Out-Law / Your Daily Need-To-Know

Closing the gender pay gap 'likely to take years' for UK banks

Out-Law Analysis | 20 Jun 2019 | 8:58 am | 5 min. read

The financial services sector is regarded as one of the worst sectors in the UK for pay equality, with an average 35% gender pay gap at banks and building societies in 2017 compared to 14% for all UK companies.

UK banks continued to top the lists of large companies with the biggest gender pay gaps in 2019, according to the latest figures. One large bank reported a median hourly pay gap of 44.1%. Disappointingly, only one bank managed to reduce its reported pay gap between April 2018 and April 2019, while none of the largest banks reported more than a two per cent reduction or increase.

The gender pay gap in the financial services sector is largely due to the differences in seniority between male and female employees: generally, there is a higher proportion of women in junior and part-time roles, and a higher proportion of men in senior roles. Many banks agree that, at the moment, they cannot hire enough women at senior levels to address the balance because the industry has not attracted enough women over the last few decades.

So, how much can annual reporting close the gap? And how quickly can things change?

Reasons for the financial services gender pay gap

Recent research by Professor Geraldine Healy at Queen Mary University of London and Mostak Ahamed at the University of Sussex has found that the gender pay gap is four times larger at the executive level of UK financial services than among its lowest-paid workers.

Corden Helen

Helen Corden

Partner

Historically, women have not been attracted to more senior roles in the financial services industry and the 'alpha male' reputation that they carry.

There are a few potential reasons for this. Historically, women have not been attracted to more senior roles in the financial services industry and the "alpha male" reputation that they carry, to quote Treasury Committee chair Nicky Morgan. Jayne-Anne Gadhia, chief executive of Virgin Money, described this culture to the committee's Women in Finance inquiry in 2018 as one of "winning at all costs", rather than doing the right thing. Recurring cultural themes of the inquiry included sexual comments from male superiors; stereotyping by the 'old boys' club' and its arcane recruitment practices; the so-called 'motherhood penalty'; opaque bonus criteria; and 'presenteeism', where performance is judged by visibility rather than output.

There is also a higher proportion of women working in junior and part-time roles that are more flexible, and allow more opportunities to balance work and other commitments.

A report by management consulting firm Oliver Wyman observed that the biggest challenge in tackling the gender pay gap at the top lies in changing the stereotypes, assumptions and biases about what is required for leadership and success that permeate the culture at financial institutions. When evaluating the suitability of a woman for a role, or using certain language in job advertisements, unconscious bias can creep in.

Can annual reporting make a difference?

The UK's gender pay gap has barely budged in the year since the government imposed mandatory reporting, raising questions over whether it can actually help close the gap. Indeed, for many companies, the published figures show that their individual pay gaps have actually increased in this time.

It can be argued that the reporting requirement has shone a light on the issue and the extent to which firms are - or are not - imposing and meeting targets, and is helping to push diversity up the boardroom agenda. Reporting brings greater transparency, which in turn allows for more effective scrutiny. The risk of reputational damage or of causing good female talent to decline to work for a company based on its disclosure and subsequent negative press coverage means companies have considerable incentives to address their gender pay gap.

However, the Equality and Human Rights Commission (EHRC) has said that reporting will only truly be effective if employers are required to explain the underlying reasons for their pay gaps and set out plans to address them. The House of Commons Business, Energy and Industrial Strategy (BEIS) committee has also recommended that the rules be extended to require employers to publish details of what they are doing to close their gender pay gaps, something that is not currently a legal requirement.

In 2017, just 48% of employers published an action plan alongside the data, according to government estimates. This year, some of the UK's biggest banks again published only the minimum two pages of data required, with no action plan. Businesses continue to be encouraged to publish some kind of narrative alongside the raw data to help to put it into context and set out their plans to tackle their pay gaps, but face no legal requirements.

The House of Commons Treasury Committee is currently carrying out an inquiry into the effectiveness of the gender pay gap reporting rules. At a recent oral evidence session, Government Equalities Director told the committee that there was a "pretty crucial window" over the next couple of years to expand the range of data collected and introduce mandatory action plans, in order to take advantage of the momentum for gender pay gap reporting and make the reforms as effective a tool as possible.

The risk of reputational damage or of causing good female talent to decline to work for a company based on its disclosure and subsequent negative press coverage means companies have considerable incentives to address their gender pay gap.

Meanwhile, former Financial Times business editor Sarah Gordon was asked specifically about the approach taken by firms to close the gap and whether there were any good examples. She cited Virgin Money as a "brilliant example", as it produced a succinct summary of why it had such a large gender pay gap as well as the actions it was going to take to address it.

Gordon described the bank's report as "the best kind of example of what I imagine the government want employers to do: acknowledge the gap, acknowledge where you are and then talk seriously about how you are going to address it".

How quickly can things change?

While closing the gender pay gap altogether is likely to take years, positive steps can be taken by financial services companies now which should help to reduce it year on year.

In order to improve the number of women at senior level in the long term, and therefore reduce the pay gap, change has to start at the bottom. Many banks have committed to a gender-balanced intake of graduates, strengthening the number of women in their leadership 'pipelines'. Even where banks are meeting this commitment, it will take time for graduates to progress to senior roles, and therefore make a significant impact on pay gap figures.

In their latest reports, some of the UK's largest banks have committed to having at least 30% of senior roles filled by women by 2020. RBS has gone further than its counterparts and committed to achieving a full gender balance at all levels of the business by 2030. Many leading professional services firms have also signed up to the government-backed Women in Finance Charter, committing to increase the proportion of women in senior management roles from 35 to 40 per cent by 2020 and with a longer-term goal of a 50:50 gender balance in top jobs.

Last year, the Government Equalities Office and Behavioural Insights Team set out a number of actions that employers should take in order to reduce their gender pay gap. Among these are including multiple women in shortlists for recruitment and promotions; using skill-based assessment tasks in recruitment; using structured interviews for recruitment and promotions; encouraging salary negotiation by showing salary ranges; introducing transparency to promotion, pay and reward processes; and appointing diversity managers and/or diversity task forces.

Helen Corden is a gender pay gap reporting and employment law expert at Pinsent Masons, the law firm behind Out-Law.