People & Transformation

Ethnicity Pay Gap: Getting Ahead of the Curve

What is the ethnicity pay gap?
Companies in the UK will undoubtably be aware of the mandatory gender pay gap reporting they must do if they employ 250 employees; however, many companies have also begun to voluntarily report their ethnicity pay gap before it becomes mandatory.

Ethnicity pay gap reporting was one of Baroness McGregor-Smith’s recommendations after being asked by the government in 2016 to examine the barriers faced by people from ethnic minorities in the workplace, and what could be done to address these barriers. Her report recommended legislated ethnicity pay gap reporting: government legislation to ensure that all listed companies and businesses employing more than 50 people publish workforce data broken down by race and pay band. According to her report Race in the Workplace  equal participation and progression across ethnicities could be worth an extra £24bn to the UK’s economy per year (around 1.3% of GDP).

Other recommendations from McGregor-Smith’s report

  • Mandatory unconscious bias training
  • Challenge school and recommendation bias during job interviews
  • Establish inclusive network
  • A published top 100 UK BME employers list

Benefits

McGregor-Smith’s review made a strong business case for change, referencing research by the Government stating that diversity of people brings diversity of skills and experience, which in turn can deliver richer creativity, better problem solving and greater flexibility to environmental changes. In addition, the case for equality of opportunity and the removal of barriers to this are reasons for the recommendation of ethnicity pay gap reporting amongst other initiatives.

Currently, no legislation has been put in place, however the Government responded to McGregor-Smith’s report by stating that they had been persuaded that the case had been made for ethnicity pay gap reporting and that, for the moment, they expected business to take the lead in moving it forwards voluntarily, while committing to monitoring progress and to act if needed. Although, unlike the gender pay gap, there is no set method for reporting the ethnicity pay gap, our People and Change team have the capability to create a framework and practical methodology to advise you on how to report.

Ahead of the curve

Companies are already getting ahead of the curve by releasing their Ethnicity Pay Gap. Fifteen prominent organisations have signed a commitment to ethnic pay gap reporting in a bid to encourage to others to do so. The signatories include: Citigroup, Deloitte, EY, KPMG, WPP, Stella McCartney, Lloyds of London, Santander, WPP Bupa, ITN, Jomas Associates, Creative equals and Reluctantly Brave.

INvolve, the group behind the collaboration, believes the reporting is having a positive impact: “Conversations are happening now that weren’t before. That is the point.”

Conclusions

Organisations should already be conscious that diversity and inclusion has become a key area of interest and scrutiny for potential employees, current employee, customers and investors. The reputation and attractiveness of your organisation to these groups is hinging more and more on this factor. Consequently, as we’ve seen with gender pay gap reporting and the recommendations within the McGregor-Smith review, calls for measurable reporting within the domain on diversity and inclusion is likely to be inevitable.

Leaders should take another lesson from the gender pay gap reporting: how you report is just as important as what you report. Few organisations came out well from their gender pay gap reports (every sector paid men more on average). However, the organisations that came out best focused on using their report to highlight what they are doing to improve their gap. It is likely that ethnicity pay gap reporting will be similar in the results, and reporting ahead of the curve could be a good strategy as it demonstrates, to employees, investors and customers, your commitment to D&I.

Looking Forward

Whilst reporting your ethnicity pay gap will open your business up to public scrutiny, companies doing it voluntarily are acting as trailblazers and can use it as an opportunity to demonstrate what they want to do to improve. Deciding whether to voluntarily publish your ethnicity pay gap will depend on several factors and companies should consider the following:

  • Step back: how will ethnicity pay gap reporting fit into your wider D&I strategy? What do you want to understand? How could publishing this information fit with other company initiatives e.g. broader diversity activities, leadership development, training or company practices and policies? FTI recommends evaluating the value the data will bring to forming your wider diversity and inclusion (D&I) strategy. By understanding your ethnicity pay gap, will you be able to make better decisions on talent attraction, development and D&I?
  • Look closely: do you have the necessary data to work out your ethnicity pay gap? Whatever method you use to calculate your ethnicity pay gap you’ll need to have data on the ethnic makeup of your organisation which may not be to hand and may not be easy to collect.       Organisations looking to collect this data will need to consider what classifications to use and they may also need to convince employees of the benefits of sharing this data with them. This further emphasises the need for companies to embed ethnicity pay gap reporting in their wider initiatives to deliver a convincing approach to D&I.

 

“A diverse mix of voices leads to better discussions, decisions, and outcomes for everyone.” — Sundar Pichai, CEO of Google

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