Class pay gap reporting: social mobility tool for employers?

Background
What is class pay gap reporting?
Defining socio-economic status for class pay gap reporting
Main identifiers of socio-economic background
Role of data in class pay gap reporting
How to increase social mobility data
Class pay gap reporting and recruitment
Regression analysis for class pay gap
Comment

There is a growing trend in employment law towards using transparency as a method of driving change. While mandatory class pay gap reporting might not be imminent, this article considers the drivers behind an increasing number of organisations that are reporting voluntarily in this area, as a measure to address social mobility disadvantage in the workplace. It also identifies the legal and practical issues that employers need to consider.

Background

The government has made various moves over the years to address workplace inequality in the form of mandatory gender pay gap reporting and chief executive officer pay ratio reporting.(1) Calls for mandatory ethnicity pay gap reporting are increasing, although the government is still to set out its plans (for further details please see "Ethnicity pay gap reporting: government's debate response will frustrate employers").

In 2019, the Trades Union Congress (TUC) called for mandatory class-based pay gap reporting to address "institutional discrimination" (for further details please see "Class discrimination and the workplace: TUC proposes new laws"). This policy also featured in the Labour Party's 2019 general election manifesto. Although the current government has no plans to force companies to report their class pay gaps, this is likely to be an area of increasing focus in the future.

In the meantime, some employers are starting to take their owns steps to measure and analyse their class pay gaps in the workplace. Accountancy firm PwC recently published its socio-economic pay gap report, showing the difference in pay between their average lower socio-economic background employees and the average professional or intermediate socio-economic background employee. KPMG has similarly calculated and reported its class pay gap.

In the wake of the covid-19 pandemic, employers are increasingly adopting value-driven employment initiatives and policies that go beyond strict legislative compliance. Many organisations explore voluntary pay gap reporting as part of a wider diversity strategy. Applying some of the lessons of gender pay gap reporting, these employers are routinely analysing gaps each year and, therefore, they are forced to continually consider the issues, keeping social mobility high on the diversity and inclusion agenda.

What is class pay gap reporting?

Class pay gap reporting involves comparing the pay of the average low socio-economic status person in a workplace to the average higher socio-economic status person.

Defining socio-economic status for class pay gap reporting

"Class", or "socio-economic status", is notoriously difficult to define. What does "working class" mean? What does "middle class" mean? Where are the lines drawn? The below table provides some indications.

Most people might agree that a person in scenario 1 is probably working class, and a person in scenario 12 is probably not working class. What about scenarios 2 to 11? The line is hard to draw and it can be in different places for different people. "Class" is highly subjective.

Main identifiers of socio-economic background

In order to try to cut through some of this uncertainty, the Social Mobility Commission's toolkit(2) suggests using parental occupation when the child is 14 years old as the main identifier of socio-economic background.

The toolkit says that this question typically gets the highest response rates, it is accessible to people from all nationalities and it is a strong predictor of outcomes. For these reasons, the Social Mobility Commission recommend that this social mobility data point be given the highest priority by employers (with three other key social mobility data points being the highest level of parental qualification, the type of school attended at ages 11 to 16 and free school meals eligibility).

Parental occupation is split into nine categories(3) that have been consolidated into three broader groups:

• working class;
• intermediate; and
• professional.

Both PwC and KPMG have used these broad groups to calculate a gap that compares the average working-class person against the average intermediate and professional class person.

Role of data in class pay gap reporting

Any analysis is only as good as the data behind it. Large, complete datasets will give organisations something useful, whereas small, incomplete ones will not.

Both KPMG and PwC are large businesses with thousands of employees. They also have good response rates for parental occupation data (70% of KPMG employees and 80% of PwC employees have provided such data).

The primary focus for any employer looking to take a more data-driven approach to social mobility should be data collection, with a target of at least a 70% response rate from employees (but ideally closer to 100% since incomplete datasets(4) can cause problems in the analysis).

Although the Social Mobility Commission recommends prioritising parental occupation, the other markers (eg, type of school attended, free school meal eligibility and parental qualifications) should not be ignored.

How to increase social mobility data

Many employers looking at social mobility issues will be starting from a low data point. Getting a high response rate will take time, persistence and ingenuity. However, it is work worth doing as it is a crucially important first step to identifying and tackling social mobility issues. Without having the social mobility data about employees, it is impossible to understand what issues might affect the workforce. Below are a few ideas to improve data collection:

• communication – mass emails to the workforce asking employees to provide their social-economic data are generally not effective. Employees need to understand why an employer needs such data and what they are going to do with it. Ensuring that it is processed in alignment with the UK General Data Protection Regulation is critical.
• transparency – all pay gap reporting regimes are measures that increase transparency; therefore, employers need to be clear about their plans. Class pay gap reporting should be part of a more comprehensive strategy to improve social mobility within a workplace. Clarity in this regard will help build the trust that is needed for employees to provide their data.
• social mobility advocates – there must be advocates for social mobility at all levels of a business. Using them to motivate engagement can help with data collection. Employees are more likely to respond to something like a request to provide their social mobility data if the request is coming from a peer that they know.
• behavioural economics – once people start providing their data, using a behavioural economics inspired "nudge" can be helpful. For example, telling people "X% of people in your team/department have provided this data so far", or "X people have provided this data in the past week". Since people often copy the behaviour of others, informing stragglers that they are in the minority can be an effective persuasive mechanism.

Class pay gap reporting and recruitment

Reporting on a class pay gap will show only the difference between employees within a particular workplace. For many from a lower socio-economic background, the challenge is entering a high-value workplace in the first place. How can organisations identify what barriers people might face?

Again, data is vital. Employers need to know the social mobility characteristics of those who apply for roles and they should measure the class diversity at each stage in the process. There may be areas that have more of an effect on particular socio-economic statuses than others.

For example, applications from first-generation graduates might score less well than those from people whose parents went to university and who have access to tips on how to progress. In this case, an employer could review what information is available to applicants and more clearly spell out what they are looking for in an application.

Another example might be if the data showed that the interview process affected one social mobility group more than another. In this case an employer could consider giving interviewers guidance and ensure a more structured interview process.

Regression analysis for class pay gap

As someone's socio-economic status or "class" is a product of many different factors, trying to understand the difference between groups is hard. The Social Mobility Commission's work shows that parental occupation can be a useful measure, but different socio economic "markers" may have a different effect from one workplace to another.

For those employers that want to fully understand the types of class in their workplace, a more sophisticated type of analysis might be useful. In a regression analysis,(5) all of the studied factors related to socio-economic status can analysed at the same time:

• parental occupation;
• parental qualifications;
• housing tenure;
• school attended; and
• free school meals entitlement.

This allows an employer to understand the effect that each factor has on pay. It may show that, in their particular workplace, the type of school attended is a bigger predictor of pay than another factor, such as parental occupation. Armed with this information, an employer can deploy more targeted diversity initiatives to tackle the issue. For example, outreach to schools or universities in social mobility cold-spots(6) to widen candidate pools.

Comment

Social mobility disadvantages in work have received increasing attention in recent years. Removing social mobility barriers is something politicians want to tackle – the economic benefits could be huge(7) and it is part of the government's "levelling up" agenda.(8) There is help available and employers might want to consider making a submission to the social mobility index for a critical assessment of what it is doing.

Although not straightforward, class pay gap reporting could play a valuable role in enabling employers to take regular action to tackle social mobility disadvantage in their workplace and gain access to previously untapped talent pools.

For further information on this topic please contact Tom Heys at Lewis Silkin by telephone (+44 20 7074 8000) or email ([email protected]). The Lewis Silkin website can be accessed at www.lewissilkin.com.

Endnotes

(1) Further information is available here.

(2) Further information is available here.

(3) Further information on the nine categories is available on page 32 of the Social Mobility Commission's toolkit.

(4) Further information is available here.

(5) Further information is available here.

(6) Further information is available here.

(7) Further information is available here.

(8) Further information is available here.