UK: parliamentary committee recommends reforms for gender pay gap reporting

On 2 August 2018 the House of Commons' Business, Energy and Industrial Strategy Committee published a report on the gender pay gap reporting obligation introduced from April 2017. The report notes that the national median gender pay gap is 18.4%, but 13% of those reporting had gaps in excess of 30% and gaps of 40% or more were not uncommon in some sectors (which the Chair described as "obscene and entirely unacceptable"). 78% of all reporting organisations had a pay gap in favour of men. The report calls for quicker and more effective action to close the gender pay gap and recommends that the Government adds the following requirements to the regulations, to apply to reports published in April 2019:

• the publication of a narrative explaining the gender pay gap and an action plan to tackle it (currently these are not mandatory). Subsequent reports should report progress against the action plan. Guidance on the content of narratives and action plans should be produced.
• the disclosure of salary deciles (rather than quartiles).
• both part-time and full-time pay gap data should be published.  (Lower pay for those working part-time and the unavailability of part-time senior roles are significant causes of the gender pay gap.)
• bonuses should be reported on a pro-rata basis, with guidance produced on how to calculate them.
• equity partner remuneration should be included, with guidance produced on how it should be calculated.
• the Equalities and Human Rights Commission should have an explicit power to impose specified fines for non-compliance. It also suggests that the government should publish and maintain a definitive list of organisations within scope, to enable compliance to be checked.

The report recommends two changes to be made from 2020:

• Extending the reporting obligations to companies with 50 or more employees (currently the duty applies to companies with 250 or more, covering only around half of the UK workforce). Evidence suggests that the pay gap is higher in smaller businesses. The report also suggests that it may be easier to align the reporting date with other annual reporting requirements.
• Subject to consultation, extending the duty to require disclosure of disability and ethnicity pay gap data. There is no suggestion that data should be broken down by age, despite evidence that pay gaps increase significantly for older women.

In terms of driving change, the report acknowledges that it is for individual organisations to identify the causes of their particular pay gap and identify appropriate measures to address the gap. It suggests that sector representative bodies should develop ambitious long-term targets for reducing gender pay gaps and, if they fail to do so, government should step in and set mandatory sector targets.

The report also identifies the responsibilities of company boards, investors and regulators to drive cultural change, suggesting that:

• The FRC's proposed revised Stewardship Code due later in 2018 should include reference to ensuring that gender diversity is properly reflected throughout the company, notably at board level.
• Company boards should introduce key performance indicators for reducing and eliminating their pay gaps. Remuneration committees, in reporting on pay policy, should explain how this commitment to reducing the pay gap is being reflected in their decisions.
• The FRC should monitor the quality of reporting on gender diversity and the pay gap in annual reports and press for improvements where necessary. The Committee felt it was regrettable that the recent revisions to the UK Corporate Governance Code did not make specific provision for reporting requirements to include measures to be taken to address any gender pay gap.

The Committee is to continue with the second strand of its inquiry, examining progress of reforms relating to executive pay levels and structure, in the autumn of 2018.

UPDATE: On 13 September 2018, the Government stated that it will not be amending the regulations as yet, given they are "still in their infancy".  It committed only to review the legislation in five years.  It did note that it was pleased to see employers voluntarily reporting partner data and reporting even if below the size threshold.