can only take steps to address issues they properly understand. So take the time now to properly understand your own organisation's pay gap statistics. That way, your business will have the time to take productive steps to addressing any pay disparities before mandatory reporting becomes more widespread.

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