Please Mind the Gap: Policies on the Gender Pay Gap

In October 2016, the Law Policy Centre of King’s Think Tank Society hosted its first event – “Please Mind the Gap with DLA Piper”. The expert panel, consisting of Her Honour Judge Anuja Dhir, Her Honour Judge Georgina Kent, Miss Sarah Ellington – commercial litigator at DLA Piper, and Mrs Janet Walsh – professor of Human Resource Management and Employment Relations at King’s College London, was moderated by the president of the Law Policy Centre Miss Jagoda Klimowicz. The panel aimed to explore various aspects of the phenomenon known as gender pay gap.

Gender pay gap measures the difference between the hourly pay of the average man and the average woman and it does so without taking into account any differences between the types of jobs, education or qualifications of persons in question.[1] The measure should not be confused with unequal pay which measures the difference between what men and women are paid for the same, or equivalent, work. As of November 2015, the gender pay gap in the UK stood at 19.2% for full and part-time workers, and it was the most pronounced in the area of part-time work and for women aged 50-59.[2] While the causes of gender pay gap are numerous and complex, the panel’s discussion focused upon three main issues affecting the gender pay gap -maternity leave, quotas and targets in employment, and salary publication. Each will be examined in turn.

One of the key causes of gender pay gap are women’s caring responsibilities. According to the 2011 census, 58% of carers were women, looking after children, elderly, and disabled.[3] Consequently, women are often prevented from accessing well-paid work, ending up in part-time, low-skilled jobs instead. Focusing specifically on the impact of maternity leave on gender pay gap, the panel explained that a positive correlation between the two phenomena is well recorded. Once women return to work after the birth of a first child, the wage difference per hour between men and women steadily widens, particularly in the case of highly educated women, amounting to 4% for each year out of paid work. In contrast, the impact of taking time off is less pronounced for the lowest-educated, likely due to wage progression being more limited in general.[4]

The impact of maternity leave on gender pay gap varies not only between women with different levels of education, but also across different occupational sectors. According to a longitudinal study carried out in the USA, referred to by Professor Walsh, taking time out of employment has the greatest disproportionate effect on female MBA holders; they suffered a 48% decrease in their earnings on average. On the other hand, the pharmaceutical sector recorded one of the lowest gender pay gaps in America. Arguably, its success could be attributed to the fact that work in the pharmaceutical industry tended to be organised around part-time arrangements and teams of employees with a similar skill-set, where one employee could easily replace another. This high degree of flexibility thus enabled women to continue working even after giving birth and in consequence, they did not experience such drastic changes in their earning potential as their MBA counterparts. Flexibility of work as a crucial weapon in fighting against gender pay gap in general has also been emphasized by the UK’s House of Commons Women and Equalities Committee.

Additionally, the effects of gender pay gap stemming from maternity leave could potentially be remedied by an introduction of a compulsory paternity leave scheme. The evidence of the OECD’s gender initiative shows that good public childcare and good parental leave arrangements play a crucial role in reducing gender pay gap.[5] When men and women take paid leave equally, women can work more, which equalizes the risk to an employer of hiring a man or a woman which has further positive effects for women. Those benefits clearly translate into financial gains; data from Sweden shows that for every month of paternity leave woman’s earnings increased by 7% a year.[6] In the UK, the Government introduced a shared parental leave (SPL) in April 2015 enabling parents to split the leave among themselves. However, unlike in Sweden, taking time off for fathers is voluntary which results in a very low take up of SPL (estimated at around 2-8%), mostly so for reasons of prevailing cultural perceptions.[7]

In light of this evidence, it has been suggested that paternity leave should be introduced on a compulsory, non-transferrable basis. While the costs of such a scheme would be very high (estimated as between 200-400 million of pounds per year), arguably, the benefits of keeping women at work would nevertheless greatly exceed this figure in the long run. Crucially, however, to achieve compliance with such a compulsory scheme, the payment of paternity leave should increase in order to avoid a too big financial strain on parents – a consideration which presently often acts as a deterring factor for fathers to take a leave in the first place.[8]

Secondly, the panel discussed how gender pay gap could be tackled by improving gender diversity in employment through the use of quotas and targets. While quotas can be defined as mandated outcomes that must be achieved, targets determine specific objectives in a discretionary manner. Positive discrimination, which gives applicants from disadvantaged or under-represented backgrounds a preferential treatment in the recruitment process, is currently unlawful in the UK.[9] Consequently, filling quotas is unlawful as well. In contrast, legislation encourages positive action, meaning that where a choice needs to be made between two candidates of equal merit, preference may be given to a candidate from a disadvantaged or under-represented background.[10] This can play a vital role in enhancing positive action.

Arguably, both devices have merits and faults. While quotas are useful for improving diversity in employment quickly and effectively, it has been suggested that on balance, long-term negative effects significantly outweigh short-term benefits. Being bound to fill the quotas would not only interfere with employers’ freedom of selection, potentially forcing them to choose from a pool of less-qualified employees, but could also spark resentment by co-workers if they perceive that an individual was appointed due to her protected characteristic and not because of her merit. A counter-example to this assertion, however, can be provided by the success story of Norway. While in 2002 only 6% of board members in Norway were women, the so-called “Women on Boards Act”, introduced by the Norwegian government in 2006, has led to a greatly improved women’s representation on boards to a level slightly beyond the prescribed quota of 40%, achieving this result seemingly without any major problems.[11]

In contrast to quotas, targets enable companies to effect change according to their own preferences and at their own pace, but the voluntariness and aspirational nature of commitments may result in a failure to make any improvements at all. In the UK, targets, like quotas in Norway, have worked successfully in respect of increasing gender diversity in boardrooms. Based on the voluntary, business led approach to increase representation of women on FTSE 100 boards to at least 25% by 2015, the figure stood at 26.1% in October 2015, and the target has been increased to 33% of women on boards of FTSE 350 companies to be achieved by 2020.[12] In spite of this success, much more needs to be done in respect of other occupations. As an example, the judges on the panel pointed to the lack of representation of women in judiciary, especially at higher levels (i.e. High Court and above), the most drastic example of which is the composition of the Supreme Court with only one female judge out of twelve.

Weighing the pros and cons of both quotas and targets, it appears that finding a middle ground between the two approaches, possibly in the form of mandatory positive action, would be the best first step in the UK for the time being.

Lastly, the panel addressed advantages and disadvantages of salary information publication in relation to gender pay gap. As of now, companies may choose to report on gender equality related issues concerning their workforce under the framework of the voluntary government initiative “Think, Act, Report” which has been launched in September 2011.[13] The three-pronged approach is based firstly, on identification of issues around gender equality within the company, secondly, on taking action to address those issues, and lastly, on reporting on progress and sharing best practice and case studies. While since its initiation more than 250 companies (including names such as Aldi, Tesco, HSBC, Samsung, Vodafone), covering over two and a half million employees, signed up for the program, its voluntary nature represents a real barrier towards any tangible improvements; by July 2015, only 5 companies published their data.[14] The lack of success prompted the coalition government of 2010–2015 to introduce, under section 78 of the 2010 Equality Act, a mandatory gender pay gap reporting scheme which will come into force in 2018 and will be binding on all private and public companies with more than 250 employees.[15]

Since the voluntary system does not work well, this is definitely a positive development. It is however nevertheless questionable if the new mandatory scheme will act as a panacea for all the problems, given the facts that  it does not envisage any enforcement mechanism which would ensure that companies would publish gender pay gap figures; and, that it does not require action aimed at improvement of reported outcomes. In order for the scheme to be successful, not only do these two defects need to be remedied but in addition, reported figures should be broken down by age and part-time status in order to enable a more targeted approach to tackling gender pay gap. Moreover, the evidence from abroad (e.g. from Finland and Sweden) suggests that the threshold for organisations covered by the new regulations should be reduced, especially so since the current scheme excludes small and medium sized enterprises which account for 99.9% of private sector companies in the UK, and equally important, since it is also the case that gender pay gap is more pronounced in smaller organisations with 20-99 employees.[16] However, when reducing the threshold, it is of utmost importance to ensure that the personal data of every employee remains private and protected.

In conclusion, it can be asserted that while measures such as compulsory paternity leave, mandatory positive action, and mandatory salary information publication could serve as an important first steps in reducing gender pay gap, the problem itself is too complex to be solved by isolated policy proposals alone. A more holistic approach is required, not least bearing in mind that for any new laws in this area to be successful in the long run, a shift in the society’s cultural attitudes is needed as well.

Aya Marovt is the Editor of the Law Policy Center, King’s Think Tank.

[1] House of Commons Women and Equalities Committee: Gender Pay Gap (Second Report of Session 2015–2016), p. 7. Accessible at: http://www.publications.parliament.uk/pa/cm201516/cmselect/cmwomeq/584/584.pdf (7.12.2016).

[2] Ibid.

[3] House of Commons Women and Equalities Committee: Gender Pay Gap (Second Report of Session 2015–2016), p. 18. Accessible at: http://www.publications.parliament.uk/pa/cm201516/cmselect/cmwomeq/584/584.pdf (7.12.2016).

[4] BBC News: Mothers’ pay lags far behind men (23 August 2016). Accessible at: http://www.bbc.co.uk/news/business-37156178 (7.12.2016).

[5] House of Commons Women and Equalities Committee: Gender Pay Gap (Second Report of Session 2015–2016), p. 43. Accessible at: http://www.publications.parliament.uk/pa/cm201516/cmselect/cmwomeq/584/584.pdf (7.12.2016).

[6] House of Commons Women and Equalities Committee: Gender Pay Gap (Second Report of Session 2015–2016), p. 44. Accessible at: http://www.publications.parliament.uk/pa/cm201516/cmselect/cmwomeq/584/584.pdf (7.12.2016).

[7] House of Commons Women and Equalities Committee: Gender Pay Gap (Second Report of Session 2015–2016), pp. 45–46. Accessible at: http://www.publications.parliament.uk/pa/cm201516/cmselect/cmwomeq/584/584.pdf (7.12.2016).

[8] House of Commons Women and Equalities Committee: Gender Pay Gap (Second Report of Session 2015–2016), pps. 47–48. Accessible at: http://www.publications.parliament.uk/pa/cm201516/cmselect/cmwomeq/584/584.pdf (7.12.2016).

[9] See Equality Act 2010. Accessible at: http://www.legislation.gov.uk/ukpga/2010/15/contents (7.12.2016).

[10] Sections 158 and 159 of Equality Act 2010. Accessible at: http://www.legislation.gov.uk/ukpga/2010/15/section/159 (7.12.2016).

[11]Royal Norwegian Embassy in London: UK Interest in Norwegian Quota Act. Accessible at: http://www.norway.org.uk/norwayandcountry/Current-Affairs/Bilateral-Relations/UK-Interest-in-Norwegian-Quota-Act/#.WEf6YMfs8y4 (7.12.2016).

[12]Lord Davies of Abersoch: Women on Boards (February 2011). Accessible at: https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/31480/11-745-women-on-boards.pdf (7.12.2016).

[13] Government Equalities Office: Policy Paper: Think, Act, Report (July 2015). Accessible at: https://www.gov.uk/government/publications/think-act-report/think-act-report (7.12.2016).

[14] Mason, Rowena and Jill Treanor: David Cameron to force companies to disclose gender pay gaps (14 July 2015). Accessible at: (https://www.theguardian.com/society/2015/jul/14/david-cameron-to-force-companies-to-disclose-gender-pay-gaps (7.12.2016).

[15] Mason, Rowena: Gender pay gap reporting for big firms to start in 2018 (12 February 2016). Accessible at: https://www.theguardian.com/society/2016/feb/12/gender-pay-gap-reporting-big-firms-start-2018 (7.12.2016).

[16] House of Commons Women and Equalities Committee: Gender Pay Gap (Second Report of Session 2015–2016), pp. 74–78. Accessible at: http://www.publications.parliament.uk/pa/cm201516/cmselect/cmwomeq/584/584.pdf (7.12.2016).

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