Equal pay reviews: the time is nigh for equal pay

Section 1 of the Personnel Today Management Resources one stop guide on equal pay reviews. Other sections.

"Equal pay is an issue whose time has come". So said the Equal Pay Taskforce in its influential report for the Equal Opportunities Commission (EOC) in February 2001.

Some might say it is about time. After 30 years of equal pay legislation, the gap in pay between men and women working full-time has narrowed from 31 per cent to around 18 per cent. Part-time female workers' pay has barely improved at all in comparison with that of full-time men - it remains around 40 per cent lower.

What little progress has been achieved has been slow and halting. In 2002, for example, the pay gap actually widened slightly - for the first time in 20 years.

Frustrated by this lack of headway and the legal and procedural complexities of the equal pay legislation, the EOC started a concerted campaign in the late 1990s to challenge the status quo.

Spurred on by the new Labour Government's avowed commitment to equality in the workplace, it launched a three-year campaign, called Valuing Women, designed to make faster inroads into the gender pay gap. Its aim was to entirely eliminate that part of the gap that could be put down to sex discrimination - either direct or, as in most cases, indirect and inadvertent - in employers' pay systems.

As part of that campaign, the EOC established the Equal Pay Taskforce, chaired by Bob Mason, HR director of BT, and peopled by HR practitioners, trade union officials, civil servants and academics, to look at the causes of the pay gap and what could be done to close it. The taskforce identified three main factors contributing to the equal pay gap - discrimination in pay, the segregation of men and women in certain occupations, and the impact of women's caring responsibilities. Pay discrimination accounted for between 25 and 50 per cent of the pay gap, it concluded.

This was backed up by a separate report by the Government's Women & Equality Unit, in 2001, which analysed in detail the various components of the gender pay gap. It estimated that "just being female" accounted for 29 per cent of the gap, while occupational segregation accounted for 13 per cent. The longer interruptions to women's employment due to their extra caring responsibilities were associated with 15 per cent of the gap.

There were other factors, too, the research concluded. The difference in the length of women's full-time work experience and that of men was associated with 26 per cent of the gap. The extent to which women were more likely than men to work part-time accounted for 12 per cent of the gap. And the difference between men's and women's educational qualifications took up the remaining 6 per cent.

Mandatory pay reviews

The Equal Pay Taskforce report, Just Pay, published in February 2001, said it was "perfectly feasible", with concerted action from all key players, for that part of the gender pay gap that could be put down to discrimination to be halved in five years and eliminated entirely in eight.

The taskforce found, however, a huge reservoir of complacency among employers: the vast majority did not believe they had an equal pay problem and therefore did not believe a pay review was necessary.

Its inescapable recommendation was that the Equal Pay Act 1970 must be amended to require employers by law to carry out regular pay reviews. It proposed a two-stage review process: a pay system equality check for all employers, and then a more detailed pay review for those who identified a pay gap at the first stage.

Figure 1 Components of the pay gap

Source: The Impact of Women's Position in the Labour Market on Pay and Implications for UK Productivity, by Professor Sylvia Walby and Dr Wendy Olsen, Women & Equality Unit

Other recommendations concerned raising levels of awareness and understanding of the pay gap among all stakeholders; helping employers and trade unions to implement equal pay strategies and campaigns; forcing employers to be more open, transparent and accountable on matters of pay; and asking the Government to place equal pay at the heart of its social, economic and labour market policy agenda.

Despite the strength of the taskforce's language, the Government was not convinced. Then employment minister, Tessa Jowell, rejected the recommendation that pay reviews should be made mandatory. "Employers should be encouraged to carry out voluntary reviews," she said, though she promised to keep this issue under review and to keep open the possibility of mandatory reviews if progress was not made towards pay equality.

Employers, however, quickly realised they were far from off the hook. Just Pay became a launch pad for a whole freight train of initiatives and pledges from the EOC, the Government and the trade unions.

New improved code of practice

The EOC quickly took up the taskforce's point about making it easier for employers to tackle equal pay by launching an equal pay review kit in July 2002. A separate kit for smaller organisations without personnel expertise followed.

The EOC also set about revising, simplifying and expanding its code of practice on equal pay, first issued in 1997. Consultation on its revisions closed in February 2003 and a final draft was approved by the secretary of state for trade and industry, Patricia Hewitt, and laid before both Houses of Parliament on 8 July 2003. It will come into effect on 1 December.

The code, which is summarised on pages 15-18, is not legally binding, but tribunals can take into account an employer's failure to act on it. It covers the main relevant legislation, procedures for dealing with and bringing equal pay claims, a model for carrying out an equal pay review, and an example of a model equal pay policy.

On the back of this guidance came some ambitious targets. The EOC 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. "By measuring progress against these targets, we will be able to assess whether a legal requirement to do pay reviews will be needed in future," said EOC chair, Julie Mellor - a clear signal to the Government that she did not intend to let it shelve its promise to review the issue if voluntarism did not deliver.

Also in 2002, the EOC announced, together with business-led equality body Opportunity Now, the Equal Pay Forum to provide guidance and support for employers and share best practice. Membership is open to any organisation that can show it is committed to carrying out an equal pay review or can show it has carried one out within the past three years.

Trade union pressure

In the spirit of the taskforce recommendations, the trade union movement has impressively 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 review and how to conduct equal pay cases.

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.

There are also examples of the partnership approach producing some exciting results. HR managers at BMW Group's Oxford plant, for example, joined representatives from unions Amicus and the TGWU on the TUC training scheme, with a view to identifying ways to tackle equal pay and embarking on an equal pay review at the end of 2003.

Equal pay questionnaire

The Government also took on board the taskforce's emphasis on removing the "culture of secrecy" around pay that perpetuates inequality. In April 2003, it introduced, as part of the Employment Act 2002, a statutory equal pay questionnaire designed to make it easier for individuals to request key information on pay from their employers when deciding whether they have a case for an equal pay claim.

While employers are not under a legal obligation to provide answers to the questionnaire, an employment tribunal is entitled to draw inferences from a deliberate refusal to answer or from an evasive or equivocal reply.

Combined with new rules on the burden of proof in sex discrimination cases introduced in 2001, this could prove a very powerful tool, not only for individual employees but for union reps going on "fishing expeditions". Under the burden of proof rules, where claimants can construct a prima facie case of inequality. It is then for employers to prove there is a non-discriminatory reason for the difference in pay. Without evidence it has audited its own pay systems, it will be extremely difficult for the employer to make an adequate defence.

The long-running case of Louise Barton v Investec Henderson Crosthwaite Securities, now settled for an undisclosed sum, illustrated this perfectly.

City analyst Barton's widely publicised claim was that her salary, bonus payments and stock options were less favourable than those of male comparators.

The key issue in this case was where the burden of proof lay. Investec argued that the way it rewarded staff - especially in the area of discretionary bonuses - needed to remain a closely-guarded secret because of its competitive environment.

The EAT threw out that argument, and emphasised that in equal pay cases, any employer should be expected to provide cogent evidence to rebut a claim. It was critical for employers to be able to explain their pay structures objectively and show they were not in any way discriminatory, it said.

In another case, Nelson v Carillion Services, the Court of Appeal stressed that the onus still lay with the complainant to come up with facts and statistics from which the tribunal could conclude they had been discriminated against (in the absence of an adequate explanation from the employer). But as the court pointed out, the new questionnaire should make this much easier and is likely to lead to increased, and stronger, claims.

Employers under threat

This combination of recent legal and policy developments now makes it virtually imperative that an employer has facts and figures at its fingertips to prove its pay systems are objectively justifiable and non-discriminatory.

Yet the latest evidence suggests this is far from the reality. A survey of more than 200 employers by DLA MCG Consulting in August 2003 shows that 83 per cent are not confident their pay systems are fair, and feel at the mercy of equal pay claimants.

Getting it wrong carries greater and greater penalties. At present, the Government has ruled that equal pay compensation for successful claimants should have a six-year backdating limit, rather than the previous two. But experts predict this limit will be challenged in the European Court of Justice, using precedents that have allowed back claims to be dated way back to 1976.

Of course, winning an equal pay case is still, in most cases, a tough and arduous battle, and is not for the fainthearted. On the back of the introduction of the questionnaire, the Government is still considering ways in which the legal process can be further re-weighted in favour of the claimant.

Meanwhile, many employers continue to cross their fingers and hope for the best. Given the huge momentum now building up behind the equal pay issue, this strategy is clearly unsustainable.

HR faces an uphill battle in bringing about change in their organisations. Pay reviews don't come cheap - Birmingham City Council believes its current job evaluation exercise and pay audit will cost £15m in extra wages among its 35,000 strong workforce.

Yet, there is a feeling that HR is desperate to get to grips with the problem. A survey undertaken by online consultancy e-reward in March 2001 found two-thirds of pay and HR specialists were in favour of mandatory pay audits. As well as the legal pitfalls, it goes against the HR grain to allow the continuation of a system that constantly fails to fulfil and reward human potential and undermines efforts to recruit and retain the best people for the organisation. Many also recognise the impossibility of becoming a true employer of choice in an increasingly sophisticated labour market, while the threat of highly-public and damaging equal pay claims hang in the air.

Fear factor

However, many experts have noted the 'fear factor' that can prevent employers opening up the equal pay box - fear of the expense, fear of the technicalities, and fear of what they will find out about their own impenetrable pay structures. Job evaluation schemes, re-grading exercises, red circling, equal value - the jargon alone can make this a no go area.

But as EOC chair Julie Mellor says, there really is no excuse any more for inaction. A whole battery of tools and guides has now been developed to aid employers through the equal pay process. Not only the EOC and CIPD, but also commercial reward specialists and employment law firms have also produced aids with practical, unthreatening names such as the Equal Pay Review Kit, the Equal Pay Toolkit, and the Equal Pay Healthcheck. Mellor insists: "The majority of those who have done a pay review did not find it difficult."

For those who are still not convinced, this guide will provide: