Gender Pay Gap Reporting in Financial Services

The COVID-19 pandemic has highlighted the continued need to focus on gender equality, and recent survey data shows that their “career optimism” is declining. At the same time, there is “stagnation” in the drive to increase the number of women in senior management in financial services according to the 2022 review of progress against the Women in Finance Charter. In a foreword to the review, John Glen MP, the then Economic Secretary to the Treasury, noted that there is much more to be done by firms to deliver greater gender equality.

The evolution of pay gap reporting

Calculating, reporting, and understanding the gender pay gap within an organisation can play a role in delivering these efforts. “Pay gaps” measure differences between the average pay of all men and all women, and between ethnicities. It is important to note that pay gaps measure patterns across groups, whereas the legal doctrine of “equal pay for equal work” has been a legal requirement since 1970. A pay gap can indicate embedded and systemic diversity and inclusion challenges within firms. As financial services businesses seek to become more inclusive, pay gap metrics are a proven way of helping to focus effort in the right places and to track progress over time.

Legislators and regulators are increasing their focus in this area with the UK’s Financial Conduct Authority introducing a discussion paper in July 2021 encouraging firms to collect their pay gap data. It also proposed the introduction of mandatory pay gap reporting in due course. A formal consultation paper is awaited. In spring 2022, the European Banking Authority launched its own consultation on its proposals to introduce mandatory gender pay gap reporting across the European financial services institutions it regulates. Finally, the EU has introduced a Pay Transparency Directive under which all companies across the EU Members States with 250+ employees will be required to report their gender pay gap, bringing the EU in line with the UK.

The focus on ESG is also bringing pay gap data to the fore, with one of the measures used by investors to measure “Social impact” (the “S” in ESG) being pay gap data.

Confidence in reporting and using data to drive change

High-quality data and robust and consistent processes can help ensure that pay gaps are calculated and reported in line with regulatory and legal requirements and presented consistently. This can lead to more useful information, giving stakeholders more confidence that reported information is robust, providing them with the basis to ask the right questions, and enabling firms to act. The financial services sector has one of the highest gender pay gaps of all industries according to ONS data (second only to veterinary activities), and the need for further action is clear.

Firms may get advice on methodology of calculating the gaps, and how data is used. Nonetheless, to give further confidence in the robustness of the data and calculations, firms should consider how pay gap reporting might be included within their Audit and Assurance Policy (AAP). This might include internal audit reporting on how the company has complied with the Equality Act 2010 (Gender Pay Gap Information) Regulations 2017, or external, independent assurance.

Assurance can also benefit signatories to the gender pay gap report, as they must confirm that the calculations are accurate and meet the requirements of the regulations. It can give reporting additional credibility, to help companies move forward with confidence as data around inclusion and equality is increasingly scrutinised.

1 Equal Pay Act 1970 (legislation.gov.uk)

2 Gender pay gap - Office for National Statistics (ons.gov.uk)