The unadjusted gender pay gap is defined as the difference between gross hourly earnings of men and women, expressed as a percentage of the average hourly earnings of men. It looks at the overall difference in pay between men and women within a company or geographical region. As of 2021, the gender pay gap of the EU economy was 12.7%. In 2023, the UK gender pay gap was 14.3%.
According to the UK 2023 report, the gender pay gap among high earners is much larger compared with lower-paid employees – this indicates that men are far more populous in senior roles. There also remains a large difference in the gender pay gap between employees aged 40 years and over and those under 40 years of age.
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Mind the gap
This is heavily influenced by the ‘Motherhood Pay Penalty’, defined as the pay gap between working mothers and similar women without dependent children.
A positive gender pay gap figure shows women have less access to the higher remuneration in a company or region than men. A negative figure shows the opposite of this. However, it must be noted that if there are significantly more men than women in a company, the pay gap will be significantly higher. Thus, the data needs to be interpreted with nuance and cannot always be taken at face value.
Power of diversity
McKinsey’s 2020 diversity report showed a correlation between companies that prioritise diversity and those more likely to exhibit greater innovation, improved decision-making and higher employee satisfaction arguing that diversity is critical for business recovery, resilience and reimagination.
After analysing our portfolio companies, which have an average pay gap of 12%, and considering the broader context, a pay gap threshold of more than 1% is currently unrealistic. We have concluded that a company with a gender pay gap below 10% can be considered as a positive indicator. If this is higher, we will then assess the policies in place aimed at reducing the pay gap.
Such an approach is needed as companies often have high pay gaps if they sit within a traditional industrial or STEM sector where systemically women have been not present. Therefore, it is important to analyse the policies in place to ensure that women can access more senior roles. It has been shown that it takes several years for a company to correct its gender pay gap, so this metric will not significantly change year on year.
Maternity matters
One of the major drivers of the gender pay gap is women leaving, or stalling within, the workforce due to maternity. A company’s maternity policies are a key indicator of how they look to correct their pay gap. By the age of 42, mothers who work full-time will be earning circa 11% less than their equivalent.
The case study used by the Trades Union Congress (TUC) found that full-time workers born in 1970 had a 42% pay gap, primarily driven by the impact of parenthood on earnings. It showed that women generally earned less after children while men earned more. However, the pay gap was smaller (12%) between women without caring responsibilities and their male counterparts. Therefore, there is a greater pay gap for women taking a career break for maternity of circa 30%.
Women are systemically paid less when they take on the role of caregiver. They are often not able to access bonuses when they are on maternity leave. Even when they return, women are more likely to remain the primary caregivers and must reduce their working hours. According to the ONS, women working part-time earn up to 32% less per hour than they would working full-time. In addition to these factors, fathers often receive a wage bonus compared to men who do not have children. This further widens the inequality between women with children and men with children.
Re-balancing the gap
How can the gap be re-balanced? Greater parental leave for the parent who has not given birth. If the typical male role in a heterosexual relationship is treated the same as the typical female role, this could level out the inequality that women with children currently face.
It is currently more economically viable for mothers to take leave to care for their child. This is due to the pre-existing gender pay gap and greater access to economically viable maternity policies than paternity policies. However, a robust parental leave policy could redress the balance. If leave is taken by both in the relationship, a woman is no longer less economically effective than her male counterpart, who would also have taken off significant time to raise a child.
There are many factors that are built into the development of the gender pay gap, from education to parental leave and caregiving responsibilities. This makes the gender pay gap complex to equalise. However, policies in the workplace that promote women and parental leave increase their potential via fair promotion and ensure they are retained in the workforce. In turn, this will increase diversity of thought in decision-making roles within corporations, thus mitigating risk and increasing performance.
