Finance has a shocking gender pay gap. Shining a light on it is just the start
Pay discrepancies are bad for business, and yet they are rife in finance. Our inquiry is committed to fixing this for good
The gender pay gap in financial services is astonishing. It’s almost 100 years since International Women’s Day was first observed, and still we find women at some of the country’s top financial institutions are paid half as much as men.
Firms with more than 250 employees are required to publish details of their gender pay gap by April. Barclays International has published a mean gender pay gap of 48%. For bonuses, it’s 79%, meaning that for every £100,000 of bonuses handed out to men, women are only getting £21,000. The respective figures are 37% and 64% for RBS, and 33% and 65% for Lloyds.
The prevailing reason for this disparity is the much higher proportion of men than women in senior roles; the number of women diminish in line with seniority. As part of the Treasury committee’s Women in Finance inquiry, we’re seeking to identify the barriers to women entering and progressing in the financial services industry. If more women are in senior roles, it should follow that the gender pay gap reduces.
We’re examining the value to financial firms of having greater gender balance across all job grades and functions, and scrutinising the role of government and financial regulators in acting as role models for good gender diversity practices.
Five key themes have emerged. Firstly, gender diversity pays; it’s good for the bottom line. Credit Suisse found that companies where women make up at least 15% of senior managers had more than 50% higher profitability than those where female representation was less than 10%. Other benefits include a reduced chance of groupthink, enhanced connection to customers, and access to a wider talent pool.
Secondly, the picture so far isn’t great. A more gender diverse team brings benefits, but only one in four board members of financial services firms are women. Only 6% of chief executives of financial services firms are women. There is clearly a long way to go.
Thirdly, culture is important. Witnesses have told us that the “alpha male” culture in financial services at senior levels is deterring women. Jayne-Anne Gadhia, chief executive of Virgin Money, described this as a culture of winning at all costs, rather than doing the right thing. Recurring cultural themes of our inquiry include sexual comments from male superiors, stereotyping by the “old boys’ club” and its arcane recruitment practices, the “motherhood penalty”, opaque bonus criteria, and presenteeism, whereby performance is judged by visibility rather than output.
It’s up to all of us – men and women – to demonstrate that it’s possible to work in a different way. Amber Rudd said firms are likely to increase profitability by appointing more women to senior roles. She urged firms to close the gap by promoting more women from junior positions, changing recruitment practices, and allowing flexible working.
Fourthly, unconscious biases are at play. A report by Oliver Wyman observed that the biggest challenge lies in changing the stereotypes, assumptions and biases about what is required for leadership and success that permeate the culture of financial institutions. When evaluating the suitability of a woman for a role, or using certain language in job advertisements, biases can creep in.
Finally, transparency is key for driving change. As Jayne-Anne Gadhia says: “What gets measured gets done.” Shining a light on issues like the gender pay gap and whether firms are imposing and meeting targets is how diversity gets pushed up the priority lists of boards. Greater transparency allows for more effective scrutiny. The women in finance charter and requirement for firms to publish data on their gender pay gap are therefore welcome.
Requiring firms to report their gender pay gap figures, however, isn’t a magic wand. It’s a step in the right direction, but some firms may fail to meet these obligations, or publish inaccurate information. The risk of reputational damage, causing good female talent to decline to work for a firm based on its disclosure, is the strongest reason for firms to address their gender pay gap. But sunlight is the best disinfectant, and as the Equalities and Human Rights Commission (EHRC) has stated, sanctions may be necessary to ensure openness and transparency.
The government has said it will keep an open mind about going further in terms of regulations and sanctions, but a good starting point would be to include the salaries of partners when reporting the gender pay gap. They are classified as owners rather than employees, so technically they’re exempt from figures. But, as role models in their organisations, they should know better than to exclude themselves to skew the figures.
There is some dispute over the EHRC’s ability to fine firms who don’t publish accurate data, or don’t make sufficient progress in reducing their gap, but money talks, and perhaps more of the stick may eventually be needed to close the gender pay gap.
The World Economic Forum’s 2017 Global Gender Gap Report states that gender parity is more than 200 years away. Following the theme for International Women’s Day 2018, the committee will continue to press for progress.