Understanding new reforms to Australia's gender pay gap

New reforms will increase scrutiny around the gender pay gap and experts say that’s a positive step in helping business understand how to close it. Significant changes to Australia’s gender equality reporting are afoot, with company-level gender pay gap data to be publicly available for the first time. Workplace Gender Equality Agency CEO Mary Wooldridge GAICD walks directors through the rationale. 

For many women, policy debates around gender pay inequality has a personal sting. Workplace Gender Equality Agency (WGEA) CEO Mary Wooldridge GAICD is no different. “I did have an experience working with a previous employer, where someone I helped recruit, who was more junior than me, negotiated to earn more than I did,” she says. “I learned a lot from that process, in terms of ensuring I’m an advocate for myself and that I’m valued for the work I’m doing — and never to lose sight of that.”

Research suggests that often, when women negotiate for their salary, the outcomes are not as positive as for men — and a cultural shift is needed, according to Wooldridge. “Decision-makers need to understand that inbuilt biases can lead to outcomes that are quite different between genders,” she says.

Recently passed legislation will embed that understanding into regular practice, mandating that employers with more than 100 employees report their gender pay gap to WGEA in late 2023 — a previously voluntary activity — as part of the agency’s annual gender equality census. WGEA will publish the new data in early 2024.

New requirements will be staggered per the Workplace Gender Equality Amendment (Closing the Gender Pay Gap) Bill 2023, and include compulsory notification of the board and, in a later phase, disclosure of CEO remuneration, which will fundamentally change our understanding of how wide the gender pay gap is. The gap is a measurement of the difference between women’s and men’s overall earnings in the paid workforce, differing from “equal pay”, an Australian legal requirement reflecting whether two individuals are paid the same for performing the same role.

Wooldridge agrees it stands to reason that the existing estimation of the gender pay gap will widen as the dataset grows to include all employees. She posits this might be by as much as one to two percentage points once CEO remuneration is factored in from 2024. “We know nearly 80 per cent of CEOs are male, and they’re often the highest- earning person in an organisation,” says Wooldridge. “Therefore, our gender pay gap calculations are underweighted in terms of their earnings.”

It works in the UK

The model is based on similar data disclosures in the UK, which launched its reporting scheme in 2017. If history repeats, the initial widening will be counteracted by swift efforts to remedy it, with boards at the centre of the model. “In the UK, it’s had the desired impact, which is to narrow the gap between, on average, what men and women are paid in organisations,” says Wooldridge. “That transparency of reporting employer gender pay gaps has brought a focus. There’s a lot more analysis being undertaken, more discussions at the board level, and a lot more boards increasing their action around gender equality. All of that has led to a reduction in gender pay gaps.”

A 2021 London School of Economics study concluded the UK gender pay gap reporting policy led to an increase in female wages relative to men’s. The study’s methodology excluded the possibility this change could be accounted for by companies recruiting highly paid women candidates. In fact, the 2022 paper, Pay Transparency and Gender Equality, showed that UK employers with a larger gender pay gap in 2018 decreased their gender pay gap the most between 2018–19, compared with other organisations. That is WGEA’s ambition. “The transparency of publishing the numbers, and the inevitable comparisons that will be drawn as a result of that, the evidence shows, is a motivator to do something about it,” says Wooldridge.

However, she is quick to caution the precedent is not a “silver bullet” to close the gap with a dramatic drop, but rather with sustained reductions over time. That steady approach will be the boost the movement needs to accelerate the “glacial” pace of progress in the past couple of years. In 2015, the WGEA data gender pay gap peaked at a high of 28.6 per cent. As of November 2022, the national gender pay gap was significantly lower at 22.8 per cent, with women earning on average $26,596 less than men per year, unchanged from 2021.

“We want to regain the momentum in terms of closing the gender pay gap, and believe that the experience of the UK will translate well in terms of the Australian environment,” says Wooldridge.

Director discussions

The mechanics of how and why the transparency model works stems from board communication. The new reforms require the company’s WGEA report executive summary and industry benchmark to be shared with the board — a snapshot of how companies are performing and their comparison to peers in their industry.

“We know when things like pay performance and strategies are reported to the board, it’s much more effective in terms of reducing pay inequities than if they’re not,” says Wooldridge. “There’s an evidence base that says, when the board’s engaged and when senior executives are engaged on these issues, better outcomes are delivered.”

She argues a corollary of the reforms will mean affected Australian boards will need to have annual conversations, ideally more regularly, in conjunction with the publishing of the gender pay gap.

Research from the UK Government Equalities Office (GEO), Employers’ Understanding of the Gender Pay Gap and Actions to Tackle it, found that since the reporting requirements came into force, 76 per cent of organisations have tried to identify the causes of their gender pay gaps, and the majority of employers also reported greater engagement on the issue, including increased awareness by the board (70 per cent), board discussions about the gender pay gap (63 per cent) and board action on the gap (47 per cent).

Wooldridge recommends board conversations focus on questions such as, “Have we understood what’s behind this? Have we done a pay and composition analysis? What’s our plan for addressing areas that have been highlighted as more inequitable, or what’s driving these gaps? What are our plans and strategies to address it?”

Driving action from the board level also serves to de-silo the responsibility away from HR and diversity and inclusion personnel, downwards through the management chain. The GEO research found 57 per cent of organisations surveyed believed gender pay gap reporting had provided a platform for an increased focus on wider equality and diversity within their organisation.

“The HR and the DE&I people have a very important implementation role, but actually most of the employee experience sits with your individual manager,” says Wooldridge, flagging that conversations about day-to-day experiences, performance and flexible work are had at this level.

Institute of Labor Economics research found the UK’s pay gap publication policy encouraged employee bargaining and/or enhanced employer action in relation to equality.

The business imperative

A number of employers expressed concern about the burden of current reporting obligations to WGEA, the Office of Women Division of Prime Minister and Cabinet noted in its submission to the Senate committee that reviewed the Bill.

Wooldridge encourages directors nervous about regulation creep and an onerous reporting load to keep their eye on the business imperative — skills shortages. “We’ve got a tight labour market. Utilising the full skills and capabilities of the entire cohort of people who want to work, or are working within organisations, is another part of solving some of the problems companies are facing.” The AICD Director Sentiment Index for the first half of 2023 rated skills shortages as the top short-term policy issue directors want the government to address.

The Senate Standing Committee on Finance and Public Administration recommended the Bill be passed without amendment, noting in its report the AiGroup submission, which supported the Bill in principle, but opposed any retrospective reporting obligations. The report pointed out this would be at odds with the Bill’s stated aim to use public scrutiny as a proactive motivator. The Bill amends the Act to apply to retrospective reporting periods, beginning 1 April 2022 for non-Commonwealth entities, and 1 January 2023 for Commonwealth companies.

Accelerating change

Shifting from voluntary to mandatory reporting forces some companies to reveal previously hidden information. To soften the transition, WGEA has offered organisations the opportunity to publish a statement alongside their reporting that contextualises the gender pay gap in their business.

“This is about accelerating change,” says Wooldridge. “It’s not about shaming companies who aren’t performing well, or trying to highlight the negatives. This is actually about creating an opportunity for companies to embrace and understand what the issues are, and having a plan, a strategy to address them, and to demonstrate that.”

The long lead time between the legislation passing and coming into effect is to give companies the “catalyst for action” they may need to get their house in order. “We wanted to create time and space for companies to engage on the issues, to think strategically, to understand what the challenges are and think about what they want to do.”

There are no direct penalties for non-compliance with the new reporting obligations, although companies that don’t comply will be unable to tender or procure with the government over certain thresholds. The next steps will involve compulsory reporting of sexual harassment and the publication of Commonwealth public sector pay gaps. “We need this not to be a token effort, but something embedded as part of the core business.”

This article first appeared under the headline 'Pay Gap Visibility’ in the September 2023 issue of Company Director magazine.