City’s dismal gender pay gap is an opportunity for smarter firms

The business case for diversity is stronger than ever, writes James Moore

The gender pay gap is still high... and is a chasm in the City (PA)

The results of the latest exercise in gender pay gap reporting are predictably dismal. Various surveys of the data show roughly eight in 10 firms pay women less. The median gap hovers around the 10 per cent level; the Financial Times puts it as 12 per cent, the BBC at 9.4 per cent, depending on how you crunch the numbers.

What is not in dispute is that those numbers are too high, and that little has changed since 2017-18 when gender pay gap reporting was made compulsory. Some estimate it will take more than a century to eliminate the gender pay gap at current rates; even that is starting to look optimistic because slow progress is starting to look like no progress.

It should be stated at this point that what we are talking about here is not that men and women are paid for the same work; any gap there is already illegal. The gender pay gap is calculated as the difference between average hourly earnings (excluding overtime) of men and women as a proportion of men’s average hourly earnings (excluding overtime) across an organisation.

The figure gets higher when men get the best jobs with the fanciest pay packets. This helps to explain why the City of London, where the lords of finance are paid like Premiership footballers and the ladies have to make do with the scraps, does particularly badly. Some examples: HSBC’s gap is 45.2 per cent, up from 44.9 per cent the previous year; it’s 53.2 per cent at Goldman Sachs, up from 51.3 per cent; 40.8 per cent at Morgan Stanley, up from 40.5 per cent. Figures of 30 per cent or more are not at all uncommon.

“I assure you that we are intent on changing this, but of course it takes time,” Richard Gnodde, CEO of Goldman Sachs International, wrote in a memo to staff this week. I wonder what women thought when they opened that email? They have every right to be cross. But, of course, it doesn’t do to get cross in the City where one has to play the corporate game to get on, which means not rocking the boat and treating your boss like the Sun King.

Management consultant McKinsey has periodically analysed diversity, including the business case for it. Its work is highly relevant to the above figures, especially as financial firms like to emphasise their relentless focus on performance for shareholders. Its conclusion from the most recent of three studies: “The business case for diversity, equity and inclusion is stronger than ever.”

“The relationship between diversity on executive teams and the likelihood of financial outperformance has strengthened over time. These findings emerge from our largest data set so far, encompassing 15 countries and more than 1,000 large companies,” it concludes. “While most have made little progress, are stalled or even slipping backward, some are making impressive gains in diversity, particularly in executive teams. We show that these diversity winners are adopting systematic, business-led approaches to inclusion and diversity.”

The numbers suggest that these “winners” will be paid off handsomely. Companies in the top quartile for gender diversity on executive teams were 25 per cent more likely to have above-average profitability than companies in the fourth quartile – up from 21 per cent in 2017 and 15 per cent in 2014. Needless to say, executive teams are at the summit in terms of pay; firms in McKinsey’s top quartile will inevitably boast lower gender pay gaps.

High pay gaps reported by some of the City’s most prestigious finance houses indicate there is a market inefficiency in London’s financial centre, driven by old-school sexism. Smart, savvy organisations ought to be asking themselves how to take advantage of the pool of female talent clearly being shut out of the top roles. They will be rewarded for doing so.