Gender Pay Equivalence

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British Prime Minister, David Cameron, has announced that companies with over 250 employees will be required to publish the gap between average female earnings and average male earnings. It is proposed that, by increasing transparency and bringing pay discrepancies to the fore, the overall pay gap of 19.1% can be closed within a generation.Diversity on Boards is important

Some companies have already chosen to reveal this information. Deloitte’s UK office has reported a 17.1% pay gap as part of its annual results for the year ended 31 May 2015. PricewaterhouseCoopers has also disclosed the gender pay gap in its UK practice, which was 15.1% last year.

In Australia, although there is no requirement to disclose or calculate a gender pay gap, companies with over 100 employees must provide certain remuneration information to the Workplace Gender Equality Agency (WGEA) under the Workplace Equality Act. Employers produce a workplace profile and report on a number of gender equality indicators, including steps taken toward encouraging equal pay between men and women. An example is whether or not the company conducts a gender remuneration analysis.

Employers also have an obligation to provide equal pay under the Fair Work Act. Section 302 of the Act empowers the Fair Work Commission (FWC) to make an equal remuneration order in circumstances where employees are not provided with equal remuneration for work of equal or comparable value. As such, the FWC has a significant degree of discretion in making remedial orders in the case of a successful application.

Despite legislative efforts at the federal level, the move toward mandatory pay gap reporting in the UK has some commentators questioning whether a similar system would minimise the perceived gender pay inequality in Australia. Australia’s national gender pay gap, which is calculated by the WGEA, is 17.9% as at August 2015.

Egan Associates would caution, however, that publishing pay gap data on its own has the potential to mislead (this was also a point raised by the Confederation of British Industry) for a number of reasons, primarily:

  • Broad comparisons that are not based on equivalence of accountability, for example, organisation wide or by reporting level can indicate a market prejudice which may not be present. Hence comparing the remuneration of a Head of Human Resources, where there are a number of highly effective and successful incumbents, with that of a Chief Financial Officer, which is predominantly a role dominated by males, is erroneous even though their reporting level is equivalent.
  • Given the fact that there are typically fewer women in leadership positions, drawing conclusions about a pay gap may be flawed as the inclusion or exclusion of a particular female, for example Gail Kelly, could distort numbers.
  • If gender is skewed, recent hire data will distort the statistics.

We note that a proportion of the comment on the pay differential has regard to access to particular occupations which might be high paying as distinct from those which are low paying. Helen Conway, Acting Director of the WGEA, cites a tendency for women to “gravitate to roles the market typically assesses as being of lower value” as part of the reason behind this. Ms Conway was commenting on new data released by the WGEA, which shows that the gender pay gap is highest for women in top management positions.

There have, however, been a number of initiatives by companies and business groups to address this historic imbalance. The Australian Institute of Company Directors (AICD), for example, works with Boards and utilises its networks and contacts in an effort to increase the number of females occupying directorships in major companies. As a result, the number of women in these positions has been steadily rising. Data released by Blackrock shows that from 2011 to 2014 the percentage of women on ASX200 Boards increased by 7.9% (from 14.4% to 22.3%).The AICD has reported that the figures were 15.4% and 19.3% in 2012 and 2014 respectively, and that the percentage of women on ASX200 Boards is 20.1% as at 31 July 2015.

Egan Associates’ in-house data analysis shows a similar upward trend, although the average number of female executives has remained unchanged:

Average Percentage of Females in ASX200 Companies in 2012 

2012

 Average Percentage of Females in ASX200 Companies in 2014

2014

The AICD has stated that further improvement will come as a consequence of companies setting their own diversity targets as opposed to a mandated quota by government. It notes that many chairmen and chairwomen on S&P/ASX200 Boards have already committed to a 30% target for female directors by 2018.

An example of a recent strategy to increase the number of women in senior management ranks as well as on Boards is the partnering of universities with business whereby the participation of talented women is encouraged through MBA scholarships.

In terms of reward opportunity, Egan Associates hold the view that there should be no discrimination where position demands and performance are comparable. We observe that this applies widely in all sectors, particularly where there is no argument or view that roles are different.

In this context, Members of Parliament, irrespective of gender, are paid the same where their roles are comparable. Where academic members at university hold comparable appointments, be they Lecturer or Professor, Dean or Vice-Chancellor, it would be our observation that reward where positions are comparable is equivalent.

This is not a comment on access to those positions but rather comparability of pay where there are equivalent accountabilities and demands made in respect of a particular position. Among Australia’s leading companies, while there are a majority of males serving on Boards, Directors are paid the same in respect of their Board role, independent of gender.

In the private sector and to some extent the public sector, in addition to receiving a defined level of fixed remuneration for occupying the position, many staff have access to performance pay where reward is determined on the basis of contribution and occasionally potential. These are clearly areas where the same principles of equal access, subject to equivalence of circumstance, should apply. We would endorse this view.

One of the key elements of difference in reward, holding work value or job content constant over time, has been differential performance ratings in part overlaid by automatic progression with tenure up to a midpoint or indicative pay level operating in a number of organisations.

While gender pay equivalence represents a worthy social justice policy focus, in our view it brings with it complexity which may not be well or widely understood.  The gender pay equivalence challenge, while different, has many similarities to the challenge that management and HR face in defending pay differentials within their workforce among same gender participants.

Gender pay equivalence will bring with it similar challenges where the general workforce experiences pay differentials for jobs with common titles where the work is undertaken in different geographies or locations, under different working conditions including hours of work and time at which work is undertaken. Where organisations have policy and procedural mechanisms to address tenure or experience of an employee in a particular role, their performance and the extent to which relevant competencies are fully developed will also influence pay.

With all these variables at play there can readily be a pay differential of 10% which is absolutely consistent with the organisation’s pay policies and practices.  If this simple policy parameter were embraced then what may well have the appearance of substantial gender pay discrimination could be substantially less.

As noted above, where there is an equivalence of role clearly understood by the general public and shareholders, pay is identical irrespective of gender.  Adopting gender pay equality as a social policy for all employees would be consistent with reward practices at the very top of the organisation.

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