Workplace gender equality legislative changes

The corporate governance implications of the upcoming reporting and pay gap publication requirements for boards

Since 2019, Australia’s gender pay gap has stagnated at between 13-14%. Relevantly for Boards, in response to the stagnation of Australia’s gender pay gap, the Commonwealth Government has legislated amendments to Australia’s gender pay gap reporting regime in two key respects[1]:

• From late 2023, CEOs must report to their Board the executive summary of their company’s gender pay gap report, and CEOs must report industry benchmark results to their Board; and
• From early 2024, the Workplace Gender Equality Agency (WGEA) must publicly publish remuneration data, for each relevant employer for each reporting period.

The policy objective of this approach is, as the Minister for Women told Parliament:

“[r]esearch indicates the value of…publishing employer gender pay gaps in…nudging individuals – both employers and employees – towards real world action that will make change in their workplace”

The clear intent of the Workplace Gender Equality Amendment (Closing the Gender Pay Gap) Act 2023 (Cth) is to motivate Boards and companies to improve general pay gap outcomes through the application of public scrutiny.

As the Minister intends, the practical effect of the legislation will be that the media and other stakeholders will pick up gender pay gap reporting and subject companies to scrutiny through:

• analysing whether company’s gender pay gap has improved over time;
• comparing industry peers through league tables and other comparative analysis tools; and
• subject companies to criticism whether significant gender pay gap issues exist.

Listed companies, companies with high-paid executives, or companies with highly stratified remuneration practices will be particularly exposed to public scrutiny from the media and other stakeholders.

We explore the remuneration governance expectations that will be created by this change and what boards should do to minimise public criticism of their gender pay outcomes.

International experience with public disclosure of gender pay gap reporting

In 2017, the UK Government legislated to require public gender pay gap reporting for organisation with 250 or more employees. Since 2019, the UK’s gender pay gap has decreased from 17.4% in 2019 to 14.9% in 2022 (compared to Australia’s stagnate gender pay gap across the same period). Academic research has found that the gender pay gap reporting has resulted in an increase in female wages before and after the gender pay gap policy’s introduction.[2]

The UK legislation goes further than the Australian legislation by requiring companies to explain why a gender pay gap exists. As part of this process, many companies describe the proactive steps being taken to address them. Of the top 20 FTSE companies by market capitalisation in 2023, 12 report their relevant pay gaps in their annual reports and providing helpful contextual information regarding improvements made across years and explanations as to any relevant gaps. For example, Shell PLC in its Shell UK 2022 Diversity Pay Gap Report states:

We continue to make progress towards gender balance at Shell in the UK. However, we do still have a gender pay gap and there are a number of reasons for this…firstly, across all our employing companies we currently have more men than women in senior leadership positions that attract higher levels of pay…Also, women are under-represented in some specialist roles…which tend to attract a pay premium…We also see disparity with the gender bonus gap…We are…removing potential barriers to progression, widening our recruitment to attract more diverse candidates, and applying an inclusion lens to supporting and developing employees”.[3]

Other FTSE-20 companies, such as Diageo plc, BP plc, London Stock Exchange Group plc, Lloyds Banking Group plc, take a similar approach. Currently in Australia, of the ASX-20 companies, only four companies (namely, Transurban, Rio Tinto, CommBank and NAB) voluntarily provide substantive public gender pay gap disclosures through their annual reports. All of those companies provide explanatory commentary about gender pay gap and the companies strategies to close the gender pay gap.

The remuneration governance response to public gender pay gap disclosure may be similar to the UK experience. That is, as gender pay gap data will be publicly available, there will be an incentive for boards and companies to provide, via their remuneration report or specific pay gap reports, explanatory contextual detail about gender pay gap matters. For publicly listed entities, there may be a trend towards:

• voluntarily disclosing the results of gender pay gap reporting in the company’s remuneration reports;
• explaining the reasons why there is a gender pay gap; and
• describing the steps that will be undertaken by the company to close the gender pay gap in the future.

More detailed disclosures of this nature will allow companies to contextualise the reason for a pay gap, rather than just relying on the raw data made public by the WGEA. It may also permit companies to retain control over the message they present in respect of how they intend to improve gender pay equality in their workplace.

How should boards ensure gender pay gap improvements are included within the scope of remuneration governance?

To comply with the Workplace Gender Equality Act 2012 (Cth), from late 2023 the CEO of each company must present their board with an executive summary of their company’s gender pay gap report and report industry benchmark results to their board.

From a practical perspective, it would be prudent for the relevant board to closely review the CEO’s reports and strategically consider:

• the leading indicators and trends for the gender pay gap within the company
• factors influencing gender pay inequality within each quartile – i.e. is there a gender pay gap issue just at the senior executive level, or elsewhere?
• the remuneration arrangements and practices across the company to determine whether any contribute to gender pay inequality, and whether there are objective justifications for those practices
• whether appropriate systems and processes have been implemented to capture data relating to gender pay equality, and that specifically identify and remedy gender pay inequality between comparable roles
• short-term and medium-term practical remuneration strategies to address gender pay inequality. For example, if women are underrepresented in specified specialist roles that attract higher salary, ensuring that a pipeline of talent is established to guarantee balanced gender representation in all roles and
• how best to position their gender pay gap data for the purposes of public reporting (through the company’s remuneration report or otherwise). Providing raw figures without contextual explanation or without discussion of proposed strategies for improvement that a company is already undertaking represent a missed opportunity to demonstrate a commitment to positive gender pay equality development.

The Commonwealth Government’s clear policy agenda to address workplace gender equality is through greater remuneration governance transparency. This trend can be expected to continue to shape board’s remuneration governance outlook in the near future.

To read more on our Respect@Work series, follow this link.