The importance of avoiding diversity pay gaps
//09-01-2023

The importance of avoiding diversity pay gaps

by Nick Gallimore, Managing Director - People Management

Reward management has a massive impact on your people experience and can improve employee motivation and engagement. Your payroll function offers you the perfect platform to safeguard the wellbeing of your people and reward them throughout times of crisis but it is vitally important that your pay and rewards schemes benefit your workforce universally. Pay disparities between certain genders and ethnicities can greatly impact how your workforce views you as an employer, not to mention your reputation in the wider working world.

In the modern, fiercely competitive recruitment space, businesses who fail to stay ahead of these changes may find themselves faced with long term challenges in retaining and attracting key talent. Diversity pay gaps could represent significant pitfalls for organisations and those who fail to offer an equitable and universal pay structure will find themselves falling behind their competitors as attractive places to work.

What are diversity pay gaps?

Pay gaps are indicators of systemic and often well embedded biases related to diversity and inclusion. More specifically, they are the measure of the percentage in average hourly pay difference between specific groups within an organisation. Gaps can exist between genders, sexualities, individuals with disabilities or different ethnicities and are generally considered to be indicative of outdated societal attitudes and biases.

Since 2015, there have been legal requirements in place for organisations to disclose information around their gender pay gaps, often in the form of annual reporting. Many organisations, such as The PWC use this reporting period to disclose more information than legally obligated- publishing information on ethnic, disability and sexual orientation related pay gaps.

Why are diversity pay gaps a concern?

Disparities in pay have a way of highlighting biases within your organisation. Whilst tiers of pay based on factors such as performance are widely encouraged, to have gaps in pay for factors out of a person’s control such as their ethnic background or sexual orientation, serves only to raise worrying questions about their parent organisation.

Many of these disparities- particularly gender pay gaps- are rooted in older, outdated attitudes and indicative of certain biases. Organisations may feel that these gaps represent attitudes which do not align with their contemporary values and to that end, it is in their interest to gain a clear understanding of where and why gaps in pay exist within their structure.

Your payroll function can serve as the foundation of your organisation’s rewards and benefits system. It is also reflective of your EVP or Employee Value Proposition. A well-defined EVP highlights your key strengths as a place to work and defines the specific qualities which distinguish you from your competitors when it comes to recruitment and keeping your best people.

Competitive wages and rewards structures form a huge part of your EVP and the people experience within your organisation as a whole. However, today’s workforce are also demanding that organisations take a firmer, more emphatic stance on societal and environmental concerns. The values employees are looking to be evinced by their organisations are wholly at odds with the biases inherent in diversity pay gaps, which may lead to people taking stock of their workplaces and assessing their suitability as employers.

At a much more basic level, pay gaps highlight a less than equitable rewards system for employees, one which deserves to come under scrutiny, particularly in light of recent cost of living increases. With so many people struggling to make ends meet, the bare minimum organisations can do to support their people is to offer a universal living wage. In light of economic downturn and other crisis periods, any pay disparities will compound instances of financial strain and severely impact how employees view their organisations.

How to calculate diversity pay gaps

Identifying the need

Understanding legislative change is one thing but ensuring an accurate and regular appraisal of your pay process is another matter entirely. With the demands of gender pay gap reporting now an annual responsibility, businesses across all sectors will need to understand how to implement accurate and effective reporting.

One of the first steps will be to gather specific payroll data for each relevant employee. This will mean collating information for each of your people employed during a specific period and will better enable you to get a snapshot of your organisation’s pay structure at this time.

For accuracy you also need to look beyond basic wages and take into account any additional payments such as allowances for extra certification such as first aid training or fire wardens.

Communicate your intent

This may not seem like the most obvious step but it is worth considering that as a relatively new responsibility for organisations, diversity pay gap reporting is an area which garners a lot of attention, particularly externally.

The way you communicate your diversity pay gap reporting says a lot about your organisational culture and ethos and can serve as a reflection of your overall employee value proposition- something which is invaluable in securing the services of new talent.

Take the time to introduce your company and to frame your diversity pay gap reporting in the proper context. What is the message that you want to send? Are you happy with the figures? If so, champion them. If things aren’t where you need them to be right now, then acknowledge that and make it clear that you are on the road to doing better.

Showcase your findings

It is important to include tangible figures and data to support your assertions within your report. These should include hourly pay quarterly rates, as well as median and mean pay rates, as well as extra earning disparities such as additional rates for extra qualifications for example, first aiders.

Offer the figures with context behind them- explain to your key stakeholders and other interested parties what the gaps represent and more importantly, what can be done to bridge them.

Include an action plan 

 Should your report highlight any incidences of pay disparity, then it is reasonable to assume that your employees, key stakeholders and interested external parties will want to see your organisation take some practical steps towards redressing the balance.

 Our own gender pay gap report highlights a few key steps that Advanced identified in order to help bridge the gap. These included placing a greater emphasis on internal mobility for our existing employees in a way which eliminates gender related bias within the process, as well as looking at ways to make new roles more appealing to female candidates.

 With gender pay gap reporting now an annual responsibility and other forms of pay disparity reporting being folded into the process, this actually presents organisations with a unique opportunity to not only provide an action plan for improvement but also as a yearly touchstone to audit and assess how successful any previous initiatives may have been.

At Advanced, we have also taken the opportunity to evolve our pay reporting process, with our gender pay gap report having made the shift to a wider diversity pay gap report from 2020. We believe that our gender pay gap reporting has already allowed us to make significant positive change and the hope is that the continued insights generated from this wider report will help us to do so again.

What’s next?

In light of the ongoing cost of living crisis and other macro-economic factors, organisations across all sectors are finding a greater spotlight being shed on their pay processes and internal structure. This will undoubtedly lead to some tough questions being asked both internally and externally but overall, the message should be that your diversity pay gap reporting should be much more than just a legislative hurdle to overcome.

Businesses need the most accurate information possible in order to build a complete picture of their pay structures and to identify areas where change needs to happen. Information is power and transparency in reporting offers greater opportunities for businesses to make changes for the better and to reaffirm their commitment to their people experience.

We’ve created our HR crisis toolkit specifically to provide organisations with tools and ideas to help spark the creative process and help you understand how you can put the people experience of your workforce first, no matter the situation. Download the free toolkit today to discover how you can make diversity pay gaps a thing of the past.

Nick Gallimore

Nick Gallimore

PUBLISHED BY

Managing Director - People Management

Nick is a Talent Management specialist, who has spent his entire career working with organisations looking to transform the way they hire, develop and manage their people. He works with our HR software customers, providing specialist consulting and advice around all aspects of the Talent Management lifecycle, helping them to deliver their strategic people aims.

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