By Charles Cotton, CIPD senior adviser for Reward and Performance.
There are just five weeks left to publish your gender pay gap data (the deadline is 30 March for public sector employers and 4 April for those in the private and voluntary sectors). Ideally, you should have already captured and analysed your data. If not, here are some tips on what you need to do between now and the deadline.
And even if you have already done your calculations, this blog post could help you understand what your data says about your business and explain the size of your gaps to your stakeholders, both internal (such as your employees or the remuneration committee chair) and external (such as your clients or investors).
Which employers need to report?
Gender pay gap reporting regulations apply to employers with more than 250 UK employees, but it’s still worth considering publishing your data even if you employ fewer people. For instance, if your firm predicts that it will grow from 235 people to 255 people in the next 12 months, it might be worth calculating the gender pay gap now so that you have something to compare with in the following year. A similar argument can be made if employment in your business regularly fluctuates around the 250 mark. Last year, 385 employers with less than 250 employees published their gender pay gap data on the government viewing website.
The six measures you need to report, and what they tell you about your business
The gender pay gap reporting rules require you to publicly disclose pay and employment data using six measures:
All six measures relate to ‘full-pay relevant employees’ – in other words, someone who’s employed and receiving full pay during the specified pay period; this includes part-timer workers. Four measures involve the calculation of two different averages, the mean and median. In all instances, the pay gap must be expressed as a percentage of male full-pay relevant employees. A negative figure shows that women earn less and a positive figure that women earn more than men. For more detailed information, please see our gender pay gap reporting guide.
The mean gender pay gap is the difference between the mean hourly rate of pay of male full-pay relevant employees and that of female full-pay relevant employees, expressed as a percentage of male full-pay relevant employees. To work out the mean gender pay gap, you first calculate the mean hourly rates of ordinary pay for both male and female full-pay relevant employees. To do this you add up the hourly rates of pay for all male full-pay relevant employees and then divide this total by the number of male full-pay relevant employees. You then do the same for your female full-pay relevant employees.
How is the mean useful? The mean figure gives you an overall indication of the size of your gender pay gap and gender bonus gap. It also tells you about the influence of your payment system on your gender pay gap, especially when looked at in the context of the range (the difference between the lowest hourly rate of pay or bonus payment and the highest).
A high mean gender pay gap, coupled with a high mean gender bonus gap and a large range, is often symptomatic of a payment system that tends to disadvantage women, so if this is what you are faced with, consider drilling down further into your payment system, for example, by checking for differences in starting salaries for men and women (both on recruitment, and on promotion), either by carrying out spot checks, or by implementing a full equal pay audit.
The median gender pay gap is the difference between the median hourly rate of pay for male full-pay relevant employees and that of female full-pay relevant employees. You do this by listing the hourly rates of pay for all male full-pay relevant employees from top to bottom, finding the midpoint in that range and then doing the same for all female full-pay relevant employees.
Why do we use the median? The median gives an indication of the ‘typical’ situation, but, if your organisation has a complex pay system, there may not be a typical situation. The median isn’t affected by extreme figures, so it could give you a false positive, by failing to take account, for example, of the impact on the gender pay gap of a small group of very highly paid employees. As a result, you may not take the action necessary to close the gap.
If there is no ‘typical’ situation in your organisation, an equal pay audit can safeguard against the risks of a gender pay gap that is out of control and of equal pay claims being raised. An equal pay audit reviews the pay of men and women in comparable jobs and looks at whether there are any objective justifications for the disparity in earnings, such as the use of a location allowance.
However, while an equal pay audit only looks at employees doing comparable jobs, a gender pay gap analysis looks at your whole workforce. Your ratios may have more to do with your employer’s recruitment, selection and promotion policies than it does about how it rewards its staff. The gaps might also reflect issues outside of the workplace, such as the local availability of eldercare. This analysis will be useful for your narrative and action plan, which you should ideally publish along with your pay ratios.
Using the mean and the median to compare
When the mean and the median are roughly the same – for example, when the mean pay gap is 10%, and the median pay gap is 11% – the data set is not skewed, and you can be reasonably certain that your employees, male and female, are being paid within the same income range, whatever that might be.
On the other hand, if the mean gap is significantly below the median gap, it shows that your data is skewed by a group of low earners. And if the mean is higher than the median, your data is skewed by a group of high earners. If most employees in those groups of earners are mainly men or mainly women, a gender pay gap issue arises.
In the context of gender pay gap reporting, not only will you want to know what most people earn (the median) but also how the high and low paid affect the overall distribution of earnings between men and women (the mean). If the mean and the median are widely different, you should consider a range of actions, including checking the uptake of your flexible working arrangements, and taking action to break down occupational segregation.
The mean bonus gap is the difference between the mean bonus pay paid to male relevant employees and that paid to female relevant employees, during the year ending on your snapshot date (31 March 2019 for public sector, or 5 April 2019 for private and voluntary). You determine the mean in a similar manner as you did to work out the mean gender pay gap, but there’s no need to calculate bonus pay on an hourly basis.
If no one in your organisation received a bonus in the relevant period, then you report a 0. If your mean gender bonus gap is high, you may want to introduce gender monitoring of your performance appraisal system and examine the impact of managerial discretion on the award of bonuses.
The median bonus gap is the difference between the median bonus pay paid to male relevant employees and that paid to female relevant employees. You can work this out by listing all the bonus payments for men by size, finding the mid-point in that range and then doing that for women and comparing the differences.
In some organisations the mean and/or median cash value of a bonus awarded to a woman may be lower than the cash value awarded to a man because of the distribution of part-time work. If you consider that your gender bonus gap has been skewed because women at your business are more likely to work part-time then their male counterparts, you may want to explain this in your narrative. You might also wish to show what the bonus gap would be if you were to base the calculations on a full-time equivalent basis.
Again, if there are no bonuses, you report a 0.
As well as calculating the mean and median for pay and bonuses, you must also disclose the proportions of male and female relevant employees who received a bonus during the relevant period. If no one in your organisation received a bonus, then you report a figure of 0.
What do bonus proportions tell us? Comparing the proportions of men and women who received a bonus within the 12-month bonus period tells you how much more likely male full-pay relevant employees are to receive any amount of bonus payment compared with female full-pay relevant employees (and vice versa).
Being able to compare a proportion is central to its usefulness as an indicator. In the future, you can track your progress by comparing your figures with those from previous years. This means you’ll be able to say, for example, that whereas in 2017, 25% of women received a bonus payment, by 2019 this had risen to 30%.
Quartile pay bands show the proportions of male and female full-pay relevant employees in the lower, lower middle, upper middle and upper quartile pay bands. This shows you how the relevant full-pay male and female employees are distributed across your organisation. If men and women are not evenly distributed throughout the organisation, you may wish to check your policies for recruitment and progression, training and development, and flexible working. The calculation of the quartiles will also pick up on pay gaps at the top of the organisation, even if the mean and median figures have masked this.
To work out the proportion of male and female employees according to quartile pay bands:
You’ve calculated your data; now what?
The six measures not only help identify what’s driving your gender pay gap, but the actions you could take to reduce it. But it’s also important to look beyond your organisation’s employment and pay data to also include other people information in your analysis, narrative and action plan.
For instance, in your workplace who is putting themselves forward for promotion or training, flexible working, shared parental leave, etc? What is your health and well-being data telling you, such as the impact the menopause may be having on female career progression, or your recruitment data about women returning to work?
These insights, coupled with your gender pay gap data, will help you create a narrative explaining why the figures are what they are, an action plan to reduce the differentials, and a way of assessing progress over time. For more advice on how to do this, follow the CIPD’s six-week countdown to the gender pay gap reporting deadline on Twitter, LinkedIn and Facebook.
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