Out-Law Analysis 4 min. read

How the workplace diversity and inclusion agenda is developing

ANALYSIS: The recent requirement for companies with more than 250 employees to report their gender pay gaps (GPGs) is just the first step in the UK government's effort to drive a market-led improvement in diversity in the workplace through its transparency agenda.

The government has shown a strong commitment to facilitating real change in this area and has demonstrated that it is prepared to legislate if that change is not forthcoming. It is becoming increasingly clear that putting in place an effective diversity and inclusion (D&I) agenda is not a 'nice to have', but rather a business imperative, and that more change is on the way..

Gender pay gap reporting

The Department for Business, Energy and Industrial Strategy (BEIS) committee reported on the success of the GPG reporting requirements in August, after the reporting deadline had passed. The committee did, however, call on the government to go further, with recommendations including:

  • requiring the publication of a narrative, including figures and an action plan with objectives/targets;
  • setting specific long-term targets on a sector by sector basis which should be made mandatory if necessary;
  • linking executive reward to success in reducing the gender pay gap;
  • extending the reporting requirement to other characteristics, e.g. disability and ethnicity;
  • improving legal certainty around the enforcement powers of the Equality and Human Rights Commission (EHRC) by providing specified fines for non-compliance.

In its new Fair Pay Report, supported by Pinsent Masons, the law firm behind Out-Law.com, the Institute for Public Policy Research (IPPR) called for more far-reaching reporting obligations to be introduced. These include requiring businesses with 50 or more employees to publish a Fair Pay Report covering gender and ethnicity pay gaps, as well as CEO pay ratios and details of the proportion of the workforce earning below the Living Wage.  They have also recommended that employees should have a right to request comparative pay data and an independent pay audit, in an attempt to tackle unequal pay. 

The Conservative Party has already pledged in its manifesto that in addition to GPG reporting, companies and public organisations will have to move towards reporting pay gap information by ethnicity, age and job grade.

Ethnic diversity

UK employers could soon be required to publish data on their pay gaps for workers from different ethnic backgrounds. The government is currently consulting on what information employers should be required to publish in order to allow for "decisive action" on workplace diversity without placing undue burdens on businesses.

However, measuring the ethnicity pay gap is more complex than measuring the gender pay gap, as there are multiple ethnic groups with different gaps and many people with mixed ethnicity. Very few employers are currently collecting data on their ethnicity gaps, and even fewer have reported this data publicly on a voluntary basis.

The consultation follows the recommendations of the McGregor-Smith Review, which published its report earlier this year. The review, which considered issues affecting black and minority ethnic (BME) groups in the workplace, called on large employers to lead the way in removing barriers to BME progression. It urged companies with more than 50 employees to:

  • publish a breakdown of their workforce by race, ideally by pay band;
  • draw up five-year aspirational diversity targets;
  • nominate a board member to deliver on these targets; and
  • reference what steps they are taking to improve diversity in their annual report.

Separately, the Parker Review on boardroom ethnic diversity focused on the development and progression, including mentoring, of BME employees to strengthen a diverse pipeline of talented individuals, and disclosure by companies of the efforts they are making to improve diversity within the workforce.

Boardroom diversity

Improved gender diversity at non-executive level has been achieved by setting voluntary targets and monitoring progress through reporting. There are various targets applicable to FTSE companies, but progress has been slow.

The targets in the Davies Review, which suggested 25% of female board directors by 2015, were extended by the Hampton-Alexander Review, which focused on women in leadership roles across the FTSE 350 and raised the target to 33%. A BEIS select committee report published on 30 March 2017 proposed that half of new senior executive appointments in FTSE 350 companies should be women from May 2020.

The Parker Review on ethnic diversity suggested that there should be at least one director of colour on FTSE 250 boards by 2024, and that nomination committees should insist on the identification of people of colour for the purpose of vacancy shortlists.

The UK Corporate Governance Code already requires the nomination committee to describe the board's policy on diversity, any related measurable objectives, and progress made towards achieving these.

The BEIS select committee's recent report also suggests that boards should disclose information covering diversity of gender, ethnicity and social mobility and of perspective. The report recommends that companies should publish details of how accurately the diversity of the board mirrors that of the wider workforce and customer base.

Flexible working

The government recently announced plans to increase the availability of flexible working. It is considering putting in place a duty for employers to consider whether a job can be done flexibly, which may also include an obligation to specify this when advertising the role.

The government is also considering an additional transparency obligation for employers, in an effort to improve transparency in relation to the level of pay available for those on parental leave. This could include an obligation to publish parental leave and pay policies for employers with more than 250 employees.

What next?

Diversity and inclusion consultant Stuart Affleck of Brook Graham, which is owned by Pinsent Masons, suggests that employers should now be conducting an audit of their current diversity and inclusion practices and putting effective strategies in place to "future proof" their businesses and position themselves favourably for the anticipated developments in this area.

An effective D&I audit will set out the practical steps that the business can take to create a diverse and inclusive culture, and to help inclusive policies become 'lived' across the organisation.

Susannah Donaldson is a diversity and inclusion expert at Pinsent Masons, the law firm behind Out-Law.com.

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