Gender pay Bill a step change for most organisations

Once approved, new legislation will require employers with 250 or more workers to publish pay differences between female and male employees

As moves towards gender, ethnicity and executive pay reporting continue, the European Commission has proposed a directive that may create even greater change. Photograph: iStock

As moves towards gender, ethnicity and executive pay reporting continue, the European Commission has proposed a directive that may create even greater change. Photograph: iStock

 

The Gender Pay Gap Information Bill 2019 has been passed by the Dáil, with Minister for Equality Roderic O’Gorman referring to it as “a priority”. It will now be debated in the Seanad.

Once approved, the legislation will require public and private sector employers with 250 or more workers to publish pay differences between female and male employees. This will be extended, over time, to organisations with 50 or more employees.

The Bill was originally published in April, 2019. It lapsed with the dissolution of the Dáil in 2020, before being restored to the order paper later that year.

A lot has happened since the Bill was first published. We know for certain that gender pay gap reporting is coming, but it could be the tip of the iceberg when it comes to pay-related reporting.

PwC Ireland has pre-empted the approval of the Irish legislation and was the first Irish “Big 4” professional services firm to publish its gender pay gap in 2019.

Ethnicity pay gap reporting

The Black Lives Matter movement, as well as the Covid-19 pandemic, has seen issues around equality and fairness rise up the agenda. As a result, many organisations are grappling with new challenges, such as conversations around race and ethnicity, and creating equity in the workplace.

In 2019, the UK government ran a consultation on ethnicity pay reporting. More than 130,000 people signed a petition calling for it to be made mandatory.

It confirmed that parliament would consider the petition for debate. The date for the debate has yet to be confirmed.

Some organisations in the UK are not waiting for the government to introduce ethnicity pay gap legislation and are already voluntarily publishing their data.

PwC UK was the first professional services firm to do so and in January of this year it published, for the first time, its black, Asian and mixed ethnic background pay gaps.

However, ethnicity pay gap reporting is not without its challenges. The most obvious initial impediment is that many employers do not hold ethnicity data on their employees.

There is no legal obligation for employees to divulge which ethnic group they identify with and requests to disclose can achieve poor response rates if the process is not managed very carefully.

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Irrespective of whether ethnicity pay gap reporting becomes mandatory in Ireland or not, employers should now be putting in the groundwork to build an inclusive workplace culture that encourages employees to disclose.

This culture should create trust so that employees feel safe to share, know that their data will be managed appropriately and, most importantly, have confidence that the organisation will take action. Work of this nature will benefit all employees, not just those from ethnic minorities.

Environment and governance

Societal pressures beyond diversity and inclusion are creating further focus on pay. Climate change, plastic pollution and water shortages are environmental issues that are also becoming business critical issues for companies.

Nearly half of FTSE 100 companies use an environment, social and governance (ESG) measure when setting targets for executive pay*.

When it comes to the ‘S’ in ESG, concerns are also rising in relation to societal wealth inequality.

Executive pay

Executive pay has been under the spotlight for years, with the pay gap between chief executives and workers continuing to widen. Covid-19 has shaken things up by bringing into sharper focus the value of “essential” workers, who often have few employment rights and little pay.

From January 1st, 2020, quoted organisations with more than 250 UK employees have been legally required to disclose their executive pay ratios. At a high level, this ratio indicates the relationship between a chief executive’s pay and the pay of other employees in the same company.

Reports published in the UK so far this year indicate that executive pay at the UK’s biggest companies is down more than a fifth since the start of the pandemic.

Executive pay cuts have shown solidarity with employees, many of whom were either being furloughed or laid off.

It remains to be seen whether companies will continue to scrutinise their executive compensation practices as the recovery evolves and, indeed, whether executive pay ratio reporting lies ahead for Ireland – in such matters, we tend to follow the UK.

Pay transparency directive

As moves towards gender, ethnicity and executive pay reporting continue, the European Commission has proposed a directive that may create even greater change. The directive is aimed at pay transparency across a number of categories:

– A requirement for employers to proactively indicate the initial salary or salary range before any interview;

– A requirement to make accessible a description of the gender-neutral criteria used to define their pay and career progression;

– Workers shall have the right to receive information on their individual pay level and average pay levels, broken down by sex, for categories of workers doing the same work or work of equal value.

This degree of disclosure would be a step change for the majority of private sector organisations and would require robust and transparent reward and career structures.

The commission’s proposal must be submitted to the EU parliament and council. If the directive is formally adopted, member states would likely have two years to implement it. General estimates are that, if adopted, the directive would need to be implemented by late 2024.

Greater transparency

Moves towards pay reporting are coming and will create greater transparency. On its own, reporting will not create more inclusive organisations or society. Employers will need to act or run the risk of demoralising employees and damaging their employer brand and competitiveness.

At the heart of all reporting will be the need to communicate effectively to stakeholders.

Organisations that treat pay reporting as a valuable opportunity to enhance their reputation, attract new talent and strengthen their culture, rather than a compliance activity, are likely to prosper.

As we emerge from the pandemic, greater pay transparency and reporting should be a key consideration for “building back better” for the future.

Doone O’Doherty, is a PwC partner for People & Organisation

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