“The Gender Pay Gap and Gender Pay Reporting”

“The Gender Pay Gap and Gender Pay Reporting”: “A Seat at the Table” Alumni Conference Call with Ann Francke, CEO of CMI

Fidelio’s focus is building effective Boards and leadership teams. Effectiveness implies diversity as well as an ability to navigate shareholder and stakeholder expectations. The two themes come together with the prospective requirement for UK companies to report on the gender pay gap from 2017.

We were therefore delighted to welcome Ann Francke, CEO of the Chartered Management Institute (CMI), to present to an “A Seat at the Table” Alumni Conference Call on 30th November 2016. CMI has been closely involved in preparing data on the gender pay gap and has a clear focus on good management and enhancing productivity. We were joined on the call by a small group of senior female Executives and Non-Executive Directors representing a range of leading companies and sectors, all of whom were associated with Fidelio’s “A Seat at the Table” Programme.
What was originally penned as a conference call on the gender pay gap and gender pay reporting became a wider discussion on corporate responsibility – in the context of the recently published Corporate Governance Reform Green Paper from the Department for Business, Energy and Industrial Strategy.

The Challenge

As highlighted by statistics published this year by XpertHR and the CMI, the gender gap is clear, both in terms of pay and promotion. In the past ten years we have seen very little progress in improving these inherently linked discrepancies. Men remain 40% more likely to be promoted than their female peers and at every level in the organisation the average man is paid more than the average woman.
At the current rate of progress, moderate estimates indicate that it will take 100 years to close this gap.

The Requirement – Gender Pay Gap Reporting 

In the UK, under the draft Equality Act (gender pay gap information) Regulations 2016, due to come into effect in April 2017 (although still under review), employers with over 250 employees in England, Wales or Scotland are required to publish gender pay reports.

Under the draft Regulations in their current form, these reports should outline the mean and median pay gaps between men and women; the number of men and women in each quartile of a company’s pay distribution; and the difference between the mean bonus payments to men and women as well as the proportion of male and female employees who have received a bonus.

Overall, Ann highlighted the positive effect of disclosure in setting clear metrics around this difficult issue. Ann also emphasised the importance of the narrative accompanying the metrics – particularly for industries where the female pipeline is a challenge.

Case Studies: Progressing Practically

CMI has been active in promoting a practical response to addressing the pay gap. Good examples and best practice can provide a roadmap and Ann was able to share case studies of companies and successful initiatives:

  • Sponsoring talented women. A year ago, Sky set up a sponsorship initiative for 200 women in the talent pipeline (assigning each a senior sponsor within the organisation), since then 30 have been promoted. Similarly, Accenture identified talented women and ensured that they were visible and on the radar for promotion.
  • Act on metrics. Google has a policy of self-promotion, i.e. of employees putting themselves forward. Google monitors this self-promotion policy closely – mapping the applications for promotion, including by gender. This identified that men were more generous in evaluating their own ability resulting in an 80/20 male/female split of applications for promotion. Google managed to lessen this discrepancy to near parity by simply disclosing the gap to its employees and facilitating informal discussions.
  • Understand and target issues specific to your organisation/industry. Ann also advocated keeping a watchful eye on the career track of women. In retail, too often female employees will be found in departments that are not usually drawn on for senior management positions – e.g. Health & Beauty and Frozen Foods.

Questions from the Floor

  • What will investors be expecting of companies in terms of reporting?
    The Investors Association in the UK will be expecting companies to engage at some level with the Gender Pay Regulations, if not explicitly with numerical disclosure then at least a narrative and articulation of robust plans to address the gap. Investors have not traditionally interrogated this type of information well and some of the industry bodies such as CFA are ensuring that investors learn to look beyond the narrow P&L to include issues of culture and diversity.
  • In the context of the UK’s proposed Reporting legislation, how is this topic seen in Europe?
    The European emphasis has thus far been dominated by quotas at the very top, rather than the voluntary and holistic emphasis of the Regulations proposed. These UK proposals are much more about the pipeline more generally, rather than the Board and emphasise business’ responsibility for transparency and integrity as key drivers for change.

Corporate Governance Reform Green Paper

The BEIS Corporate Governance Reform Green Paper, published 29th November 2016, is in consultation until 17th February 2017 and covers three key topics, each including a number of suggestions:

1) Executive Pay

  • Shareholder voting rights on pay could be made more frequent and binding – with mandatory votes triggered if a company’s remuneration proposals move over a threshold
  • Remunerations Committees should shift their frameworks from peer review (which has led to an upward spiral of pay due to competition for talent) toward a focus on shareholder and wider stakeholder opinion
  • Greater transparency and narrative on LTIPs and executive pay – linking directly with the ratio of CEO pay to that of the average employee

2) Strengthening the Stakeholder Voice

  • The government has apparently retreated from its initial proposal to introduce Board-level employee representation in the German model. However, the government remains keen to ensure that business listens to and is held accountable by key stakeholders, including employees and customers – the so-called ‘licence to operate’
  • Increasing the diversity of inputs into business decisions at the top of the organisations by incorporating these voices is key to responsible decision-making

3) Corporate Governance of Large Private Companies

  • To date, the UK corporate governance framework has focussed on quoted companies and the Green Paper also explores extending governance requirement to large privately held companies– for example, reporting requirements across diversity, emissions and social community issues

Fidelio’s Call to Arms

Fidelio has flagged previously that business has been wrong-footed in 2016 by political upheaval and the rise in anti-business sentiment. The demand for responsible capitalism is not confined to the UK but for companies operating in the UK there is an opportunity to engage and influence policy. Ann urged participants to familiarise themselves with both the gender pay gap reporting requirements and BEIS’s green paper and, above all, to enter into consultation on key issues to achieve good policy. Fidelio concluded that the ability to engage on regulatory and governance issues will increasingly be a sign of Board effectiveness.

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