Companies with a significant presence in the U.K. face a new disclosure requirement taking effect in several months. In December, the U.K. government published the final version of its Gender Pay Gap Reporting Regulations. These rules will come into effect on April 5 of this year and will apply to all employers with more than 250 “relevant” employees in Great Britain (i.e., excluding Northern Ireland).
The requirement applies to any legal entity with operations in Great Britain, regardless of the parent company’s country of origin or structure (i.e., public or private). While the future of the CEO pay ratio requirement in the U.S. remains unclear, this new U.K. rule adds to the data-gathering and analytical burden many companies may be facing. (For the latest on the pay ratio, see “Acting SEC chair seeks comments on impact of CEO pay ratio implementation,” Executive Pay Matters, February 7, 2017.)
Following are answers to some frequently asked questions about the new U.K. rules.
WHAT NEEDS TO BE DISCLOSED?
Companies will be required to report:
- The difference in mean and median pay between all male and female employees (part time, full time, all grades/levels)
- The proportion of men and women in each pay quartile
- The difference in mean and median bonus paid to male and female employees during the year
- The proportion of men and women receiving bonuses.
With the regulations now finalized, there’s clarity around the definitions of “relevant” employee, pay, bonus and how to calculate of the pay period and hours worked per week. It’s worth noting that the definition of bonus includes both short-term and long-term incentives. For U.S.-based companies, this means that stock options, restricted stock/units, employee share purchase plans and dividends will all be captured.
WHAT’S THE TIMING?
There are two key dates to be aware of:
- The analysis must include Great Britain workers actively employed on April 5, 2017 (subject to the definition of relevant employee and potential exclusions)
- The deadline for publishing the first annual disclosure is April 4, 2018.
HOW MUST THE FINDINGS BE REPORTED?
The guidelines stipulate that the required data must be published on the employer’s website, along with a written statement. This should be done in a manner accessible to all employees and the public for at least three years. In addition, data must also be published on a designated U.K. government gender pay website.
A senior employee (a director in most companies) will be required to sign off on the figures and be named on the website, meaning it’s important to engage senior stakeholders early in the compliance process.
QUESTIONS TO BE ASKING NOW
For many companies the work has already started, given the potential challenges in gathering data and the multiple stakeholders that will invariably be involved. Questions that are already coming up include:
- How can we easily gather the required data across multiple payroll systems?
- Are there local bonuses that are not on payroll?
- How do we collect information on and calculate share-based pay?
- Can overtime be easily separated from the rest of the payroll data? What about expenses, salary sacrifice or benefits in kind (i.e., perquisites)?
- How will we manage results that do not align with our stated diversity policy?
GETTING READY FOR 2018
We advise companies subject to the new rules to start preparing now, particularly given there may be some synergies in data collection activities as U.S. companies prepare for potential CEO pay ratio reporting in the 2018 proxy season. Some suggestions:
- Work out who you need to work with to run the data analysis.
- Look for synergies with other HR initiatives, whether focused on data (e.g., CEO pay ratio) or policy (e.g., diversity and inclusion).
- Make executives aware of the potential impact, reputational risks and their personal accountability.
- Consider a dry run before the rules take effect so you have a benchmark and understand what you need to do before April 2018.
- Decide what you need to do to understand and address any logistical challenges you have.
- Prepare a narrative for internal and external communication, as this data will be publicly reported.
Willis Towers Watson can help you calculate your pay gap in accordance with the regulatory requirements, as well as identify and address the drivers of any gender-based pay differences. We’re also helping organizations in communicating their results and aligning with wider diversity initiatives.
Heather Marshall is a director in Willis Towers Watson’s Rewards business, based in New York. Daniel Puckey is a senior consultant in Willis Towers Watson’s Rewards business in London. Ruby Tewani is a consultant in Willis Towers Watson’s Rewards business in New York. Email firstname.lastname@example.org, email@example.com, firstname.lastname@example.org or email@example.com.