Companies forced to reveal gender pay gap
From February 1, 2024, Australian companies with 100 or more employees will be required to publish their median gender pay gap between male and female employees.
The Workplace Gender Equality Agency (WGEA) will publish the first set of private sector employer gender pay gaps on February 27, 2024. This will cover 1 April 2022 - 31 March 2023 reporting.
While many companies have been reporting this data for some years now, this is the first time the information will be made publicly available.
In Australia, women's salary increases are failing to keep up with men. According to the WGEA, Australian women earn 87 cents for every $1 men earn on average.
In the next 12 months, men can expect to see a pay increase of 6.3% on average, while women will receive an increase of 5.2%, according to ADP Research Institute.
60% of women feel they are underpaid, compared to 56% of men. Older workers also believe they'll be overlooked for a pay rise in the year ahead.
ACSI CEO Louise Davidson says gender diversity is financially material to investors, as companies that are diverse tend to perform better.
"I hope that the increased transparency and accountability offered by WGEA reporting will lead to change," Davidson says. "I strongly suspect that companies with no pay gap will have significantly more success at attracting and retaining women in their organisations than laggards."
Laura Ryan, head of research at Ardea Investment Management says companies can expect their gender equity metrics to be scrutinised by investors.
"Speaking from the perspective of an asset manager, if our clients put pressure on us to improve our diversity, we will listen and we will act," Ryan says. "Superannuation funds, insurance companies, advisers etc. all have the ability to query us on our policies, our action plans and how we are tracking."
Belinda White, responsible investment specialist at First Sentier Investors says mandatory gender pay gap disclosure will provide an additional data point beyond simple board composition for women on leadership teams.
"Pay gap data can also provide some insight into company culture, and whether statements about valuing diversity align with the facts. The conversation can then be about what steps are being taken to address imbalances, and if the direction of travel is positive," she says.
Ryan does not believe that companies are prepared.
"I think the first round will probably be a shambles and then once employers know what is expected and they see the likely media coverage of the initiative they'll get their act together on the second round," she says.
And while White believes companies are prepared to report "from a technical perspective", they may face difficulties contextualising and explaining significant pay gaps.
There is an expectation that companies with gender equity issues are able to articulate the reasons for a pay gap in their organisation and what the company is doing to address it, Davidson says.
Companies that fail to report to WGEA face reputational risk, and could point to factors like poor management practices, under-resourcing of HR and payroll, or a company having information they wish to keep hidden, which could raise question for investors, according to White.
Experts also noted that publishing the median gender pay gap does not account for nuances in the workplace that might influence pay.
Ryan noted that the pay gap that WGEA will report on is the unadjusted pay gap. The adjusted pay gap is the gap after controlling for merit-based variables such as education, years of experience, function, industry etc.
"Regarding the adjusted pay gap, one of the big issues holding us back from making more progress is that there's a perception that there isn't an adjusted pay gap," Ryan says.
"But the research shows that even after we control for these merit-based variables the pay gap still exists. It's getting smaller but it's still there and it still matters. For example, even if the pay gap is "only" say, 3%, that 3% accumulated over a 40-year career adds up to a lot."
While WGEA will report on the unadjusted pay gap, Ryan expects that the findings will show that women earn less than men - "an important social issue that demands attention beyond the simplistic suggestion that women should choose higher-paying jobs. Even if the adjusted pay gap were zero, and even if the gap was purely attributable to women's choices, the overall pay gap remains a significant concern not to be dismissed."
"The second point the WGEA report will tease out is the reason behind a pay gap at any institution. WGEA asks employers to explain reasons for the gap (my opinion is that the reason put forward will mostly be attributed to a mismatch in job functions)," Ryan says.
"This provides the WGEA with insights into the adjusted pay gap as well. If a pay gap exists, WGEA will ask employers to present an action plan."
"Unadjusted pay gap is a fairly blunt instrument," White says. "It doesn't compare like-for-like pay, and is more a reflection of how men and women are represented in lower- or higher-paying roles. It can therefore be a proxy for where the concentration of power and pay is in a company.
"There can be significant differences between the median and mean pay gaps, but at this stage, the WGEA data will only cover the median. This reduces the potential for very high or very low salaries skewing the data."
Last year, research from Ardea IM and the Australian National University found that men receive more unsolicited promotions than women - and this could be one factor contributing to the gender pay gap.
This article first appeared on FS Sustainability
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