By Donald MacKinnon, Group Legal Director, Law At Work

IN 2018, organisations with more than 250 employees were required by law to report on gender pay discrepancies for the first time. But one year on, fewer than half of Britain’s biggest firms have narrowed the gap. Figures published in early April 2019 showed that as many as 78 per cent of large firms were still paying men more than female counterparts. Perhaps of more concern are statistics showing the pay gap had actually increased at about 4,500 UK businesses. With the second round of reporting complete, it is fair to say that the Government’s plan to tackle gender diversity hasn’t quite got off to a flying start.

In a bid to get the policy back on track, the Department of Business, Energy and Industrial Strategy has made a number of recommendations to make the process more effective in encouraging companies to close the gap. These included extending reporting requirements to employers with more than 50 employees and implementing mandatory narratives and action plans which summarise steps that will be taken.

For the time being, the Government has not committed to undertaking these suggestions, but has responded to proposals to widen the obligations and extend reporting to ethnicity disparities – a rather surprising move given the perceived ineffectiveness of measures to address gender pay inequality.

Ethnicity pay reporting also comes with its own set of challenges, namely that many employers don’t track this type of data and some ethnic minorities may not readily identify with set categories. Nevertheless, the Government has confirmed it intends to trial the initiative.

And corporate reporting obligations don’t end there. Legislation requiring firms to report on the remuneration packages of top executives came into force on January 1 this year. In the past two years the median pay of CEOs at FTSE 100 companies has increased by 11 per cent.

Figures like these, and the subsequent backlash from the media, trade unions and ordinary workers, means that companies in the UK with more than 250 employees are compelled to comply with the pay-ratio regulations and report on the ratio of chief executives’ remuneration to the median pay of their UK employees. Similar to the gender policies, businesses will be required to report annually, with the first disclosures appearing in 2020. Unlike with gender pay gap reporting, companies will not need to publish figures on their website but rather in the company’s director’s remuneration report.

While the effectiveness of such reporting measures is open to debate, what is clear is that the Government is committed to introducing greater openness around pay and employment conditions. Gone are the days when firms could mask their diversity, or lack thereof, behind complex accounting. Transparency is now expected, and businesses need to take regulations into account.

Alerting staff to any pay gap ahead of time is a good way to minimise fall-out. Firms which have substantial discrepancies should also make use of the chance to publish narrative alongside the data and inform employees of the steps they are taking to close the gap. Investigating the cause of any pay gaps, and scrutinising recruitment and promotion channels will also allow firms to effect positive change.

Pay gap reporting is still in early stages of development and limited sanctions means there is currently little scope for enforcing change. But with most agreeing that transparency is a good thing, corporate reporting is probably here to stay. Businesses shouldn’t just get used to their new responsibilities, they should expect an expansion in their obligations.