Last year’s Black Lives Matter protests led many organisations to publicly condemn racism and discrimination in our societies and workplaces, but few have voluntarily reported their ethnicity pay gaps, despite the increasing expectation from the public, investors and other stakeholders. Just 13 FTSE 100 companies did so in their most recent annual report, according to new CIPD research. However, of those, ten organisations published for the first time, suggesting that greater public scrutiny of race inequalities prompted these employers to act.

With so few voluntary disclosures to date, and slow legislative progress since the Government launched its first consultation three years ago, the CIPD is calling for ethnicity pay reporting, including the requirement to publish a clear narrative and action plan, to become mandatory for all large employers from April 2023.

The professional body suggests that organisations use the same snapshot dates that are currently in place for gender pay gap reporting, so data would be collected in March/April 2023 and would need to be reported within one year.

In order to bring greater insight and consistency to people reporting, the CIPD is also calling on the Government to require organisations to provide a narrative, including action plans, alongside the data for gender pay gap reporting. It notes that numbers without a narrative are less likely to drive real change, and too many organisations are not providing this important additional commentary.

To support employers on their ethnicity pay reporting journey, recognising it is more complex than gender pay gap reporting (in which the difference is expressed between the average earnings of men and women, expressed relative to men’s earnings), the CIPD has launched guidance to help organisations start collecting and reporting their ethnicity pay data and, importantly, create action plans to drive change.

Peter Cheese, Chief Executive of the CIPD, said:

“Ethnicity pay reporting is an important lever for businesses and their stakeholders to assess if and where inequality based on ethnicity exists in their workforce. That’s why we believe it is so important that businesses both capture and learn from this data. While it’s positive to see some organisations voluntarily report their ethnicity pay, it’s clear that progress is slow and reporting is very inconsistent. Some companies just report their data while others report a commitment without sharing the data behind it.

“We know that gender pay gap reporting has driven greater transparency and accelerated progress, and we believe the same is needed for ethnicity pay reporting. Mandatory reporting of data, and the associated narrative that shows understanding of the data and the actions being taken to improve, for both ethnicity and gender pay, will help create fairer workplaces and societies and kickstart real change.”

Baroness Ruby McGregor-Smith, author of the 2017 McGregor-Smith review on race in the workplace said:

“A strong commitment to inclusion and fairness at work is not only good for businesses and their ability to attract and retain the diversity of talent, experience and skills they need to thrive, but also for our economies and societies. Every person, regardless of their ethnicity or background, should be able to fulfil their potential at work. It must be a collective goal that our organisations reflect the communities we live in and mandatory ethnicity pay data gives businesses, investors, and regulators the tools they need to see the current reality and where changes need to happen. It’s only once we see organisations publicly start to report the diversity of their workforce that we will see real change start to happen.”

Previous CIPD research has found that while most employers (77%) believe that ensuring workforce diversity is a priority, only 36% collect and analyse data to identify differences in pay and progression for employees from different ethnic groups, highlighting the need for mandatory reporting and clear guidance.

The CIPD’s new ethnicity pay reporting guide will support employers on their ethnicity pay reporting journey from data collection to publishing a narrative and creating an action plan.

In the absence of legislation, the CIPD recommends that employers should publish annual ethnicity reports based on three key components:

1. A uniform set of eight commonly defined statistics to profile pay by ethnicity.
The first six are in line with six data points organisations already collect for gender pay gap reporting: median ethnicity pay gap; mean ethnicity pay gap; median bonus gap; mean bonus gap; bonus proportions; and quartile pay bands.

The CIPD is then recommending two additional data points focused on encouraging the full representation of ethnic minority staff in the workforce:

• The proportion of their total UK workforce from ethnic minorities, ideally presenting this in the context of external demographic data. For example, national statistics if they are a nationwide employer or if they only operate out of one location, they should apply local statistics to show to the extent to which their workforce mirrors the ethnic diversity of their local community.
• The proportion of employees who have disclosed their ethnicity, as low ethnicity disclosure rates have been a challenge for many employers but can also indicate concern amongst a workforce of disclosing information and how that will be used. Good data is vital to profile the organisation and create meaningful action plans.

2. A supporting narrative to explain the nature and causation of any pay differentials and gaps by ethnic group evident in their stats.

3. An action plan of initiatives defined to reduce and remove any such gaps over time.
The guide is available here.