Closing ethnic and gender pay gaps in a large service sector organisation
A large employer in the administrative services industry had been active on fair pay for women, conducting gender pay gap audits for a number of years. However, until recently, there had been limited action on putting budget behind correcting pay gaps. This case study details the implementation of a comprehensive combined ethnic and gender pay gap audit and pay uplift to correct pay gaps, highlighting strategies, enabling factors, and the outcomes achieved.
The 2022 initiative to not only audit gaps but to implement pay uplifts to close ethnic and gender pay gaps and rectify historical inequities, was crucially backed by strong support from senior leadership, especially the CEO. In a period of structural and financial uncertainty around the impact of Covid for both the organisation and the country, which was affecting low-paid minorities and women the most, leadership made the bold decision to allocate around 1% of the overall wage bill to the pay gap uplift, on top of CPI-pegged inflation increases to wages.
And existing annual pay audit was part of pre-existing gender pay gap auditing, but as per the approach recommended by the MindTheGap campaign and the Good Employer Matrix the organisation analysed its gender pay gaps intersectionally – i.e. by combined ethnicityand gender – and used with European men as the comparator group. It meets the gold standard advocated by the Good Employer Matrix to audit, report and take action on Māori, Pasifika and gender pay gaps together.
The manager of the remuneration team who led the project reflected on the organisation’s strengths in data coverage: “We said, everybody does gender, but we can use the intersectionality of gender and ethnicity. And that’s how we’ve continued our analysis over the years. We’re actually a few steps ahead of the market in terms of our analysis, not because of the lack of intent, but just because we have better data... [There’s a] psychological safety that people in the organisation are willing to share their information... We are one of the leading organisations in terms of ethnicity data, many won’t have more than 50% [coverage]. We have more like 80%. That enables us to do more.”
The pay audit ensured ‘horizontal’ pay gaps were analysed and corrected – that is, ethnic and gender pay gaps across the organisation within the same pay band. However, importantly, an overall pay increase for the lowest paid band, of about $1000 per person, was also included in the initiative. There was actually no horizontal pay gap in the lowest band, but vertical occupational segregation – i.e. minorities and women clustering in lower-level frontline service jobs – is usually the main contributor to the overall ethnic and gender pay gap in an organisation, even if ‘horizontal’ gaps within bands are closed.
For the ‘horizontal’ audit, the project set a threshold that gaps exceeding 5% required correction, and set an aim for all gaps to be within 2% in the future. This involved collaboration across departments, transparency in reporting, and education initiatives such as basic training in remuneration standards for managers. Expertise from The New Zealand Remuneration Network (RemNet) had also been settling around 5% and 2% goalposts at this time. The remuneration lead notes that “the tolerance level is about a 5% gap because that could be explained by [the current] high inflation environment – for example those who join before or after the REM review. [You have to] adjust for the market... but if you find people with similar tenure and the gap is far more than 5%, there is no more explanation to look at unless there’s a big performance issue. So that’s where, when we are making corrections, go back and work with the business, go back to individual managers.”
In large organisations it can be easy for inequities to stay hidden even if managers are individually supportive of equity in pay. “The road to hell is paved with good intentions, right?” says the remuneration lead. “Managers don’t have visibility of the enterprise ...they may feel like there is equity within their team... but when they look across the organisation [as part of the pay audit process] it’s different.” A substantial amount of the work done in the initiative was after gaps had been identified, talking with individual managers to explaining the pay gaps affecting their staff members in the wider context of organisational pay for that band across the organisation.
In terms of challenges, the remuneration lead observed that “the biggest challenge is actually mindset right?” He contrasted the commercial mindset that typically drives a business, with the equity mindset of many staff, managers and leaders hold within the organisation. ”Those mindsets don’t see eye to eye... How to find an equitable solution? But the starting point is you’re always on the front foot if you’ve got the right principles in place.”
The organisation committed significant resources to the initiative – on top of the spend on the wage uplift, there was a dedicated full-time staff member on the three-person remuneration team guiding the project. This ensured investment in strong data analysis, in order to model different options for where to best concentrate uplifts across the organisation for the desired results in reducing pay gaps. The remuneration lead estimates that the full data extraction, analysis, and consultation with managers took around six months, but that the turnaround time for further iterations could be reduced to about a month and a half due to systems already being in place.
The initiative also included improving conditions and benefits, such as parental leave policies, to ensure a holistic approach to equity. The remuneration lead noted that with regard to pay “I’m using one tool to solve the puzzle”, and acknowledged that the bulk of the organisational pay gap would not be solved by horizontal pay audits, but required investment in better recruitment, training and progression pathways for marginalised groups.
Through strategic analysis, best practice polices, and decisive leadership, the organisation made significant strides towards reducing horizontal pay gaps, and ensuring its pay setting processes are fair. There was only a small change to overall gender and ethnic pay gap (by about .2 or .3%) due to most of the pay gap being due to vertical occupational segregation as in most large organisations.
However, a significant improvement in staff satisfaction around pay and reward in staff engagement surveys, showed increased trust in the fairness of the system - a fundamental element of staff wellbeing.
Case Study Summary
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The aim is to improve pay gap and progression for minorities and women through:
Pay gap auditing and uplifts
Overall pay rises for lowest paid workers
Improvement of conditions and benefits
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The project is supported by a team of three in the Remuneration and Reward department, with one member working full-time on the initiative. This was backed by strong support from the Senior Leadership, particularly the CEO.
Approximately 7,000 jobs were analysed resulting in pay changes to about 2000 jobs.
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The initiative involves analysing existing pay gaps and establishing 5% thresholds, alongside modeling effective strategies to reduce these gaps to within 2%. Additionally, there will be outreach efforts and educational training for managers to ensure they understand and can address these disparities effectively.
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1% of total wage bill, and resourcing of several project staff as part of Reward and Remuneration team.
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The initiative has received support from senior leadership, particularly the CEO, whose backing was crucial for securing the necessary financial commitment. The organisation has a longstanding culture and established principles focused on social equity, having conducted combined ethnic and gender pay audits annually since 2016. Notably, 2022 marked the first year that findings led to actionable pay corrections and uplifts, with plans to continue this auditing process on an annual basis moving forward.
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This organisation boasts a strong foundation for analysing pay gaps, with approximately 80% coverage of high-quality ethnic and gender data from staff. This enhances confidence in assessing pay disparities, particularly regarding who will benefit from any adjustments and the extent of gap closure. The large workforce allows for combined ethnic and gender pay gap auditing across various pay bands, safeguarding confidentiality and allowing for best practices such as using medians over averages.
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The organisation has achieved a notable reduction in horizontal gender and ethnic pay gaps, now within 2% for each pay band. While the overall gender and ethnic pay gaps have seen only a slight decline of approximately 0.2% to 0.3%, primarily due to the pervasive vertical occupational segregation typical of large organisations, there has been a marked improvement in staff satisfaction regarding pay and rewards. This positive change is reflected in recent staff engagement surveys, which indicate an increased trust in the fairness of the organisation’s pay processes.
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Pay Gap Uplift
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A large administrative services industry employer.
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