You’ve just calculated your latest gender pay gap. With a sigh, you note that it is still large and at current rate of progress, it will take you 30 years to close it. Surely there must be a quicker and easier way to eliminate your pay gap? The good news is that if you use the 10 tools of Creative Pay Gapping, you can eliminate your pay gap tomorrow!
The 10 Tools of a Creative Pay Gapper
- Be literal!
- Equality now!
- Be non-Binary!
- Partner up!
- Wish you were here!
- Have an Easter break!
- Recruiting Now!
- Competitive Remuneration!
- Be Lean!
- Crack & Pack like Americans!
Not only are these tools quick and easy to use, they’re quick and easy to learn as I will now explain. I will leave the reason for the colour coding of the 10 tools till the end.
Tool 1 – Use the literal definition of the median
In my 20 years of running statistical training courses for non-statisticians, whenever I ask people to tell me how the median is calculated, the most common response I get is that it is the “middle value”. If you interpret that literally, that means the “middle of a range” i.e. exactly halfway between the maximum and minimum which mathematically is also the average of the maximum and minimum.
So if you use this definition, the “median” man will be the average of the highest and lowest paid man and the “median” woman will be the average of highest and lowest paid women. Everybody else in the organisation whether it has 100 or 100,000 employees can be ignored. You can see how easy it is to ensure that the “median” man and woman earn the same. Suppose the lowest hourly pay rate in your employer is £12 per hour and you have both men and women working at that rate, your CEO is a man earning £100 per hour and your deputy CEO is a woman earning £94 per hour, then the “median” man on this definition earns £56 per hour and the “median” woman earns £53 per hour. Obviously that is still a pay gap but if you now employ a 17 year old man earning £6 per hour then the “median” man and woman are now the earning the same.
This is of course the incorrect calculation of a median but given what you are required to submit to the government in your annual gender pay gap submission, it can be hard for someone to work out that you’ve submitted incorrect data (I explain how it is possible here). If you are caught doing this then you can defend yourself by pointing out that you are simply following official guidance as published by the government e.g.
- ACAS (page 11) – “the median average is the middle number”. There is no such thing as a “median average” but it’s in the official guidance so it must be real!
- GEO (Government Equalities Office) – “median figure (the difference between the midpoints in the ranges of men’s and women’s pay)“. If you intend to rely on this definition, do your calculations now since I know the GEO are working on new guidance as we speak.
- EHRC (Equality & Human Rights Commission) – “Median is the middle hourly pay rate, when you arrange your pay rates in order from lowest to highest.“
You might say “surely nobody would make that mistake!” You would be wrong since Cleveland Police made exactly that mistake by interpreting the EHRC guidance literally.
On a related point, bear in mind that nearly all statisticians recommend that the median is used as the main summary statistic of pay data since the mean (or average) is so easily distorted by a few very high earners. So don’t worry if you still have a large pay gap based on mean hourly pay, just point people to your median pay gap and tell them that this is what statisticians recommend. Your story will be more believable if your CEO is an extremely highly paid male who can then clearly distort the average hourly pay of men thus rendering it meaningless. Premier League Football clubs are a very good example of this effect. All have massive mean gender pay gaps due to a playing squad of 25 multi-millionaires but many have little or no median pay gaps.
Tool 2 – Pay the majority of your staff the same
The correct definition of the median is the following:-
- Rank your male employees in a line from lowest paid to highest paid.
- The man standing in the middle of this line (not the range) is the median man.
- Rank your female employees in a line from lowest paid to highest paid.
- The woman standing in the middle of this line (not the range) is the median woman.
Given this, can you see a simple way to guarantee that the median man and median woman will always earn the same? A creative pay gapper will spot that if at least half of the men and half of the women earn the same hourly pay rate, then by definition the man and woman standing in the middle of their respective lines will be earning the same.
The PR behind such a policy is easy to write. Just join these phrases up somehow “we are passionate about equality”, “fairness is integral to our business”, “by paying everyone the same, demarcation issues disappear”, “Proud to celebrate the 50th anniversary of the Equal Pay Act by guaranteeing no equal pay issues”, “The BBC should be ashamed!“, etc. As I said before, you are not required to submit details of your pay to the government gender pay gap website so it makes no difference whether this pay rate everyone gets is the minimum wage or megabucks.
Tool 3 – Gender is not binary
This tool and the next 3 tools exploit gaps in the existing pay gap legislation. When you make your annual submission to the government’s pay gap portal, you are required to tick a box which indicates your headcount. However, the regulations then requires you to exclude a number of employees who are outside of the scope of the legislation for the purpose of the pay gap calculations but you do not have to tell the government how many employees you have excluded and which ones they were. This gives the creative pay gapper a number of opportunities to use tools 3 to 6 to exclude employees who are messing up your pay gap.
Suppose your gender pay gap is due to your managers being more male dominated compared to the rest of your staff. You’ve learned from my blogs that the first step to eliminating a pay gap is to have the same gender ratio in pay grades. The hard way of achieving this is to spend many years to replace a proportion of your male managers with female managers. The creative pay gapper’s quick and easy way is to persuade some of the male managers to identify as non-binary instead.
Why does this work? Let’s assume you have 100 managers, 60 men and 40 women. If 1/3 of the men now identify as non-binary, you will now have 40 men, 40 women and 20 non-binary. The official gender pay gap calculation you have to do is to work out the difference between the average/median male employee and the average/median female employee so where do non-binary employees fit into this? The answer is you exclude them from the calculation as per the gender pay gap reporting requirements. Consequently, your management layer is now 50% male and if the rest of your staff is also 50:50, this should eliminate your pay gap.
You can find the relevant guidance from ACAS here but I quote the following from page 9 of that document :-
“It is important for employers to be sensitive to how an employee chooses to self identify in terms of their gender. The regulations do not define the terms ‘male’ and ‘female’ and the requirement to report gender pay should not result in employees being singled out and questioned about their gender. “
and later on –
“In cases where the employee does not self-identify as either gender, an employer may omit the individual from the calculations.”
If you’re being pressured to introduce ethnicity pay gap reporting as well, creative pay gapping is even easier with multiple ethnicity categories to play with. For a start many people will not give you their ethnicity and of course you can also be high minded and make it clear that you regard keeping a permanent record of your employee’s ethnicity as repugnant to the values of your organisation and is something that only a racist society would do. After all, it’s illegal to ask or record ethnicity in France so why is the UK not doing the same?
Tool 4 – Non-salary partners are excluded
The next exclusion from your gender pay gap calculation is all partners provided they do not earn a salary. If they earn a salary they must be included. So the more highly paid men you can make partners on a non-salary basis, the quicker your mean (& possibly median) male hourly pay will fall.
This is what ACAS has to say on page 6 of their guidance –
“The regulations exclude partners in traditional partnerships and limited liability partnerships from the definition of “relevant employee”, because partners are not “paid” but instead take a share of the profits, which is not directly comparable with employees’ pay.”
Tool 5 – Overseas employees are excluded
The third exclusion from the pay gap calculations are overseas employees. Now you will need to take legal advice on who can be regarded as “overseas” but ACAS say as a general rule, any employee who is able to bring a claim to an Employment Tribunal in Britain will need to be included. Those that can’t can usually be excluded.
So if you need to get rid of some highly paid male employees, find a way to get them working overseas with a generous package. I think you will find it easier to persuade men than women to take those difficult jobs in far flung places.
Another way to exploit this feature of the legislation is to do what Ryanair do which is the complete opposite of trying to hide a pay gap. Ryanair instead make it very easy to understand why they have such a large pay gap of 64p in the pound against women. They are an Irish company but they are required to report their pay gap for UK employees since they employ staff who can bring claims to a UK Employment Tribunal. It turns out that the only staff who come under UK employment law are pilots & cabin crew. Since pilots are overwhelmingly male in the whole industry and they earn 5 to 10 times what cabin crew earn, it is no surprise that their pay gap is so large. They even publish a simple graphic on their website which makes the whole picture very clear. Had they also based some engineers and head office staff in the UK, this would have muddied the waters and made it harder to explain away their pay gap. Instead they’ve clearly explained it, the focus now shifts to why they have so few female pilots and Ryanair can point to the fact that this an industry wide problem which will take many years to sort out since the existing pipeline of new pilots is still overwhelmingly male.
Tool 6 – Only full pay relevant employees are counted
It is now clear to me that when Parliament passed the Equality Act of 2010 which paved the way for the gender pay gap reporting regulations, they didn’t bother to think about how the gender pay gap should be measured. At the time, the ONS (Office of National Statistics) had been measuring the pay gap using a large sample of employee PAYE records and Parliament took the decision to replicate the ONS method as much as possible.
As a result, creative pay gappers were given many great tools to hide unwelcome pay gaps. The 1st 5 tools I’ve taken you through above use methods which are relatively easy to either detect or to prevent with changes to the regulations. The next 5 tools use methods which are harder to detect or prevent and I will start with this one which exploits the definition of full pay relevant employee.
Your annual gender pay gap submission is driven by the snapshot date which is 31st March for the public sector and 5th April for the private sector. Whichever pay period includes this date is the one you need to use for your pay gap calculations. However, you are required to base your calculations on full pay relevant employees only. If your employees are not full pay relevant they must be excluded.
So which employees are not full pay relevant employees? The answer is any employee whose pay was lower than normal in the pay period that includes the snapshot date due to them being on leave. All of the following are defined as being on leave:-
- annual leave
- parental leave of all kinds
- sick leave
- special leave e.g. attending a funeral
- study leave
For these employees to be excluded, they must be paid less than their usual pay as a result of taking any of these types of leave. If they continue to receive their usual pay they have to be included.
So the creative pay gapper will identify all the troublesome employees, get them to take a form of leave that results in reduced pay for the pay period that includes the snapshot date and hey presto your pay gap could magically disappear. If these employees object to receiving less pay then make it up to them by paying them the lost earnings as bonuses but make sure the bonuses are paid in a pay period that doesn’t include the snapshot date. This can increase your gender bonus gap but so far no-one is paying attention to bonus gaps as I explain in tool 8 below.
Tool 7 – Keep employee turnover as high as possible
If you’re struggling to use tools 3 to 6 to exclude awkward employees from your pay gap calculations, then the only option left to you is to get rid of them. An alternative is to use tools 9 & 10 below but those tools are better suited to large employers. For smaller employers, this tool may be more suitable.
Suppose you were the kind of employer that wanted to close a pay gap the proper way (i,e, the slow and difficult way), then in most cases you will need to promote women into higher paying roles. Before you can promote them, there needs to be a vacancy in those roles. If you have a loyal, long serving workforce then vacancies will be few and far between and your slow and difficult path to closing a pay gap will become even slower and more difficult. I explain this issue in more detail in my article “How to close your pay gap by playing Blackjack”.
The creative pay gapper solution to the slow and difficult way is to make your workforce disloyal and short term so that vacancies come thick and fast. It’s up to you whether you want to institute a hire and fire culture or make your workplace a place everyone hates working at, but the way to use high employee turnover is to make sure you synchronise your appointment of women into high paying roles with the snapshot date. As explained in tool 6, this is the date that determines which pay period you need to use to measure your pay gap so make sure your senior roles are filled with women as needed in that pay period and then fire them or force them out in the next pay period and replace with your preferred males. Next year, rinse and repeat.
You might object and say that high employee turnover is costly and could be bad for your brand image. Did you read the title of this article? It says I will be talking about the quick and easy way to close a pay gap but nowhere did I say it will be cheap. It’s up to you to decide whether the aggro you’re getting over your large gender pay gap is worth the cost of high employee turnover.
Tool 8 – Bonus is Earnings and Earnings is Bonus
Nobody pays attention to gender bonus gaps, at least that’s my experience so far.
You are required to report both your gender pay gap based on hourly pay for the pay period that includes the snapshot date and your gender bonus gap based on bonuses paid in the 12 months leading up to snapshot date. One wrinkle you need to be aware of is that if you pay an annual bonus (or a bonus of any kind) in the pay period that contains the snapshot date, it must be included in the gender pay gap calculation (pro-rated if necessary).
So the creative pay gapper will ask his or herself two questions –
- Should bonuses be paid in the pay period that includes the snapshot date or not?
- What is the optimal split of employee remuneration into ordinary pay and bonuses such that the gender pay gap based on ordinary pay is as small as possible?
The point is to not worry about the gender bonus gap and use your bonus scheme to take away the awkward ordinary pay that is giving rise to the gender pay gap that everyone is moaning about. Yes your bonus gap may get bigger but I have yet to see much debate about bonus gaps. If you do get questions about your bonus gaps, deflect them by pointing out that not many people get bonuses in your company and consequently the sample size is too small to draw meaningful conclusions. It may not always be possible to keep the number of bonus recipients that low but that’s what you pay a creative pay gapper to do, find the optimal solution.
Tool 9 – Sack, replace or outsource low paid women
If you were to ask most people “how do you go about closing a gender pay gap” you will either receive an incorrect answer “pay women more” (see my post “Unequal pay & gender pay gaps are not the same thing!” for why this is incorrect) or one of the two correct answers “promote women into senior and higher paying roles“. You are unlikely to hear the second correct answer which is “reduce the number of women and increase the number of men in low paying roles“.
A while ago, I saw a claim that Saudi Arabia has no gender pay gap. I haven’t verified it but I can believe it based on my limited understanding of Saudi society. Saudi Arabia is known for discouraging women from working but some women do work. The result is that lower paid jobs in Saudi Arabia are done by men and the few women who do work are more likely to be educated and determined enough to do higher paying roles. Given this it would not surprise me at all if Saudi Arabia has a gender pay gap that favours women instead. Obviously, if they decide to liberalise their society and encourage women to start going out to work, I can guarantee that the first outcome will be a rapid widening of their gender pay gap in favour of men.
My analysis of gender pay gap data in the UK tells me that often, reducing the number of women in low paid roles will have a bigger impact on your gender pay gap than increasing the number of women in high paying roles. The graphic shows an example where the two women eliminated were earning £10 an hour. If they were still working, the median woman would be earning £15 per hour, £5 less than the median man, but without them, the median woman now earns £20 per hour, the same as the median man.
Again the PR behind your decision to make redundant or outsource your part of your organisation that employs lots of low paid women is easy to write. Just play with this bingo card “increasing shareholder value”, “efficiency is core to our activities”, “we’re removing waste and non value-added activities”, “we’re focusing on our core operations”, etc.
You might object that whilst tool 9 does reduce your pay gap, it will leave your organisation more male dominated which might not take away the headlines. Again, it depends on what your critics are focusing on. Most critics have a poor understanding of data and often prefer to grab one number to beat you over the head with so it’s up to you to decide which club is preferable for your beating. As I said before, I’m offering you quick and easy tools to close your pay gaps not cheap and painless tools.
Tool 10 – Gerrymander your subsidiaries
The last and best tool for a creative pay gapper to use takes advantage of a weakness in the current gender pay gap reporting requirements which is that there is no requirement for a conglomerate to report figures for the group as a whole if they have made reports for each of their divisions. Even if this changes, the tool can still be used to give you whatever results you want since it exploits a famous statistical phenomenon known as Simpson’s Paradox. Pay gaps of all kinds are rich in Simpson paradoxes and I describe two such situations in my articles “Unequal Pay and Gender Pay Gaps are not the same thing” and “What is the gender pay gap at Novartis UK?“.
If you follow US politics, you will know that Gerrymandering of the 438 district boundaries in the US House of Representatives is a regular point of controversy. The US Supreme Court decided that this was fundamentally a political issue that was outside its jurisdiction so expect even louder clamour about gerrymandering once the 2020 census is complete. The census is used to determine how many seats each state gets and the state legislature gets to decide where the boundaries of the seats are. There must be an equal number of registered voters in each seat (which differs from the UK which allows unequal seat sizes) but how the boundaries are drawn is up for grabs. As a result, whichever party controls the state legislature gets to decide which boundaries should be drawn and it is no surprise that most cannot resist the temptation to draw the boundaries that best suits them. Read this excellent article by Nate Silver of 538 for more information.
Conglomerates or holding companies are the equivalent of US states and their subsidiary companies that have a separate legal status are the equivalent of US House Districts. Where the group has complete control over the structure of their subsidiaries, they are the equivalent of a state legislature. So how can conglomerates use gerrymandering to present themselves in a good light?
Here is a graphic I use in my article “Unequal Pay & Gender Pay Gaps are not the same thing“. As you can see the overall gender pay gap favours men but within each of the 4 roles, the average woman earns more than the average man. Now suppose these 4 roles were 4 separate companies i.e. Managers Ltd, Admin & Co, etc? Then because it is the 4 legal entities that are required to report their gender pay gap and not the group XYZ Ltd, the public will end up seeing that XYZ has 4 companies each with a gender pay gap favouring women. If the group had also been compelled to report as well, then XYZ Ltd would have a pay gap favouring men instead which would have created some head scratching. This is a classic Simpson’s Paradox.
This example is not esoteric, it has already happened with Novartis UK except they were the reverse. The group has a pay gap favouring women to the tune of 11p in the pound but in each of the 2 legal subsidiaries that reported their gender pay gaps, the pay gap was also 11p in the pound on average but favouring men this time. The point of my article was to explore what was the true pay gap at Novartis and I concluded the 2 subsidiaries were more correct than the group level which was Simpson’s Paradox in action. But for another employer I might conclude that the group level is more correct than the subsidiaries.
That’s the beauty of Simpsons Paradox for creative pay gappers, it is not obvious which is the correct narrative and even if the government decides to compel holding companies to report as well, you will still have some control over which narrative to put out.
A variant of this tool can be combined with tool 9 as before so that you can restructure your company in such a way that the year on year change in your pay gap makes for a good story. In my article “The good, the bad and the Unilever” I showed that the company had obviously restructured their two legal entities that were required to report gender pay gaps because the year on year change in the number of women in each subsidiary was way above what could be expected by chance. I observed that in one subsidiary the % of staff that were female had increased from 30% to 43% whilst at the same time in the other subsidiary, the %women had fallen from 55% to 48%. I was critical of Unilever in that article for failing to point this out in their narrative since this restructuring had a side effect of eliminating the pay gap in one of their subsidiaries. Failure to make this clear might have led some people to think that Unilever had discovered a great way to eliminate their pay gap when in fact it was just a restructuring exercise.
Finally, gerrymandering your subsidiaries has two other benefits that a creative pay gapper can make use of. The first is that only employers with a headcount of 250 or more are legally required to report their gender pay gap so if you can restructure in such a way that some of your subsidiaries have a head count of less than 250 you can avoid reporting their pay gaps especially if they are unfavourable. By the way, if your small subsidiaries have no pay gaps then voluntarily report that and get the kudos for voluntarily reporting! The second option is to buy another company and merge that with your company, thus giving you many more ways to gerrymander the new company to eliminated your gender pay gap.
Why did I write this post?
So how much do I charge you to use my skills as a Creative Pay Gapper to eliminate your gender pay gap overnight? Absolutely nothing! Yes you read that right, I charge nothing because this service isn’t for sale. Instead, I use my skills to spot employers trying to be creative and if spotted, they will have a prominent place in my Hall of Shame. If you know of any employers trying it on, please contact me so I can add them to my list.
The reason I wrote this post is to make you aware of the many ways and means of putting an undeserved gloss on an employer’s pay gaps. Just as employers can indulge in creative accountancy to make their accounts look better than they are so it is possible to indulge in creative pay gapping to make their pay gap statistics look better than the reality. The current regulations have gaps that can be exploited as I have explained so until Parliament closes these gaps and builds a better pay gap reporting system, being alert to creative pay gapping is an essential skill for anyone interested in the analysis of pay gaps.
The Royal Statistical Society published “10 recommendations for improving gender pay gap reporting” in April 2019 and I hope the government will take these into consideration when deciding how to improve existing legislation. I will be writing a follow up to this post soon explaining how the 10 tools can be blunted with better regulations but the colour coding I used for the 10 tools in this article denotes the following broad methods of making Creative Pay Gapping harder.
- Tools 1 & 2 exploit the widespread misunderstanding of the median which is the most common number used in discussions about the gender pay gap. The best way to blunt this is to make the 4 income quarters (sometimes incorrectly called quartiles) the focus of discussion instead as I explain in my post “Gender Pay Fingerprints are better than Gender Pay Gaps“.
- Tools 3 to 7 exploit the fact that parliament decided to copy wholesale the ONS method of measuring pay gaps. The ONS method is fine for what it does but for pay gap reporting at the employer level, a different approach should have been taken. There are a number of elements to the alternative (which my next article will focus on) but one of the main ones is that pay gap calculations should be based on the 12 months to the snapshot date for the complete remuneration package rather than a specific pay period for hourly pay only.
- Tools 8 to 10 are harder to blunt with improved legislation since they rely on a degree of honesty among employers. The alternative is to introduce much more extensive and intrusive regulations which will never work completely and more likely than not will have undesirable side effects so this is not the approach I will be advocating for in my next article. Instead I will focus on a few specific changes that I think will have a big impact. One example would be requiring holding companies with multiple legal entities to report the pay gap for the group as a whole as well as for each separate entity.
— Need help with understanding your gender pay gap? —
I offer the following services.
- Analysis – I can dig deep into your data to identify the key drivers of your pay gaps. I can build a model using a large number of variables such as pay band, seniority, job function, location, etc and use this to identify the priority areas for closing your gaps.
- Training – I run training courses in basic statistics which are designed for non-statisticians such as people working in HR. The courses will show you how to perform the relevant calculations in Microsoft Excel, how to interpret what they mean for you and how to incorporate these in an action plan to close your gaps.
- Expert Witness – Has your gender pay gap data uncovered an issue resulting in legal action? Need an expert independent statistician who can testify whether the data supports or contradicts a claim of discrimination? I have experience of acting as an expert witness for either plaintiff or defendant and I know how to testify and explain complex data in simple language that can be easily understood by non-statisticians. You can see an example of my testimony in action here “My evidence to the Treasury Select Committee“.
If you would like to have a no-obligation discussion about how I can help you, please do contact me.
— Want to know more about the gender pay gap? —
I have written a number of articles about pay gaps. You can find the full list of my articles grouped by theme here.
I also comment on pay gaps on my Twitter thread. Some notable tweets are here.
- My complaint about comments made by the head of the TUC on the 2018 pay gap.
- Some observations on the government’s guidance to producing gender pay gap statistics and the numerous deficiencies in these.
- My comments on why incorrect gender pay gap data is being submitted.
- At last, the BBC publishes a good article on gender pay gaps!