The Gender Pay Gap: A New Formula

With the UK moving to mandatory reporting of the Gender Pay Gap for companies with over 250 employees just around the corner, it is important that organisations get themselves prepared for the potential outcry from the media, unions and employees.

Measuring the gender pay gap across so many organisations in so many sectors is not easy so the measurement has to operate at the highest common denominator. So the definition of pay will be that used by the Office of National Statistics (ONS) for the Annual Survey of Hours and Earnings (ASHE) and the gross hourly rate of pay will be determined using the weekly pay divided by weekly basic paid hours for each employee. In essence the gender pay gap will be the difference in average pay between all the men and all the women in an organisation.

It is anticipated that in most sectors and most companies there will be a gender pay gap favouring males, with the financial services sector likely to have the highest gap at nearly 40% in favour of males, according to a study by the UK Commission for employment and skills.

So what conclusions will employees be able to reach when companies report a gender pay gap of say 40%?  Will it mean that a woman, in a firm reporting a gender pay gap of 40%, will be able to assume that the man sitting next to her doing the same job will be earning 40% more than her? Although possible, it is in all probability, highly unlikely.  There are likely to be some pay disparities in many organisations between people doing the same job within an organisation but it is likely that the percentages differences will be small on average (some studies put this at around 2%) but may be significant on an individual basis. The most significant cause of the gap will be caused by the seniority of men in organisations and by the dominance of men in high paid professions. As the Chartered Institute of Management summarised in their response to this issue ‘in a given company, women and men could be paid equally at every grade – but if the women are predominantly in junior roles while men dominate higher-paid management ranks, the company would have a gender pay gap.’

I would like to suggest that the following formula may give some insight into what is happening within organisations.

The Gender Pay Gap = Organisation Decisions Personal Decisions

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                                               Culture, Beliefs and Values

Organisation Decisions include those made every day where gender bias or influence may be a factor. Selection for jobs, hiring salaries, annual salary processes, bonus rounds, succession planning, flexible working, maternity policies and investment in training and development all have the potential for direct discrimination, indirect discrimination or just good old fashioned unconscious bias.

Personal decisions include the decisions that are critical to our personal earnings and progress in organisations.  It includes decisions on career choices, studies, pursuit of qualifications, job changes, salary negotiations, commitment to work and to family. In a couple, is one of the partners going to stay at home, if so for how long and what is the implication for their career? We also have the capacity for conforming to social expectations, stereotypes and making decisions based on our filters and biases.

Culture, Beliefs and Values are the powerful forces which influence the decisions within companies and by individual men and women. The society in which an individual grows up will influence perceptions and expectations of the role of men and women both outside and within the workplace. The culture, beliefs and values of the organisation (part of the broader culture) will be reflected in each and every decision made for employees and infused with beliefs and perceptions about gender. And then the decisions that we make, reflect on our own beliefs and values (and those of our family), as we make choices about our studies, our choice of work and career, our relationship to money and to power and status.

Leadenhall Consulting are working with our colleagues at Total Reward Solutions and Mayer Brown International to develop a framework that looks at all aspects of the life cycle of an employee and the Gender Pay gap. As organisations move towards a gender neutral environment, it is important that they develop objective policies and procedures that are fair to both genders and enable the gap to be reduced and eventually eradicated. Our former Prime Minister, David Cameron said that we should aim to eradicate the gender pay gap within a generation.  Some aspects can be fixed right now and some are dependent on the progression of women through to the most senior roles in the organisation in proportion to their numbers entering the workforce that will take many years. Progress will be quicker for those firms with a strategy and a willingness to execute that plan. They will also secure a competitive advantage through the more effective utilisation of talent available.