Gender pay gap: From reporting to action 

Following the release of the gender pay gap (GPG) report earlier this year, by the Workplace Gender Equality Agency (WGEA), the media frenzy may have subsided, but for Human Resource professionals, the journey towards achieving true pay equity continues. Workplace diversity remains a challenge, and more work is needed to address the GPG, with opportunities for organisations to do more to ensure an equitable and diverse workforce. This includes the critical task of developing and implementing effective strategies to address the GPG within their organisations.

Embracing equitable pay practices is not only a moral obligation, but also a key driver of business success. Research has demonstrated a compelling correlation between gender equality and the overall performance of organisations^[1]. Additionally, there is the risk of reputational damage due to the GPG's impact on talent, customers, and the community's perception of an organisation's culture.

In the effort to rectify persistent gender pay inequalities, many countries have introduced mandatory pay transparency. While implementing this strategy can be pivotal when done right, research on the effects of pay transparency are mixed. While pay transparency reduces the GPG in some instances it does not guarantee higher wages for women^[2][3]. For instance, in Canada, Denmark and the UK, the reduction in the GPG from transparency changes came about largely from a reduction in male pay rather than from a significant increase in female’s pay, debunking the belief that pay transparency alone is the solution to the GPG.

The WEGA GPG report is a valuable instrument for highlighting GPGs in organisations across Australia. However, addressing the GPG requires a multifaceted approach and in this article, we leverage Mercer's expertise in Workforce Rewards and combined with research evidence to explore effective strategies to address the gender pay gap (GPG).

The average gender pay gap is just the tip of the iceberg

The GPG is presented as both the median (the difference between the median of what a man is paid and the median of what a woman is paid within the organisation) and average pay gap (adding up the wages of all employees and dividing that number by the number of employees). The median GPG provides high-level insight into the typical earnings within the organisation as it is not skewed by high salaries. In contrast, the average GPG is skewed by higher salaries (e.g. the Chief Executive Officer salary). While there is a compelling case for more gender diversity at the executive level as it can lead to better organisation performance, the benefit is only realised when there is no GPG among executives^[4].

It is tempting to look for short-term GPG solutions (such as pay all females more), however, these strategies are rarely effective over time. The reality is that addressing the GPG for an organisation will require thoughtful, data-driven, and long-term oriented solutions for a sustainable outcome. For example, offering greater working flexibility at leadership levels does not significantly help address the number of women in leadership roles in the short-term, in fact one research study showed that it takes eight-years to realise the desired outcome of more women in management because of improved work–life practices^[5]. So, while this strategy does work and has other benefits in the short-term, it will take time to see the benefits linked to greater pay equity.

According to the Mercer Australian Benefits Review 2023^[6], only 44% of organisations surveyed included gender/pay equity in their policies or remuneration strategy, and as such focussing on remuneration interventions at the top of the organisation to address GPGs could provide organisations a competitive advantage and good start in addressing pay equity.

Two senior leadership focused strategies which have been shown to contribute to increased equity in the short-term are (1) addressing GPGs in senior executive remuneration and (2) hiring more women into senior roles.

Ensuring pay equity at the executive level can help organisations thrive and facilitate what Professor Carol Kulik^[7] describes as the ‘trickle down’ effect. This strategy involves organisations targeting the appointment and representation of more female board members, this then causes a trickle-down effect by up to two levels, which can lead to an increased number of women at ‘c-suite’ and senior management level. The effectiveness of this strategy can be enhanced when there are gender champions which are supported by the Chief Executive Officer^[7]. The great news is that this strategy does not only work at Board/Executive level but is also as effective at any two levels within an organisation.

Intersectionality matters: Unveiling hidden gender pay gaps

The transparency around the GPG in organisations only reveals part of the story. It is important for organisations to understand where in the business the GPGs are so they can design targeted interventions. For example, organisations can explore whether GPGs are in a particular geography, job family, or job level within the organisation.

It is also important to examine whether groups of women are more likely to have a GPG. Individual identities such as gender, race, sexuality, ability, and others can overlap and intersect to disadvantage an individual. It has recently been highlighted that many organisations’ gender pay initiatives have been designed for a prescriptive female employee i.e. a heterosexual, white, able-bodied woman^[8]. This ignores the fact that certain groups of women face intersecting forms of discrimination and disadvantage that may lead to significant pay gaps. For this reason, it is important for organisations to view their pay data from an intersectional perspective to ensure they can identify the characteristics of women who have a GPG and develop tailored interventions, keeping in mind that a one size fits all approach will always be less effective.

Leveraging internal labour market analysis to address gender pay gaps

Internal labour market (ILM) mapping and analysis is another powerful tool that can enable organisations to review the attraction, development and retention flows of both female and male employees through an organisation. Every organisation has an ILM map, either by design or default, and it can help to identify and address any areas of concern or raise red flags that may also provide insight into the gender pay gaps within an organisation.

Adding a gender lens to this important workforce planning tool can help to identify how women and men enter, progress, and exit from the organisation. This data can inform areas of concern that may be contributing to the GPGs and help guide the development of interventions to address them. For example, if it is identified that most women are exiting the organisation at the level before management, it may indicate issues inhibiting women progressing to the next level which is causing higher turnover, this could be due to limited opportunities for promotion, or a requirement for organisation policies to be reviewed, e.g. flexible work. By conducting this analysis, organisations can target investment in the required areas, ensuring focus and impact where it is needed most.

Revisiting the organisation's reward philosophy for pay equity

With the GPG in focus, now is the perfect time to revisit the organisation’s Reward Philosophy. The Reward Philosophy is the core document which details the organisation’s reward programs and reward strategies, outlining the organisation’s competitive market position, and helps to ensure equal pay for equal work. With a strong alignment to the organisation’s business strategy and culture, the Reward Philosophy can support managers to explain to employees how and why they are paid at their current level and what they need to do to be paid more. This increases the level of pay transparency and supports other organisation strategies in reducing the GPG.

Leveraging job evaluation to create fair remuneration structures

Job evaluation methodologies can also support organisations in reducing their GPG. Job evaluation methodologies are designed to be objective and free from bias. They focus on evaluating the requirements of a job rather than the individual performing in the job, which helps to ensure that gender-based biases or stereotypes do not influence the job evaluation process. With a focus on work value / job size, job evaluation methodologies assess the value or size of jobs based on factors such as qualifications, skills and experience required for a role, together with the job complexity, communication and interpersonal skill requirements, decision-making authority, and level of responsibility.

By using job evaluation outcomes, organisations can establish a fair and transparent remuneration structure based on the value of each job linked to market data aligned to the organisation’s chosen competitive market position. Integrating job evaluation outcomes into the remuneration framework ensures that jobs with similar levels of complexity and responsibility are compensated equally, regardless of the job title or the individual performing in the job. Therefore, contributing to the reduction in potential bias or discrimination in pay decisions. This also promotes transparency and fairness to support enhancing employee satisfaction and engagement and can help to ensure compliance with equal pay legislation.

Job evaluation combined with a remuneration framework also helps in identifying any existing pay gaps or inequities within the organisation. It can provide a framework for comparing jobs across different departments and levels, enabling organisations to identify any discrepancies in pay.

It is important to recognise that achieving progress in workplace gender equality is a long-term goal that requires sustained commitment and a multifaceted approach. It is not enough to simply report the gap; action must be taken. Analysing pay data from an intersectional perspective and developing tailored interventions to address specific gaps faced by different groups of women will be crucial.

In addition, organisations should leverage tools such as internal labour market mapping, revisit their reward philosophy, and implement job evaluation methodologies to ensure transparency, fairness, and equal pay for equal work. These strategies will support organisations in designing impactful interventions to reduce the gender pay gap.

Now is the time to take action. Our team specialises in remuneration data analysis, reward philosophy development, internal labour market analysis, job evaluation, and remuneration framework development. By utilising unbiased methodologies and conducting in-depth data analysis, we assist organisations in identifying and addressing factors that contribute to pay disparities. Get in touch to discuss how we can support your efforts.

DISCLAIMER

^{This content is intended to inform clients of Mercer's views on particular issues. It should not be relied upon or used as a substitute for professional advice specific to a client's individual circumstances. Whilst Mercer believes the prospective information and forward-looking statements made by Mercer in this report are based on reasonable grounds, they are predictive in character and may therefore be affected by inaccurate assumptions or by known or unknown risks and uncertainties. This content has been prepared by Mercer Consulting (Australia) Pty Ltd (MCAPL) ABN 55 153 168 140. `MERCER' is a registered trademark of Mercer (Australia) Pty Ltd ABN 32 005 315 917.}