Don't Mind the Gap?

CIPD's Pay, performance and transparency report 2024

Last month the Chartered Institute of Personnel and Development (CIPD) published its 2024 report on pay, performance and transparency, based on an online survey of 832 HR professionals and senior decision-makers.

The report analyses what has driven the increase in wages during 2023 (inflation and the cost of living being the main culprits), the links between pay decisions and employee performance and pay equality and transparency.

This last aspect has become more important in the last few years and is likely to be even more so in the future. In April 2023 the European Council adopted the EU Directive on Pay Transparency, which aims to combat pay discrimination and help close the gender pay gap in the EU. Under the new rules, EU companies will be required to share information on salaries and take action if their gender pay gap exceeds 5%. The directive also includes provisions on compensation for victims of pay discrimination and penalties (including fines) for breaches.  In the US, states are racing to approve new laws requiring employers to disclose salary ranges (at early stages of the selection process) as well as benefits, bonuses, and commission.

Pay transparency has significant advantages for employers as it drives job performance and increases retention and trust. It can also help employers show they value their workforce, which in turn increases employee engagement.

The report also notes that publishing pay information not only could help fight pay inequalities but might also help increase an organisation's talent pool. Recent research published by Reed found that adding this information to job adverts can increase the number of applications by up to 27%.

Findings on pay transparency

'Pay transparency' refers to the degree of openness of employers about salary and pay information with staff and job candidates. It typically involves disclosing how salaries are determined and factors that impact on salary progression, salary ranges and even individual salaries for particular roles.

Whilst they may provide some visibility around salary ranges, private sector organisations often appear reluctant to share pay information, both externally and internally. When it comes to publicly advertised jobs, private sector organisations are far more likely to publish information on salary ranges (53%) than specific salaries (29%). However, publishing salary ranges is far from full transparency:  broad salary ranges can conceal more than they reveal.

Given the benefits of pay transparency, why hasn't it caught on? Key factors may include a competitive labour market and concerns that staff might get poached.

Pay reporting

Even if organisations only provide information on pay ranges, rather than scales or pay points, this is a step in the right direction as opacity around pay is the major factor in gender pay gap inequalities, according to the Equality and Human Rights Commission (EHRC).

The report found that gender pay gap reporting is the only inequality analysis carried out by most large employers. While this is a legal requirement for large organisations (with over 250 employees), in the year to October 2023, worryingly, 17% of large organisations admit they didn’t do this and a further 18% didn't know whether they did. The organisations most likely to admit not carrying out gender pay gap reporting were those employing between 250 and 499 people (29%).

Failure to comply amounts to a breach of the Equality Act 2010 and leaves an organisation open to enforcement action by the EHRC, including a range of penalties.

Amongst small employers (with fewer than 250 staff), 79% had not carried out such an analysis last year.

Despite there currently being no legal requirement, ethnicity pay gaps are the second most common analysis undertaken (28% of respondents carried out this analysis), followed by disability pay reporting (27% of large employers had conducted this).

Whilst voluntary pay reporting is fundamental to tackle pay inequality, it can also be significantly burdensome for small organisations in terms of the resources that need to be allocated to it. It also entails the production of disclosable information that not all employers are prepared to share due to concerns around competition as well as potential equal pay and discrimination claims.

Report's recommendations

The report concludes by recommending that employers consider publishing pay information in job adverts, are more transparent about pay internally and explore whether giving employees total reward statements could be beneficial.

However, the report falls short of recommending that private sector organisations (big and small) carry out regular pay audits and review their pay practices in order to identify and tackle gender pay inequalities.

Conclusions

With the recent EU Directive on Pay Transparency, the increasing number of US states adopting transparency laws and initiatives and a growing interest of socially conscious investors and other stakeholders in fair employment practices, UK employers should remove or at least reduce opacity about pay.

Organisations large and small should increase their commitment to gender pay gap reporting (for example, by carrying out regular equal pay audits) and consider including ethnic and disability pay gap in their analysis, the results of which should be shared with their workforce and beyond, thus showing a genuine interest in creating a work culture based on values and ethical behaviour, including the increased attention to fairness and employee wellbeing.

Although this is likely to require allocating additional resources for pay reporting and risks information about pay structures becoming disclosable in the event of a dispute, it will give organisations an invaluable tool to attract and retain talent and tackle any possible pay issues.