Eight steps for reporting ethnicity pay gaps

Organisations face significant business and reputational risk if they do not attract, recruit, promote and pay people fairly

A petition to introduce mandatory ethnicity pay gap reporting was launched in March this year. When it closed in September it had attracted more than 130,000 signatures.

We have also seen a proposal for an Equal Pay bill with cross-party support as well as countless calls from business leaders and academics. With all this external pressure, the government has promised an update on ethnicity pay gap reporting by the end of 2020.

See also: – Investors call on FTSE 100 firms to publish ethnic make-up of boards – ESG Clarity

Regardless of whatever legislative requirements do or don’t come from the UK government, if organisations do not attract, recruit, retain, promote and pay people fairly, they face a significant business and reputational risk in the coming months and years. There is strong empirical proof that a diverse workforce improves bottom line performance.

The challenge a lot of organisations face right now is how to get the ethnicity data from their people. Gender is currently available via PAYE, but employers have to ask their employees to provide ethnicity data.

If you plan to use this data to make better people decisions in your organisation, you need to be sure the data is representative of your whole organisation and not just a portion of it. The biggest challenge faced by organisations is in gathering enough of this data for it to be truly representative.

If you can only convince 60% of your employees to provide their data, what do you report? Should you report or should you focus on convincing every one of the need for this data and assurance that it won’t personally identify individuals or be used to positively discriminate certain groups?

With this in mind, here are eight steps for preparing your ethnicity pay gap analysis:

1. Identify the true purpose of your diversity and inclusion strategy

This is a vital first step and will be unique for every organisation as you identify what is driving this change. At this stage, it is OK not to have all the answers but listen and learn from the experiences and viewpoints of your people.

2. Communicate your diversity and inclusion strategy and the reasons why you need ethnicity data

Without clear communication and the right culture in place throughout this process, you will not succeed. This is necessary for legal reasons – GDPR states you must say why you need the data and what you will use it for – but also to increase transparency and ultimately build trust with your people.

Data collection and analysis is not an annual process – it is iterative, and collection and communication of your strategy should be continuous.

3. Invest in a properly resourced project team

The most recent research from McKinsey’s diversity series has shown organisations whose executive teams are in the top quartile of diversity are significantly more likely than their peers, in the lower quartile, to outperform financially. Invest to ensure you have resource to move this forward and have real impact. A properly resourced project team, supported by the top of the organisation, ensures accountability throughout this process.

4. Check your gender pay gap reporting process is fully compliant with existing legislation

This is a priority action for your project team. If your basic male vs female report is non-compliant it raises questions about whether leadership are taking responsibility for the report and assigning appropriately resourced and qualified personnel to this. Whoever ends up owning this process must be held accountable to the leadership. If you are undertaking this internally and basic legislative requirements have been forgotten or ignored, this signals that other areas of the report may not have been properly followed. Start asking that uncomfortable question; is the data, that is driving our decision-making process accurate?

5. Conduct your ethnicity pay gap analysis

As pointed out in steps one and two, it is crucial that you identify what the true purpose of your diversity and inclusion strategy is, and what questions you plan to ask of your data. How will you analyse your ethnicity data – by simply comparing all white vs ethnic minority employees? Or will you look further and compare white vs each ethnicity?

Gender pay gap reporting is statistically straight forward: most organisations have roughly a 60/40 balance of men and women. Moving to ethnicity pay gaps, it’s likely that in your organisation as you start to analyse the discreet ethnicities, there will be much smaller sample sizes than male vs female.

These small sample sizes present a fundamental problem because a seemingly minor change in the ethnic population can have a major effect on the pay gap metrics. In fact, if a group contains less than a handful of people then it could be possible to personally identify a specific person, which would contravene GDPR. Conversely, grouping all ethnic minority employees into one category could mask the different challenges faced by the individual ethnicities.

Stop thinking about your pay gap and start thinking about the representation of people throughout your organisation. As you zoom in and out of the data looking at both the broad and granular picture, you can consider intersectionality – e.g. Chinese female vs Black male.

6. Map and focus on your unique ethnicity challenges

Data analysis will provide you with the insights you need to identify your unique ethnicity challenges, which will differ from organisation to organisation. You can’t make improvements if you don’t first understand the issues, and how they vary across your organisation.

7. Train and empower your middle management on inclusion practice

Inclusion is vitally important as without it you cannot reap the benefits of a more diverse team. In a culture of inclusion, people are more engaged and share divergent viewpoints which, if well managed, generate innovation. In a culture where not everyone feels included, valued, and able to progress, retention of diverse talent suffers. Up-skilling your managers in collaborative and inclusive leadership through research-based training can help shift the culture.

8. Get moving

Pay gap analysis might be a simple measure but if you collect and report this data correctly it will ensure you are thinking about why women and minorities are underrepresented in your organisation. It’s important to recognise that this is not a quick process. Things will not materially change overnight, and it may be a couple of years before you notice changes in your data. However, you will notice the benefits from approaching the process this way.


Natasha Turner

Natasha is global editor at ESG Clarity, part of Mark Allen Financial, and has been a financial journalist for seven years. She has been shortlisted for Story of the Year and Investment Journalist of the...