Are new salary rules a powerful agent for pay gap change?

Gender pay gap figures sitting on coins ew
By Angus McCrone

24 April 2018

New rules putting salaries in the spotlight can be a powerful agent of change, says Angus McCrone.

The Royal Bank of Scotland has revealed a 37% gap in pay between its male and female employees. Barclays says its female staff earn 43% less than its men, Aviva says its gender pay gap is 28% and for easyJet it is 52%, while the BBC reports 9%.

Putting them in the shade is Hollywood, where in a 12-month period the highest-paid actresses (Emma Stone, Jennifer Aniston and Jennifer Lawrence) were all out-earned by 14 male actors – including one or two that I would pay good money not to see in a film.

The wider business implication 

The gender pay gap has become a hot a potato in 2018 as sexual harassment, with indignation about the one adding to anger about the other. Of the two, pay is arguably the issue with the wider-ranging implications for business.

New rules in the UK say that firms employing more than 250 people have to publish their gender pay gaps on a Government website by 4 April. These figures started to emerge at around the turn of the year, and are adding a new element to the discomfiture of companies, already struggling to justify why their senior executives get paid so much in a time of austerity.

Male board members could make their own sacrifice to improve the pay gap by accepting cuts in overall compensation. The age of the pay cut at the top is surely coming

Full disclosure

On the gender pay gap, the figures published are very crude. The Government requires the disclosure of “mean and median averages” for pay, together with the same for bonuses and the “proportion of men and women in each quartile of the organisation’s pay structure”.

Clearly, that is not the same as comparing male and female salaries in the same roles – so, to take an extreme example, a factory employing mainly women on the production line and not many males except in senior roles would report a wide pay gap.Even if a company publishes figures that do compare people in the “same role”, this can cover people of varying ages and experience, and different career patterns.

To take one example, if Man A has been in a particular role for 20 years, and Woman B does that role for 10 years then leaves the workforce for 10 years for family reasons, before returning to the same role, will those people necessarily be on the same salary?

Even if salary relates to performance, there is often no downward flexibility on salaries, so Man A may have excelled in the role in years 11-15, had a significant pay adjustment upwards to reflect that at the time, and more recently subsided to average performance. If so, unless that adjustment happened largely via bonuses, he will probably be relatively overpaid for the role.

A powerful influence for fairness

Notwithstanding those caveats, I am not arguing that the publication of gender pay gaps is worthless. On the contrary, it should be a powerful influence for fairness.

The effect on companies is likely to be to put upward pressure on the wage and salary bill. Businesses will want to be seen to closing their gender pay gaps year on year. They will not be able to reduce the salaries of men in continuing employment, so the main way to do so will be to bump up the pay of female colleagues. Higher wage and salary bills mean narrower profit margins, and a push to pass on higher costs to customers.

The other impact will be at the top, and near the top. Employers can narrow the gender pay gap if they promote more women to senior roles (for that, they will also have to retain their female staff). They can also hire more women for roles at board level, and just below.

Meanwhile, male board members could make their own sacrifice to improve the pay gap by accepting cuts in overall compensation.

The age of the pay cut at the top is surely coming. It may already be starting. In February, outsourcing company Serco said it was cutting the pay of chief executive Rupert Soames by 20% in 2018. The trigger may have been the collapse of Carillion, and the focus it has brought on companies that carry out contracts for the public sector. But the effect is the same. If companies can make investors happy on two counts by reducing executive pay, why not do it?

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