Mind the pay gap – not just gender, but diversity too

The recent requirement for companies with 250 or more employees to report their gender pay gaps (GPGS) is just the first step in the UK government’s effort to drive a market-led improvement in diversity and inclusion in the workplace through its transparency agenda. It is becoming increasingly clear that an effective diversity and inclusion agenda is not a “nice to have”, but a business imperative, and that more change is on the way.

The Department for Business, Energy and Industrial Strategy (BEIS) committee reported on the success of the GPG reporting requirements and has called on the government to go further. Recommendations include setting specific, long-term targets on a sector by sector basis and linking executive reward to reducing the GPG.

In its new Fair Pay Report, supported by Pinsent Masons, the Institute for Public Policy Research called for more far-reaching obligations. These include requiring businesses with 50 or more employees to publish a fair pay report covering gender and ethnicity pay gaps, CEO pay ratios and the proportion of the workforce earning below the living wage. They also recommended that employees have the right to request comparative pay data and an independent pay audit.

UK employers could soon be required to publish data on pay gaps for workers from different ethnic backgrounds. However, measuring the ethnicity pay gap is more complex than measuring the GPG, as there are multiple ethnic groups with different gaps and many people with mixed ethnicity. Very few employers are currently collecting data on their ethnicity gaps, and even fewer have reported this data publicly on a voluntary basis.

The Mcgregor-smith Review, which published its report earlier this year, considered issues affecting black and minority ethnic (BME) groups in the workplace, and called on large employers to lead the way in removing barridevelopment ers to BME progression. It urged companies with more than 50 employees to publish a breakdown of their workforce by race, ideally by pay band; to draw up five-year aspirational diversity targets; to nominate a board member to deliver on these targets; and reference in their annual report what steps they are taking to improve diversity.

Separately, the Parker Review on boardroom ethnic diversity focused on the and progression of BME employees to strengthen a diverse pipeline of talented individuals, and disclosure by companies of the efforts they are making to improve diversity within the workforce.

It suggested that there should be at least one director of colour on FTSE 250 boards by 2024, and that nomination committees should insist on the identification of people of colour for vacancy shortlists. Improved gender diversity at non-executive level has been achieved by setting voluntary targets and monitoring progress through reporting.

The BEIS committee’s recent report also suggests that boards should disclose information on diversity of gender, ethnicity, social mobility and perspective. It recommends that companies should publish details of how accurately the diversity of the board mirrors the wider workforce and customer base.

The government recently announced plans to increase the availability of flexible working, and is also considering an additional transparency obligation for employers in relation to pay available for those on parental leave.

Diversity and inclusion consultant Stuart Affleck of Brook Graham suggests that employers should now conduct an audit of their diversity and inclusion practices and put effective strategies in place to “future proof ” their firms for anticipated developments.

An effective audit will set out practical steps that a business can take to create a diverse and inclusive culture, and to help inclusive policies become “lived” across the organisation. Susannah Donaldson, diversity and inclusion expert at Pinsent Masons.

Employers should conduct an audit ofth eir diversity and inclusion

practices