The number of regulations covering the Gender Pay Gap1 has increased considerably in recent years. Countries including the USA, Japan, Australia and Israel2 have all increased their regulations as part of the push for pay transparency.
The forthcoming EU Pay Transparency Directive3 is perhaps the most comprehensive to date. It incorporates new levels of Gender Pay Gap analysis and disclosure, plus requirements to accelerate progress towards pay equity.
Whilst the UK has been testing options on pay transparency (e.g. pay disclosure on job postings), its primary tool to deliver pay equity continues to be its well-established Gender Pay Gap4 reporting requirement. Since 2017, all employers with more than 250 employees in the UK have been required to publish their gender pay gap annually, following a set methodology. These statistics enables a year-on-year comparison to assess whether these regulations are effective in closing the gap.
This gives us the evidence to see whether the current UK regulations are sufficient or if we should be pushing for increased levels of pay transparency, such as those to be implemented in the EU shortly.
Analysis - UK Gender Pay Gap Data 2018 – 2022
In conducting the analysis Aon has looked at the annual disclosures and publicly available information on the UK Government website5. In analysing changes for the period 2018-2022, we have used a consistent sample of 7,534 employers who have reported in each of the annual cycles. In making comparisons, we have averaged out annual figures using a ‘mean of the means’ and a ‘median of the median’ methodology.
Chart 1: Comparison of UK GPG publications from 2018 – 2022
Source: https://gender-pay-gap.service.gov.uk Opens in a new tab
Chart 1 demonstrates:
- a small change in the mean hourly pay gap over this 5 year period with a reduction of 0.6% from 10.3% down to 9.7%
- no change in the median hourly pay gap at all with the numbers for 2018 and 2022 being identical at 9.8%
- the mean bonus Gender Pay Gap is volatile and has a high degree of variability from one year to the next but the trend over 5 years does represent a reduction in the gap of 5.6% as it reduces from 19.9% to 14.3%
- the median bonus shows a consistent and gradual reduction in the gender pay gap to deliver a 0% gap in 2022.
The impact of the UK Gender pay gap regulations has clearly been very limited over this 5 year period.
Pay distribution for UK female workforce
Through our client work, Aon has found that one of the core metrics is the distribution of males and females across the pay quartiles, as reported in the regulations. Chart 2 shows the average distribution from the 2022 disclosure.
This distribution has a significant impact on the gender pay figures. A higher proportion of females in the lowest pay quartile reduces average female pay levels, while the reverse is obviously true when there are more males in the top quartile. As chart 2 shows, in the April 2022 disclosures, fewer than 40% of individuals in the highest paying quartile were women.
Chart 2 Average Pay by Gender, 2022 Pay Disclosures
Source: https://gender-pay-gap.service.gov.uk Opens in a new tab
Looking at the percentage figures for females in the top quartile across the five year period, there has only been a very small change in female representation - a total variability of just over 1%. From 2018 – 2022 it stands at just 0.6%.
Chart 3: Females in the Upper Quartile, 2022 Pay Disclosures
Source: https://gender-pay-gap.service.gov.uk Opens in a new tab
Are the UK Gender Pay Gap Reporting Regulations having a positive impact?
This analysis shows it is difficult to evidence a significant and positive impact from the UK Gender Pay Gap reporting regulations. Three key conclusions are:
- Pay gaps for base pay are not showing any significant signs of change and gender representation in the top paying quartile has barely moved in 5 years.
- There are some positive signs regarding the bonus gap with reductions in both the mean and median numbers being reported but bonus schemes do work off a shorter time frame and will be easier to adjust and influence than base pay.
- In 2018 only 11% of employers in the constant sample reported a pay gap in favour of women. In 2022 this number increased by just 1% to a total of 12%.
Changing Attitudes to UK Gender Pay Gap Reporting
In 2018 employers sought to understand the underlying cause of pay gaps. Today, with some notable exceptions, there is a risk that it is only a compliance ‘tick-box’ exercise. A sign of this can be picked up in the reporting levels. In early March 2023, with only one month to go before the deadline, only 22% of organisations in our constant sample had reported.
In the 2022 submission, 186 employers, including some well-known organisations, submitted non-compliant gender pay gap reports as they failed to disclose information on gender make-up across the pay quartiles. Over 60 employers reported a zero percent base pay gap at both median and mean levels which raises the question whether this is a credible disclosure.
In 2018 when the first gender pay gap reports were published, employers were concerned about the reactions of their employees to any gaps. These concerns proved largely unfounded. Five years on, there is some evidence emerging that employee concern is building.
At Aon, we find that an increasing number of our job applicants, especially graduates, ask about our gender pay gap at their interview and what we are doing to address it. Many of our clients also report increased questioning from their applicants and employees. Attention is only expected to increase as a result of the media attention that is going to surround the EU Pay Transparency Directive Opens in a new tab .
What’s next for the UK Gender Pay Gap regulations?
The question for the UK must now be whether it needs its own Pay Transparency regulations, such as those developing in the EU.
Based on the lack of progress evidenced over the last five years, we should not be surprised if additional pay transparency regulations are developed.
In the absence of any official guidance and direction from the Government there is still a lot of action that firms can take as they consider local steps to address the issue. Obviously, any UK employer with more than 100 employees in an EU market will need to implement responses to ensure compliance with the new rules but even in the UK, responses will be needed. The EU regulations will have an impact on the UK market as employers bring those practices to their UK operations but beyond this and in the shorter term, there are some questions, and actions that UK employers can begin to consider:
- When was the last time your firm conducted a full equal pay audit and looked in detail at the outputs from your reward policies and practices?
- Has your business fallen into the trap of a ‘tick-box’ compliance led approach to gender pay gap reporting? Are their opportunities to increase the focus and impact of the analysis and to be more proactive is developing, implementing and reviewing a change programme to address any issues?
- Have you reviewed your reward strategy and approach recently looking at not only what it says, but also how it is being implemented and interpreted by leaders and managers across the business. It is one thing to have non-discriminatory policies and approaches but if they are implemented and interpreted poorly by leaders (even unconsciously) then the issue will never get resolved
- Are you looking at all dimensions of pay gaps in your business? Many organisations now calculate their ethnicity pay gap and a pensions gap as well. Is this on your annual agenda or does your business look for reasons not to do this work e.g. lack of full disclosure on ethnic origin?
The UK regulations were successful in raising the profile of the topic of gender based pay disparity in 2017 but that flurry of attention has reduced significantly and they have had very limited impact on the size of the gap. Organisations need to be aware that society has evolved a lot in the last 5-6 years and standards of what is considered acceptable have also changed. This is reflected in the surge in new pay transparency regulations over the last 2-3 years which often includes heighted gender pay gap reporting requirements as is the case in the EU. Maybe the time is now right for additional tools and requirements to be introduced in the UK as well to help accelerate change and create more momentum on the pathway to real, sustainable pay equity?
If you want to discuss practical steps to addressing pay parity and pay gaps in your business please contact humancapital@aon.com.