The new frontier in D&I accountability

What is the ethnicity pay gap?

The ethnicity pay gap means the difference in the average pay between an employee from an ethnic minority background, compared to a ‘white’ employee.

The ethnicity pay gap concept is particularly used by British companies. In the UK, around 85% of the population is considered to be white ethnicity. This figure amalgamates the different categories of ethnic origin in the British Isles, such as White British, White Scottish, White Irish, and White Other.

Around 15% of the UK population is considered to be from an ethnic minority. This means an ethnic group other than white. In the UK, ethnic minority categories include Asian / Asian British, subdivided into Indian, Pakistani, Bangladeshi, Chinese and Other Asian; Black / Black British, subdivided into African, Caribbean and Other. Other categories are sometimes included such as Arab, Mixed, and Other. 

While these categories are not always exact, nor do they always accurately reflect the diversity of people’s experience, these are the general categories used by the UK Government and the Office of National Statistics (ONS). Ethnic minority is sometimes referred to as BME or BAME, (Black, Asian and Minority Ethnic).

Is there an ethnicity pay gap?

Multiple studies across sectors and industries have consistently uncovered a difference in what an employee from an ethnic minority earns, versus a typical white employee. 

Evidence gathered by the Equality and Human Rights Commission demonstrated that the average white British employee earned a median hourly rate of £11.62, compared to £9.93 for British Pakistani workers and £9.24 for British Bangladeshi workers.

Ethnicity pay gap is slightly different than the gender pay gap, which is more about a woman being paid less than a man in an equivalent position. This is illegal and one of the reasons gender pay gap reporting is mandatory for so many companies is to ensure that men and women are paid the same for comparable jobs.

The ethnicity pay gap is more complex, as it is determined by a range of social, cultural and structural factors related to life in the UK. Ethnicity pay gap reporting is not yet required by law, however a business which reports on their ethnicity pay gap, and the steps they are taking to address it, demonstrates they are taking a strong lead on diversity, equality and inclusion.

Case Study: Network Rail

Network Rail have, for the last three years, been voluntarily publishing their ethnicity pay gap. Their stated aim for doing this is:

“We want to lead the industry on diversity and inclusion and this report is an important tool to help us achieve our ambition.”

In 2021, Network Rail determined that their median ethnicity pay gap is 6.7%, above the national average of 2.3%. This means that ethnic minority employees were underrepresented in higher paid roles. 

They had also increased the proportion of Black, Asian and minority ethnic employees to 9.4%, a 0.3% increase. However 9.3% of their staff had not shared their ethnicity, presenting challenges in data collection. Network Rail also set a target of 13% of their workforce being from an ethnic minority background. With a total staff of over 35,500, this marks a significant commitment.

Why report on the ethnicity pay gap?

Reporting on the ethnicity pay gap is another way of being transparent and honest about the workforce, and provides both evidence and opportunities to commit to making it better. Ethnicity pay reporting should not be data-gathering for its own sake. Rather, these statistics should be a powerful means of driving action to build more equal, inclusive and diverse organisations. 

Pay gap analysis can show that certain groups of people are underrepresented in higher paid roles. Combining ethnicity data with gender pay gap data can also deliver more specific information for a business, such as certain teams or roles are lacking in Black women for instance, or are over-represented with Indian men.

For D&I professionals and the business efforts in improving D&I, this kind of data is vital. With purely financial data, a business might consider they are saving on staffing costs in certain departments. However, through a D&I lens, these departments may have more people from an ethnic minority background than other departments. So the business is not so much saving on staffing costs than it is under-paying people.

This is how gender pay gap analysis works. It can identify areas of a business where women may be being underpaid, and how this is happening. A classic gender pay gap example is between two different teams where one team is generally male, such as IT, maintenance or support, and another team is generally female, such as admin, finance or facilities. Both roles may require similar kinds of training and experience from the candidates, but one team is paid higher on average than the other, despite the similarities in the job profiles. This is the gender pay gap which companies are required to understand and address.

Reporting on the ethnicity pay gap comes from a similar idea. That a business can demonstrate their commitment to a diverse workplace where talent is rewarded, and gender, ethnicity, or other factors will not hold a person back. Understanding and reporting on the ethnicity pay gap is a very good way to make that happen. 

How to report on the ethnicity pay gap

Similar to gender pay gap reporting, employers should report their ethnicity data breakdowns in each pay quartile, as they would for gender. This can show in which pay quartile ethnic minority employees are underrepresented. It can also deliver clear targets, such as increasing ethnic minority representation in middle management by 10%, and in senior management by 15%.

The two key numbers which should be reported on are the median pay gap and the mean pay gap.

The median pay gap is the difference between the midpoints in the ranges of hourly earnings of ethnic minority and white staff. It takes all salaries in the sample, lines them up in order from lowest to highest, and picks the middle salary.

The mean gender pay gap is the difference between the average hourly earnings of ethnic minority and white staff.

Other relevant factors to report on would include:

• The median bonus gap
• The mean bonus gap
• Bonus proportions
• Quartile pay bands
• Total ethnic minority workforce
• Proportion of employees who have disclosed their ethnicity

Is this data useful?

While it is not ideal to blend culturally distinct groups together, the binary white / non-white figure can provide a focus on the issue and drive more deeper analysis on the pay gap. The government has a large number of ethnicity classifications, so comparing each individual group to each other makes the output much less meaningful. 

Applying ONS and Census categories and amalgamating that data into white and non-white provides a headline measure which can be helpful for a business to shine attention on their pay gap and the steps they are taking to reduce it. 

Employers should also be undertaking additional analyses to investigate the exact location and cause of gaps using ONS and Census categories.

That data can then be compared to local and national averages, to give a better picture of how representative the employer is overall, and where it needs to improve.

Ethnicity pay gap and ESG

Already 13% of the UK’s top 100 listed companies have published their ethnicity pay gap, according to data from CIPD. This represents a growing commitment to reducing inequalities which have ballooned over the Covid-19 pandemic.

In the UK, ethnic minority young adults are 47% more likely to be employed on a zero-hours contract than white young adults, and the unemployment rate for ethnic minority workers is twice as high as white workers. 

When it comes to ESG, D&I is a crucial component of making significant progress and demonstrating a business is forward thinking and progressive. But without data, D&I initiatives can be limited to issues such as board representation. While this is vital as well, board representation is only one element to ESG. There’s no use in having a diverse board if there are wide discrepancies in the rest of the business. 

ESG is fundamentally about data-driven assessments, targets and reporting. How much carbon and how much is it being reduced by. Percentage of training, number of staff benefits and health and safety incidents.

Ultimately, ethnicity pay gap reporting, like gender pay gap reporting, provides useful and real data to inform a company’s D&I strategy, and contribute to their wider ESG programme.