Can transparency improve pay equity?

Unlock Editor’s Digest for free

FT editor Roula Khalaf has chosen her favorite stories in this weekly newsletter.

An employment tribunal recently ruled that British high street clothing chain Next unfairly discriminated against its mostly female store staff by paying them lower wages than its mostly male warehouse workers. I put it down.

The judgment has been closely watched by supermarket chains and other retailers facing similar legal issues, and could leave Next with £30m in back pay.

Next maintained that the pay levels reflected market rates. However, an independent evaluator who examined the skills, experience, and physical and mental effort required for the job found that the two roles were functionally equivalent.

This case highlights the complexities of addressing the gender pay gap. Paying people different wages for the same job has been illegal in the UK for many years. However, in this case, the employer’s responsibility may extend to how different roles are ‘evaluated’, as well as what performance indicators are used.

The EU Directive on Pay Transparency, which comes into force in 2026, will require member states to share details of the salaries of employees in similar roles. It is also likely that a debate will arise regarding the criteria for evaluating roles.

Policies that force companies to disclose employee pay can lead to unintended consequences, such as rigid pay structures and outsourcing, and include benefits, stock options, and other non-monetary compensation, measurement may indicate a transition to a form of salary that is not easy.

Improving pay transparency will help reduce inequality. Zoe Cullen, an assistant professor of business administration at Harvard Business School, says that disclosing salaries among co-workers doing similar work within an organization can help reduce differences, but it can also be difficult for employees to negotiate. It was discovered that there is a possibility of weakening the power. Transparency in payments within and across organizations and businesses also helps highlight available opportunities.

A recent report into the UK financial services sector by the Parliamentary Select Committee, which scrutinizes Treasury spending and policies, recommended advertising jobs at relevant pay levels and excluding salary history from the application process.

Expanding and diversifying the workforce is one way to potentially reduce the gender pay gap.

Employers in the UK have been required to report on their gender pay gap since 2017. However, this initiative remains focused on compliance, with little responsibility for redressing disparities. There has been little academic research on the subject, but a 2021 LSE study suggests that this has led to some increase in women’s pay compared to men.

The UK Government has said it will extend the principle of racial pay gap reporting, despite questions over the limited progress made to date on the impact of gender pay gap requirements.

The Office for National Statistics defines the gender pay gap as ‘the difference between the median hourly wages of men and women, expressed as a percentage of men’s earnings’. This can be influenced by age, occupation, education, location, industry, and whether the organization is in the public or private sector. The UK’s slow progress in reducing inequality and lack of guidelines on what to report is also reflected internationally.

Although the depth of reporting varies widely, the requirements have little impact on corporate behavior or accountability. Companies’ comments and how they are translated into action vary. For example, BT provides details on historical trends in the gender pay gap and plots it against ONS data. Marks and Spencer simply presents the current year’s data with an explanation of sector gaps and improvement efforts.

The Treasury Board’s Sex Discrimination in Cities report highlighted that pay gap reporting is not having the impact it hoped, with many businesses essentially hiding behind industry averages.

The report recommends significantly lowering the current threshold at which companies must report pay gaps among their employees, from 250 to 50. The government’s post-implementation review in 2023 highlighted that “only half of employers are planning or taking effective action to close the gap”. ”, but no clear recommendations for reform were presented. The Fawcett Society, a women’s rights campaign group, has recommended changes to the Equal Pay Act.

A broader approach is to define business accounting as a “technical, social, and moral practice.” This facilitates the move towards fairness and equity by incorporating these details into financial statements.

Why should companies pay attention?

The social and economic case is strong. Academic research suggests that employers who address the gender pay gap benefit from increased retention, increased engagement, increased productivity, and innovation.

Indifference to moral cases, even if unintentional, is not a badge of honor. Critics would argue that this only serves to highlight evidence of alleged bias in society.