Pay transparency

It was a move that caused outrage across Italy in May when the outgoing government published details of all its citizens’ declared earnings and tax contributions on the internet. Critics condemned the action as a gross breach of privacy while the Italian finance ministry said the deed was a bid to improve transparency. Either way – the website proved popular and was soon jammed up as people scrambled to access the controversial information.

While the incident made worldwide news, the debate over how far people’s pay should be made public is not limited to this particular part of southern Europe. Indeed, in the UK pressure has been mounting on the government to introduce compulsory pay audits as part of the Equality Bill – legislation intended to simplify diversity law in the UK by bringing public sector discrimination duties on gender, disability and race under one law.

Earlier this month, equalities body the Fawcett Society joined forces with unions and anti-poverty charities to urge the government to establish mandatory equal pay audits for public and private sector organisations. In a joint-statement, the signatories called for tougher action on closing the equal pay gap, which, they say, means on average women in full-time work earn £4,000 less per year than men – the equivalent of men being paid all year and women working for free from October.

One organisation that put its name to the document is Unite – the UK’s largest union with more than two millions members. According to its acting policies project manager Karen Cole, compulsory pay audits are the only serious way to drastically reduce the spate of equal pay tribunals witnessed in recent years – the latest figures showing there were more than 44,000 claims for the year 2006-07.

“We feel we have waited long enough. The government has been talking about this for a long time and has given employers a chance to introduce pay audits on a voluntary basis,” she says.

Cole says employers and employees have nothing to fear from pay audits, which are usually anonymous. They do, however, allow for the figures to be cut different ways to show whether pay discrepancies exist, for example, on gender or age grounds, or for disabled workers.

“Pay audits not only show where pay disparity exists but also highlight deeper issues of discrimination, which the employer can then start to deal with,” she adds.

TUC head of the equality and employment rights team Sarah Veale says the areas where pay transparency is least evident is “in the City and other non-unionised knowledge-based sectors” where an old-boys’ network is still in play and it is common for employees to negotiate their individual salaries and bonuses.

Veale says compulsory pay audits will not only help to end this “freemasonry” and “conspiracy of silence” but will ultimately benefit employers who are missing out on new talent because many people are squeezed out of these inner circles.

And, according to Veale, if a culture of openness towards pay was introduced, British workers – notorious for their reluctance to discuss salaries with their peers – would soon shrug off their coyness.

“Culture is moulded by practice. If compulsory pay audits were introduced across the board I don’t think there would be too much of a problem with people accepting this change,” she adds.

Indeed, there are signs that many workers are prepared to disclose their salary if it leads to greater equality. Last month, a survey from recruitment firm Hudson found about two thirds of workers would tell colleagues how much they earn if it helped tackle the gender pay gap.

But how far should pay transparency go? At law firm Cobbetts, head of the employment team Aine MacRory warns against employers publishing employees’ salaries in as open a way as the Italian government did. She says to publicise earnings in this way would be a contravention of the Data Protection Act, which puts an onus on employers to protect any sensitive information they may have about employees.

It may also fly in the face of common law, adds McRory, which obliges employers to act in a way that leads employees to have trust and confidence in them.

She advises employers striving for openness to implement a pay banding system, which makes clear the parameters of pay that someone at a certain level or grade, or with a certain amount of experience, can expect to receive.

“Not only does this create a climate of openness, it also lets employees know how they are doing and what their potential in the organisation is. It gives people an idea of where they are in relation to their peers and if they are not going up through the bands over time. It sends a strong message that there might be a performance issue,” she says.

But introducing a system of this kind cannot be done overnight, warns MacRory, who says bringing in a competency framework is an important first step towards pay banding. “For many organisations, introducing transparency of this kind is a sea-change, which requires a great deal of reassurance and communication with employees, and the full involvement of work councils, so there is buy-in from staff,” she says.

Reward specialist at the Chartered Institute of Personnel and Development Charles Cotton says line managers have a crucial role to play in making pay banding work. “They must talk to their teams, so they know what they need to do to get a promotion or a pay rise .They are crucial in ensuring the organisation achieves what it is setting out to do,” he says.

But Cotton believes in many cases line managers tend to be the weak link, either not seeing this as their job or lacking the skills and ability to communicate effectively with their charges. And if banding structures are not enforced they can soon become blurred, says Michael Ball, a partner in the employment department at law firm Halliwells. He says pay banding is more prevalent in the public sector – where class agreements are common – than in the private sector.

“Pay structures can seem neat and tidy on paper but in reality many are not – especially when they are allowed to lapse over time and people forget the origins. Some private sector pay structures are so unfathomable it’s impossible to work out what people are being paid,” he says.

Like MacRory, Ball thinks there is little likelihood of compulsory pay audits being introduced with the Equality Bill, especially at a time when the government is suffering in the opinion polls and could do without the controversy such a move would create.

Ball suggests one reason the government may be reluctant to go down this route is that private-sector employers that haven’t been monitoring equal pay could suddenly find them themselves with a huge bill for backdated payments, which Ball says under law can go as far back as six years.

He points to the problems faced by local authorities that are facing backdated equal pay claims running into billions of pounds as a result of the single-status agreement from the1990s, which sought to do away with unfair pay systems and implement a common pay scale for all jobs.

Ball says: “Compulsory pay audits could open a can of worms and employers could find themselves vulnerable.

“That’s not to say it can’t be done and some employers have bitten the bullet and paid compensation where necessary because they believe there should be equal pay among employers. But some may think they can’t afford to ask the question,” Balls warns.

KEY POINTS

  • There is no legal compulsion for private-sector employers to be open about pay structures.
  • During consultation for the Equality Bill there were calls for compulsory pay audits to be introduced.
  • According to the Tribunal Service there were more than 44,000 equal pay claims for the year 2006-07.
  • Publishing employees’ earnings is likely to contravene the Data Protection Act, which puts the onus on employers to protect any sensitive information they may have about employees.
  • As result of the single-status agreement, local authorities are facing backdated equal pay claims running into billions of pounds.
  • Equal pay claims can be backdated for up to six years.

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