Three ways to start to close the ethnicity pay gap

Author: Roianne Nedd

The Government has released its guidance on ethnicity pay reporting. Here, HR, finance and leadership specialist and author Roianne Nedd considers some of the approach's assumptions and shortcomings, and makes three recommendations to help employers tackle ethnicity pay inequalities.   

I remember when the gender pay gap regulations were being considered. I sat in many rooms debating the nuances of the possible collection and reporting requirements. I was excited to see increased transparency and accountability, but I wondered how much difference they would make.

This question was a niggling yet significant tick in my ear.

As a chartered accountant I was very comfortable with the calculations and numbers, but I knew the numbers would not be everything. For HR professionals numbers are rarely the thing that they naturally engage with.

Three concerns about the guidelines

Fast forward to 2023 and we have seen successive gender pay gap reporting deadlines come and go with very little improvement in many industries. So it was with a fair amount of scepticism that I watched the conversations about the ethnicity pay gap unfold. Although I wanted to be positive, I had three specific concerns about the approach that I hoped would be ironed out during the consultation process.

1. Duplication of the gender pay gap approach

The gender pay gap approach has had very little positive impact since its establishment. It focuses on historic data and largely points to three root causes for almost every industry and organisation:

• A lack of women in senior roles, since seniority usually leads to a pay premium. Organisations that are struggling to promote and hire women into senior roles will see a negative impact on their gender pay gap.
• Women's pay impacted by reduced working hours or extended maternity leave. Although gender pay gap calculations have been updated to more adequately reflect the impact of part-time work, it is yet to be determined whether there is truth to the hypothesis that part-time workers tend to earn lower hourly rates of pay because of biases around commitment and long-term career plans. Additionally, those who go on extended periods of leave will usually earn less during that period. All of which affects the gender pay gap.
• Occupational segregation. The over-representation of women in some occupations such as HR compared to men in areas such as IT, finance and procurement, coupled with the differential pay scales in these industries, usually influences the gender pay gap too.

Consideration of these issues begs the question: Do these causes hold true in the same way for matters of ethnicity?

The first and third causes - the lack of women in senior roles and occupational segregation - have racial elements which may influence the ethnicity pay gap at a high level, but there are additional nuances to consider. For instance, they do not necessarily hold true in all industries and professions and across different levels.

Lack of seniority largely impacts people of colour across every industry and profession and is exacerbated by a proportionate over-representation of people of colour in junior roles. For women there is usually representation at every level up to senior leadership.

The second cause - the impact of reduced working hours or extended maternity leave - is not obviously an ethnicity-related issue, but intersectionality will create some nuances that impact pay conditions, for instance. Intersectionality of race and gender is an important consideration when adopting an approach to ethnicity pay gap reporting.

Question for consideration: What is the experience of women of colour and how do their gender and ethnicity contribute to a gap in their pay?

2. Tension between transparency and data protection

In the UK, considerations of ethnicity are based largely on a high-level model of 4 + 1:

• Asian;
• Black;
• mixed;
• white; and
• other.

Without delving into the deeply problematic core assumptions underlying these groupings, it is important to consider that there are usually only small numbers of people from each ethnic group at different levels of an organisation, and especially at senior levels. This means that, to protect individual pay data, amalgamation will be necessary, whether at ethnicity level to create a white versus non-white data set, or between levels, so lumping together different levels of seniority to hide individual pay information. This approach then makes it difficult to use the data as a diagnostic tool and lever for change.

3. Oversimplification and over-optimism

Due to the tension between transparency and data protection, many organisations will opt to lump ethnic groups together. This is not just about simplifying things, it is about being able to present an overly optimistic view. Aggregating all the ethnic groups gives an opportunity to hide the differential and largely negative pay consequences that some groups face. In many organisations, Asian people are more likely to be hired and promoted. This means that any data presented in relation to a single non-white group is likely to hide the proven disparities that Black people face in the workplace. Ethnicity pay gap reports therefore risk being somewhat positive despite notable differences for the subgroups.

Three positive steps organisations can take

So how do we use what we have to the best effect?

1. Adopt more openness in the narrative that underpins the numbers

In my opinion the approach that should have been adopted is one of "comply or explain". Organisations should be mandated to share the data at the white versus non-white level with the expectation that any gap which is skewed in favour of one or two groups requires a narrative statement about the differences described in proportionate terms, eg Black employees' pay gap is over 20% greater than that of other non-white employees.

Although this has not been mandated, organisations can still choose to apply this level of honesty in their reporting.

2. Share tangible intentions and targets to drive change

What gets measured gets done - so is it time to consider targets? How do we clearly set aspirations for the closure of the ethnicity pay gap? There is an opportunity to be more intentional about achieving change than has been the case with the gender pay gap.

For the gender pay gap some of the underlying conditions around work-life balance, reduced hours and extended leave are also driven by societal norms and gendered roles in the household. While these are being challenged by successive generations, they are taking time to change.

However, where race and ethnicity are concerned, the underpinning stereotypes that may drive the pay gaps are largely inappropriate and should be eradicated immediately. People of colour do not inherently lack value, so pay structures should not suggest they do. Targets would focus minds and drive change further, faster.

3. Develop a robust action plan to address remuneration challenges for your people, including people of colour

For people of colour pay is a very complex issue underpinned by differential experiences.

Questions for consideration: Which of these issues is a reality for your people and how can you consider them in pay conversations? And what additional considerations might your people be facing?

• Family burden. People of colour often support extended family "back home", regardless of individual wealth, meaning that multiple generations and families often depend on a single pay cheque or live in a single household.
• Safety at home. Many people of colour live in multicultural areas where they can find their "own" people and stay connected with their communities. These areas are rarely close to the locations of corporate offices. People of colour build communities to access safety and cultural acceptance because they are not readily available everywhere. This has implications for travel and childcare costs. This is even more acute during a cost-of-living crisis.
• Upward mobility. Building on the previous point, even if people of colour wanted to live closer to work, prices in cities are usually much higher compared to the outskirts. Therefore, pay disparities continue to drive different experiences for people of colour. Historic policies and processes mean that many immigrants to this country were underemployed, thus positioning them behind white British people regardless of academic achievements, eg many immigrant doctors are forced to requalify, leading to a lag in their careers despite being experienced physicians. The long-term impact is that these families cannot rely on generational wealth to bolster their incomes.
• Discretionary effort. The age-old adage for people of colour is that you must work twice as hard to get half as much. There is so much discretionary effort required to get the same outcomes as a white person. It feels exploitative and unjust. Equitable pay can solve this if leaders and organisations are willing to acknowledge and recognise it. Ask yourself why, as we all know, imposter syndrome exists especially for people from historically marginalised groups, driving them to work harder to gain recognition. No one is addressing this. What are the implications for wellbeing and burnout?

Driving change

In closing, although not what I wanted or believe to be the best solution, the recently published ethnicity pay gap requirements are here and we need to use them for the purpose for which they were intended: to stimulate discussion, challenge the status quo and drive change. Leaders and organisations have the power to go beyond the requirements and to demonstrate that there are many interdependencies within the equality, diversity and inclusion (EDI) sphere if we only think harder and more expansively.