Equal pay reviews: the business case

Section 3 of the Personnel Today Management Resources one stop guide on equal pay reviews. Other sections.


Use this section to

Clarify the business reasons for managing equal pay

Prepare presentations to senior management on managing equal pay

Demonstrate the ways in which HR intends to deliver benefits to the business bottom line

Can you afford to ignore the pressure for change?

The past few years have seen equal pay emerge as a priority issue for the Equal Opportunities Commission (EOC), the Government and the trade unions. As part of a sustained campaign to close the gender pay gap, the EOC has said half of large employers with 500-plus workers should have carried out a pay audit by the end of 2003, and a quarter of smaller organisations should do so by December 2005.

The trade union movement has cranked up the pressure on employers to tackle the pay gap. The TUC, for example, received government funding in September 2001 to train 400 representatives in how to carry out an equal pay reviews and how to conduct equal pay actions.

A TUC survey of a sample of these representatives, released in August 2003, revealed that half the employers they were involved with were now taking steps to address the issue of equal pay. Of these, two-thirds were conducting or had conducted a formal pay review, and more than half had set up a working party on the issue. The impetus, the survey revealed, came from equal pay claims or the threat of them.

Meanwhile individual unions started their own campaigns. Amicus, for example, aimed to ask every UK company in its sectors to commit to equal pay audits, and threatened to name and shame those who refused. This exercise resulted in about 100 employers indicating they might be willing to conduct an equal pay review, and Amicus is now taking these forward.

This concerted action has found a powerful new tool in the form of the equal pay questionnaire that was introduced in April 2003. This raises the potential danger of unions and employees going on 'fishing expeditions' to decide whether there is any grounds for bringing legal action on equal pay. This in turn appears to be strengthening the unions' negotiating hand in pushing for the introduction of equal pay reviews, job evaluation schemes and other changes.

The past few years have seen the launch of some of the largest equal value claims ever seen in 30 years of legislation. Public sector union Unison, many of whose members are low-paid women, launched an equal pay claim this year for 900 of the 4,500 teaching assistants employed by Lancashire County Council. Having taken expert advice, it compared the classroom assistants with male technicians working in street lighting and traffic calming. The council has agreed to begin negotiations based on the union's submissions and the tribunal application has been stayed. Victory could mean up to £10m a year extra in teaching assistants' wages across the UK. Further claims are now believed to be in Unison's pipeline.

A recent report by IRS Employment Review identified equal pay, along with pensions and fat cat pay, as key issues on the 2003/4 trade union bargaining agenda.1

On top of the introduction of the questionnaire in April, the report said: "The EOC's [new] code of practice, which is due to come into effect on 1 December 2003, is likely to strengthen the unions' negotiating hand still further."

Nor are the unions frightened to push for further changes. Unison, for example, with its philosophy of "educate, negotiate, litigate", believes further legislation is needed to take account of the effect on equal pay of changes such as the privatisation of public services, the fragmentation and devolution of management responsibility and the rise in the use of temporary and agency staff. Its wish list includes fairer time limits for bringing claims, and rule changes to allow the unions and EOC to bring claims on behalf of groups of employees.

Can you afford to receive, fight, or lose a claim?

The costs of getting it wrong are getting higher. In the summer of 2003, the Government legislated to increase from two years to six the amount of back pay a successful equal pay claimant can receive in compensation.

It also said claimants who can show the employer deliberately concealed relevant facts could possibly claim back even further - to the date of the contravention. And lawyers say there is scope for this new rule to be used to challenge the statutory limits in the European courts ( seeThe legal framework).

In addition, the tribunals are now entitled to award interest on the back pay owed to the successful claimant.

To this must be added the ongoing costs associated with defending an equal pay case - in the case of an equal value claim, it could drag out for several years, necessitating the retention not only of lawyers but also of equal pay experts to advise on job evaluation.

Even without the costs of litigation and compensation, a perception that pay systems are unfair, unjust or discriminatory is likely to undermine workforce morale and productivity, as well as a business' reputation among customers and potential recruits looking for their employer of choice.

Can you afford not to maximise potential?

Equal pay has been identified as an economic productivity issue. Despite business' best efforts, the productivity gap between our economy and those of the US, France and Germany remains stubbornly wide. While France, Germany and Italy have dramatically closed the gap with the US, Britain's relative improvement has been modest. A study released last year showed output per hour worked was 32 per cent higher in France than in Britain, 29 per cent higher in former west Germany and 21 per cent higher in the US.

Researchers have shown that discrimination can reduce productivity by interfering in the best allocation of workers to jobs. "Policies to reduce discrimination may thus improve the productivity of the UK economy," they have concluded.2

In 2001, the government-appointed Kingsmill Review reported that the gender pay gap was partly a symptom of greater human capital management (HCM) problems within organisations - the failure of employers to recruit, train, develop and promote women to their true potential.3

Efforts to reduce pay inequality by better measuring, managing, rewarding and reporting on human capital, Denise Kingsmill believes, is likely to pay dividends in business performance by allowing organisations to maximise the talent available to them.

Can you afford not to carry out an equal pay review?

As EOC chair Julie Mellor stresses: "Without checking whether women and men are doing equal work, and their relative pay for this work, no organisation can be sure its pay system is free of pay inequalities."

Yet, the latest research for the EOC, released in March 2003, found that the majority of large, and two-thirds of medium-sized employers had no current plans to conduct an equal pay review - though organisations that had started an equal pay review did so in 2002, suggesting the forces for change may be having an effect.4

It found little change in organisational pay structures and practices since a similar survey carried out in 2001.5

It also found:

  • Occupational segregation - a major reason for the gender pay gap - remained marked even in large organisations. This sort of segregation has been linked in studies to reduced productivity in that it limits the range of employment opportunities taken by women resulting in unfulfilled potential. Despite this, employers were usually at a loss to provide precise information on the proportions of men and women in different occupational groups

  • Two-thirds of employers surveyed were not monitoring the relative pay of men and women, and 43 per cent had no plans to

  • The culture of secrecy and obscurity that the EOC highlights as so central to the continuing pay gap was much in evidence. Less than half of larger organisations told all employees about the range of pay for other jobs, grades or bands, and almost a quarter actually forbade employees from sharing information about their pay with colleagues.

  • Those organisations in the sample that were most likely to conduct equal pay reviews said they would do so because they wanted to be regarded as a best practice employer, thought it made good business sense, or were reacting to government policy and pressure. Some said that trade union pressure was a factor.

  • The majority of organisations that had conducted or were conducting an equal pay review said they had not found it difficult. Those that did have problems said this was to do with the quality of their HR and payroll databases and data.

    Can you afford to have confidence in your own pay systems?

    A mounting body of research points to the fact that UK employers remain vulnerable and inefficient because of their misplaced confidence in and lack of knowledge of how their own pay systems impact on male and female employees.

    This was starkly identified by the Equal Pay Taskforce, which pointed to "a surprisingly and worryingly widespread lack of awareness of the existence and persistence of the gap between women and men's pay" in its report Just Pay.6

    The research for the EOC found that despite the fact 93 per cent of respondents were very or fairly confident about the fairness of their pay systems, potentially illegal pay practices were still very much in evidence.

  • 19 per cent of respondents said jobs predominantly occupied by men were graded higher in their organisations than those predominantly occupied by women

  • 13 per cent said only jobs mainly carried out by men had access to bonus or performance-related earnings, while those performed by women do not

  • 12 per cent said part-time workers did not have any access to an occupational pension scheme (this has been unlawful since 1995)

  • Particularly in manufacturing, male-dominated professional, technical and skilled manual jobs were thought by HR managers to have greater intrinsic value than female-dominated support and administrative jobs.

    Conclusion

    It is a bold, if not foolish, employer that can now claim with confidence that its pay systems do not discriminate against women, without having carried out a comprehensive equal pay review.

    Having an ostensibly objective grading system is not enough. Employers need to be absolutely sure that their pay decisions are not based on misconceptions, biased value systems, stereotypes and traditions that discriminate - often unwittingly and indirectly - against women.

    Without measuring the impact of actual pay practices on the actual relative earnings of male and female employees - not only their basic pay but all aspects of the package - employers may be breaking the law without even knowing it. This is not a good place to be given the renewed efforts of pressure groups to highlight and challenge inequality with the growing range of legal weapons at their disposal.

    Carrying out a pay review - once seen as a dangerous and scary prospect - might well end up the easy, sensible and only option.

    References

    1The Trade Union Bargaining Agenda 2003/4 , IRS Employment Review, 3/10/03

    2The impact of women's position in the labour market on pay and implications for UK productivity - S Walby and W Olsen, www.womenandequalityunit.gov.uk

    3The Kingsmill Report, by Denise Kingsmill, 2001 - www.kingsmillreview.gov.uk

    4Monitoring Progress Towards Pay Equality, F Neathey, S Dench and L Thomson, Institute for Employment Studies, for the EOC, 2003 - www.eoc.org.uk

    5Gender Equality in Pay Practices, EOC, 2001 - www.eoc.org.uk

    6Just Pay - report by the Equal Pay Taskforce, 2001 - www.eoc.org.uk


    One stop guide to equal pay reviews: other sections

    Section 1: The time is nigh for equal pay
    Section 2: The legal framework
    Section 3: The business case
    Section 4: Carrying out an equal pay review
    Section 5: Designing and implementing a non-discriminatory job evaluation scheme
    Section 6: Pay practices - some questions and answers
    Section 7: Products and services
    Section 8: Case studies
    Section 9: Research
    Section 10: Key contacts
    Section 11: Jargon buster
    Section 12: Checklists