Feature – In depth: Equal pay

There may be specific guidelines on equal opportunity issues, but a lack of compulsion means that standards are often subjective, says Laverne Hadaway

Case study: The Land Registry

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Over 30 years after the Equal Pay Act came into force, many of the more blatant discriminatory employment practices have disappeared. In the 1970s, it was common for employers to advertise the same jobs open to both sexes, but with men and women’s rates of pay. Inevitably, the women’s rate was lower.

Although there have been improvements in the intervening years, the pay gap between the sexes remains. According to statistics from the Equal Opportunities Commission, women who work full time earn 17.1% less than men in full time employment. But the gap for women working part time is even worse. They earn 38.4% less than their male counterparts, a figure that has barely changed in 30 years.

To help eliminate the gap between men and women’s pay, the Equal Opportunities Commission (EOC) set up the Equal Pay Task Force in 2000. And the government has also set targets for 45% of large organisations to complete an equal pay review (EPR) by 2008.

Figures from the EOC show that 61% of large public sector organisations have so far conducted an EPR or are in the process of doing so, compared with 39% of their private sector counterparts. However, looking at all organisations whatever their size, 28% of public sector employers have their first EPR in progress compared with just 5% of private sector employers. Not surprisingly, the pay gap between men and women is nearly 10 percentage points higher in the private sector.

This may be partly to do with the fact that under the 2006 Equality Act, the government is introducing a gender equality duty for public sector organisations. This will come into force in April 2007 and will require such employers to develop and publish a policy on equal pay arrangements.

The heart of the problem in the private sector appears to be the lack of compulsion in relation to conducting reviews. Martin McGuigan, rewards consultant at Towers Perrin, calls this "a major failing". He says: "Unless there is some prescribed legislation where people have to meet basic [laws], there’s no need for organisations to comply. Currently, there’s too much discretion and the legislation is not mandatory or as far reaching as it should be."

Jenny Watson, chair of the EOC, adds. "The only way to know whether you’re complying with the equal pay code is to do a pay review." But she acknowledges that although the EOC provides specific guidelines, the lack of compulsion means it is up to the organisation how closely it abides by these.

Compulsory pay audits were not taken up by the Women & Work Commission when it published its report Shaping a fairer future in February because it concluded that equal pay reviews only addressed part of the gender pay gap problem, and ignored the issues of job segregation and family responsibilities. Instead, it recommended the introduction of a new tool called the equality check to help employers ascertain whether they have any equality issues on pay or working practices before embarking on a full pay audit of all staff.

The government is currently conducting a Discrimination Law Review with a view to harmonising and modernising legislation so the Women & Work Commission’s recommendations may well feed into this.

Nevertheless, for employers to carry out an equal pay audit is good practice and a protective measure to insure against the risk of being sued. These audits review the salary, grading and benefits that an employer offers. Peter Smith, director public sector consulting at the Hay Group, says: "It tends to involve a look at the systems [they] have got and whether they pose a risk of being unfair."

In order to carry out an EPR, employers need to compare jobs of equal value. It means that different jobs can be measured by comparing different aspects, such as the effort, skill and decision-making required. As a result, jobs of a different nature can be used as the basis for equal pay claims.

Public sector organisations use the Job Evaluation Grading and Support system. "It will cover the whole range of different job types from an Antarctic scientist to the guy who sweeps up the leaves in the park," says Towers Perrin’s McGuigan.

The EOC’s code on equal pay states that it should include a comparison of benefits and rewards as well as base pay. But, ultimately, it can be as broad ranging or as narrow as the employer wants. Comparing rewards and benefits can also be tricky. Where an employer offers old-style benefits, it can be difficult to ensure equality of pay. Some benefits are given based on long service or a quirk of tradition and there is quite likely to be a risk of inequality. Where an employer offers flexible benefits, however, it is easier to measure the value. Generally, benefits will be of a set value depending on grade, so there is little risk of inequality with flex.

"We look at opportunities, pay, benefits and issues like how many training courses people are given. In some places unless you’ve done certain training courses, you’re not eligible for promotion. If they’re held over weekends or on a residential basis – where a woman is the primary carer for her children, for example, it tends to exclude females. Employers are not choosing to discriminate, but it can make it hard for women to progress," says McGuigan.

He suggests that it is important for employers to look at promotional opportunities, opportunities to work overtime, and so on, to ensure that there is equality across the board. Most organisations perceive the risk of discrimination to be where there is an element of discretion. For example, where an employer awards bonuses and there seems to be little obvious methodology, suspicions can be aroused. "Is it based on performance levels, the amount of hours over time done, how much an employee has contributed to the company? Unless you can prove why you gave the bonuses, there’s an element of risk of discrimination," adds McGuigan.

Smith agrees with McGuigan’s observation about the role of discretion. "Are our systems OK? That’s usually easy to answer. Do we always operate them in the way they were intended? That involves judgement, and it’s difficult to investigate and impossible to ensure that you’re completely fair."

Often the weak link in an organisation regarding equal pay and benefits can be the role of the line manager. "We could make progress if there were 100% compliance with the rules. But most difficulties in an organisation lie where line managers hire people, take pay decisions within the guidelines about what people should be paid and have a role in pay reviews later. So line managers are critical," adds Smith. He argues that there needs to be more understanding of how detailed decisions impact on fairness and what needs to be done so that line managers themselves need to understand their role in getting it right.

While the statistics remain discouraging to say the least, no one believes that the failure of organisations to conduct equal pay audits is through a lack of desire to treat the sexes fairly. Watson believes that not only do employers want to pay their employees fairly, many believe that they are already doing so. Smith agrees that they want to get it right since it is in their own best interests. However, the reluctance to push ahead with a formal pay review stems partly from employers’ belief that many of their systems are fine and, in some cases, from a fear of what they might find.

Where employers have a unified pay and reward system across the organisation, they may feel that there is little to be investigated. Even where they do decide to conduct a review, organisations will often include a number of packages that they value, but not pension schemes. This is either because in a larger organisation the benefit is the same for everyone, so there is little risk involved, or because the arrangement is fairly clear and employees on different grades have different entitlements.

"Many employers would like to find out whether there is a problem, but they’re terrified, that if they lift the stone up, [who knows] what they might find underneath," explains Watson.

Ultimately, the EOC is calling for a modernisation of the equality laws and supports the idea of equality checks. "We want a legal requirement to promote equal pay in the workplace. But we need a more flexible approach that would be proportional to the size of the employer, particularly for small employers. That way they need to look into it only if they have a problem," adds Watson. She also suggests having a protected period after employers have conducted a pay review so they have time to put measures in place.

McGuigan is even more forthright in his call for compulsion. "The legislative framework is not strong enough on equal pay. It shouldn’t be a matter of choice to decide to make equal pay. If you find something is wrong, you’re obliged to fix it. But if you’re not obliged to look at it to see if something is wrong, how will you know? From an employer’s point of view, it’s more expensive to have to check whether you’re paying enough and increase your wages. It’s like turkeys voting for Christmas."

Case study: The Land Registry

The Land Registry conducted an equal pay review not just because of legal obligations to provide equal pay, but also because of concerns about its existing pay structure.

John Nicholson, head of diversity, explains: "We were conscious that it took people too long to progress up the pay bands."

The initial audit, carried out three years ago, confirmed that the pay bands were an issue, but also identified problems around progression. The Land Registry found that men were progressing in the organisation more quickly than women, which meant that, ultimately, male staff would be paid more.

The organisation has around 8,500 employees of which approximately 64% are female. However, at the senior level, only 29% are female. Nicholson says that it is currently conducting research and has set up focus groups to find out why this is. "Is it that women aren’t applying for higher-grade jobs? Or are they applying and not getting them?" he asks.

Once the findings have been gathered, the next step is to put an action plan in place. "We’re committed to ensuring there is equality, diversity and value for everyone in every level of the organisation. If senior grades aren’t reflective of diversity, we’ve failed in our aim," he says.

Case law on equal pay

The case brought by accountant Amanda Sharp against her former employer Caledonia Group Services established that where organisations are paying men and women differently for equal work, they must always provide an objective justification for their actions. Before this, employers had to provide such a justification only where the difference in pay affected more female employees than male.

In August 2002, Sharp began tribunal proceedings on the grounds she received unequal benefits – pay, bonus, company car, share options and medical insurance – compared to one of her male colleagues engaged in work of an equal value.

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Her employer, a financial company, argued that her colleague’s higher pay was justified by historical considerations. The tribunal accepted its defence and dismissed all Sharp’s claims except that regarding the bonus.

She appealed on the basis of a European case, Brunnhofer v Bank Der Osterreichen Postparkasse. This case established that employers could not offer a defence such as "it’s always been that way" or "it would cost too much to change it" without applying the more robust test of objective justification. As a result, Sharp’s case will now be reheard by an employment tribunal