Gender pay gap must be exposed

Most people see the gender pay gap as a problem. Alan Greenspan, former US Federal Reserve chairman and friend of free-market prophet Ayn Rand, saw it as an opportunity. Hiring women makes great business sense, he wrote in his memoir. Because the employment market undervalues good women, they are less expensive than men.

Recent data from the EU showing the UK’s sizeable 21% gender pay gap suggests this is still the case. From April, UK firms with more than 250 staff members must declare mean and median gender pay gaps, bonus differences and the split in quartile pay bands. Early adopters suggest double-digit gaps will be the norm. At Virgin Money, soon to have an all-female top team, the mean male salary is 32.5% more than mean female pay. At Schroders, the gap is 31%. At PwC, it is 14%.

The requirement is an experiment in nudge theory. The UK government hopes disclosure, not penalties, will change outcomes. Companies in the US, including Bank of America and Amazon, are under pressure from shareholders to do the same. In practice, the numbers will offer a flawed comparison, just as EU data do. Occupational segregation skews the average. So does men’s reluctance to take parental leave and work part time when they have a family. Companies with large numbers of part-time, low-paid female staff will suffer the Goldman-Waitrose effect in which a tough bank appears more egalitarian than the benevolent John Lewis group.

For employees and shareholders, figures that account for factors such as experience and job title would be more useful. A report by KPMG for Australian government agencies estimated that about 35% of the pay gap might be attributable to discrimination such as unconscious bias. More detail from UK companies would test that theory. Without it, the impact of gender pay data will be as limited as CE pay disclosure and Greenspan’s logic will hold true. London, October 31.