Legal Professional Privilege cannot be defeated by the FRC’s interpretation of its disclosure regime
Last month, the Business, Energy and Industrial Strategy Committee (BEIS) published the first of its findings on gender pay gap reporting, as part of its inquiry into Corporate Governance: Delivering on Fair Pay. Highlighting a range of initiatives which it hopes the Government and businesses will implement in an effort to address the disparity of pay between the sexes, BEIS’s report makes for interesting reading.
The UK has one of the highest gender pay gaps in Europe. With a median difference in hourly pay of 18.4% between the sexes, over three quarters of employers reported a pay gap in favour of men by April 2018—the first year that businesses were required to report under The Equality Act 2010 (Gender Pay Gap Information) Regulations. Aside from the obvious moral and social imperative for tackling this issue—which, frankly, should be sufficient in and of itself to galvanise action—there is an economic one too. It is estimated that if the gender pay gap were closed, the UK could add an extra £150bn to its Gross Domestic Product by 2025, and around 840,000 women to its workforce. Thought-provoking figures for a country facing the economic uncertainty of Brexit…
Acknowledging that the causes of the gender pay gap are rooted in our outdated attitudes towards the role of women in the workplace, as well as outmoded stereotypes about the role of women within society at large, BEIS suggests the following recommendations (amongst others):
Whilst these recommendations are laudable, they raise a number of practical issues. The idea of setting targets to achieve pay parity, for example, is an uncomfortable one. Whilst it is no doubt sensible to have a goal in mind to ensure that businesses are both on track and can report progress—e.g. 30% of the Board will be women by 2020; 33% of the Executive Committee and their direct reports will be female by 2025 etc.—such targets (even if only soft targets) raise the spectre of positive discrimination. If a man is passed over for senior promotion in favour of a female colleague, for example, and his employer has a target in place for the recruitment of women to management level, the company could face the risk of that (now disgruntled) male employee alleging sex discrimination.
BEIS has stated that the Government should be prepared to “step in and set mandatory targets on a sector by sector basis” if companies do not voluntarily do enough to close their gender pay gaps. However, we are not there yet and positive discrimination is, after all, still discrimination. Also, the idea that women’s progress could be enforced by quotas is an awkward one. It may seem somewhat idealistic given where we currently are, but progression through the workplace should be premised upon merit, not gender-based targets.
In addition, BEIS’s suggestion that partnerships ought to be reporting on partner data could be problematic. In theory it is a sensible move—it is blatantly wrong that a group within society which is typically male and typically very highly remunerated is excluded from the gender pay gap reporting requirements, given the purpose of those requirements to promote pay transparency.
The issue comes, however, when you look at the methods and calculation of “pay”. Partners’ remuneration is calculated differently to employees’ pay, so drawing a meaningful comparison between the two is going to be difficult. Partners take a share of their firm’s profits, the amount of which is sometimes determined in whole or in part by a lock-step mechanism commonly based upon longevity in the partnership. Employees, on the other hand, receive a regular, typically fixed salary which is paid out regardless of how the business is performing. Whilst firms could collate partner data and seek to draw comparisons across the partner group, the Government will need to provide further guidance on how such data should be calculated and reported if the publication of it is to achieve anything useful. Trying to draw a sensible comparison between partner data and employee data just isn’t going to work.
BEIS is to continue with its inquiry into gender pay gap reporting, “examining [the] progress of reforms relating to executive pay levels and structure”, over the next few months which is positive. However, until the legal sanctions available to the EHRC are bolstered and clarified, there is only so far public scrutiny and the media backlash of April 2018 will take us.
Last week, for example, eFinancialCareers published an article on a related gender pay issue—paternity leave. According to reports around the time of the April 2018 deadline, one of the reasons why businesses have a gender pay gap is (in part) because women are more likely than men to take longer or more career breaks to manage caring responsibilities, for example upon having children. As a result, their progression through the workplace (or their return to it) is hampered, which in turn has a knock on effect on gender pay statistics. One (notably female) hedge fund manager quoted in the eFinancialCareers article explained that she “goes out of her way to not hire women of child-bearing age to avoid one or multiple gaps in employment”.
The rest of the article makes for equally depressing reading. Within certain investment banks, hedge funds, and asset management firms, taking full paternity leave is regarded by men as “the kiss of death”, limiting their chances of being promoted. One person quoted for the article explained that “people are paid a premium to work hard and make personal sacrifices. You won’t be perceived as disloyal [if you take your full entitlement to paternity leave], but others may begin to question your commitment”, with “colleagues at investment banks, hedge funds and other high-paying financial firms […] look[ing] down on any father taking more than a few days away from the office”. Others explained that taking only a few days’ leave was “merely an assumed behaviour” and that the idea of taking their full legal entitlement to paternity leave was not something which they had considered doing. The piece served to highlight the discrimination which women taking time away from the office to manage caring responsibilities have been suffering for decades.
When attitudes like these persist, it is no wonder the financial services sector reported one of the highest gender pay gaps across all industries. To address disparity of pay between the sexes, reporting on partner data or calculating bonus figures differently is helpful, but query whether it will be enough. We need to address the cultural and societal attitudes underpinning the role of women, long before people get into the workplace.
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