A new study of gender inequality demonstrates how 1) pay equity, 2) diversity, equity, and inclusion (DEI), and 3) economic, social, and governance (ESG) policies are interconnected. The study’s results highlight the need for organizations to consider all three policy dimensions when making strategic decisions about their workforces.
On March 1, 2021, Fox & Partners, a London-based law firm, published the results of a study assessing the gender pay gap at the director level of the top finance firms in Britain. The results made headlines at Reuters and at The Guardian. In a press release, Fox & Partners noted:
“The average pay for female directors at FTSE-350 financial services firms stands at £247,100 compared to£722,300 for their male counterparts, suggesting slow progress has been made promoting women to senior, higher-paid executive positions…The pay gap between male and female directors at FTSE-350 financial services firms currently stands at 66%. These figures suggest that while there is broad consensus about the importance of increasing gender diversity in the financial services industry, this is yet to be reflected at the most senior level.”
The press release further notes that the study was based on an analysis of board member pay at FTSE-350 listed financial services companies, excluding equity investment trusts. For those of us across the pond who are more accustomed to the Nasdaq, Dow Jones, and S&P indices, FTSE-350 is the list of the top 350 companies by market capitalization listed on the London Stock Exchange (LSE). In other words, the organizations studied by Fox & Partners are some of the highest-performing financial institutions in the world.
How do pay equity, DEI, and ESG policy converge in the Fox & Partners study? First, a quick refresher on these topics. Briefly, pay equity can be summarized as equal work for equal value. That is how it is defined by Canada’s Pay Equity Commission. Unlike equal pay for equal work, which generally addresses situations where the same work is performed by men and women, pay equity requires an analysis of the value of the jobs performed based on factors such as skill, effort, and responsibility. As workforces become more globalized and complex, a more data-driven approach to compensation fairness makes more and more sense.
DEI offers a lens for assessing how workforces function. It is perhaps best distilled by the University of Michigan’s Chief Diversity Officer as follows:
Diversity is where everyone is invited to the party
Equity means that everyone gets to contribute to the playlist
Inclusion means that everyone has the opportunity to dance
In other words, DEI is a framework for building better workforces and ensuring that there is equal opportunity for all.
Finally, ESG, while typically associated with the investment world, is gaining traction as a movement to reform the “economic and environmental impact of commerce” as detailed in the Harvard Business Review. ESG metrics for analyzing corporate practices were adopted by over 60 top business leaders across multiple industries in January 2021. What we see in the Fox & Partners gender inequality study is the intersection of these three policy dimensions whereby 1) women directors are underpaid compared to male counterparts at top finance firms (lack of pay equity), 2) despite broad consensus and even progress in DEI commitments, which 3) generates a strong public reaction with potential ESG consequences, such as investor backlash.
The Fox & Partners study highlights the need for organizations to consider all three policy dimensions proactively when making strategic decisions about their workforces. As recommended in the National Law Review, “in light of the enhanced focus on ESG issues and the potential risk they pose, companies should begin to take steps now to ensure compliance and avoid litigation, including … updating risk assessments to review company-specific ESG risks and the effectiveness of policies and internal controls designed to mitigate risk. The risk assessment should evaluate not only legal risk but also potential reputational harm.”
Companies that have the metrics to back up their pay equity, DEI, and ESG efforts will fare better under increased scrutiny from employees, investors, regulators, and the general public. Trusaic’s PayParitySM DEI monthly monitoring platform provides a path forward for companies to achieve pay equity, DEI, and ESG goals. To find out more about how organizations can bolster their ESG and DEI efforts with the help of an expert partner, download our white paper: DEI In ESG Reporting.
Conducting a pay equity audit is a key component to ensuring equitable compensation within your organization. Just as important as the analysis is how you communicate findings and progress with various stakeholders. Download The Pay Equity Communications Planner to learn best practices for discussing compensation, both internally and externally.