How can HR and People teams improve the ethnicity pay gap?

Jess Fuhl
Last updated on 3rd September 2020
4 min read

In the US, black household incomes are half of white households.

Just let that settle in for a moment.

Over the last few decades, we’ve seen the civil rights movement in the 60s which led to the abolition of racial segregation laws and in 2008, the US voted in its first-ever black president. Yet we still find ourselves in 2020 with a huge ethnicity pay gap in business.

If last year was the time for gender pay inequality to make the limelight, then perhaps this year it’s the time for the ethnicity pay gap to take center stage, and HR and People teams can make a real difference.

So why aren’t organizations doing more to close the ethnicity pay gap?

Unlike the gender pay gap, which companies are compelled to report on in the UK, there is no obligation for businesses to report their ethnic pay gap figures, although there have been talks at a governmental level to make reporting  mandatory. In reality, 95% of employers have not analyzed their ethnicity pay gap as many lack the data to do so.

Companies don’t know the ethnic make-up of their workers

Many organizations simply don’t know the ethnic make-up of their workforce even though diversity and inclusion are good for business.

There is, of course, the real problem of how to collect the data. It’s important to remember that individuals do not actually have to disclose their ethnicity to their employers, and definitions of ethnicity will differ widely amongst employees.

Ignoring the ethnicity pay gap is bad for business

However, simply ignoring the issue is detrimental for businesses. More and more bright and talented people want to work for companies with diverse workforces because they innovate, inspire and encourage diversity of thought.

Companies who fail to realize this will have difficulty with their staffing strategies as they become less desirable to new recruits, and motivation drops, not only amongst their ethnic minority workers but the workforce as a whole.

So how can HR and People teams reduce the ethnicity pay gap?

There are many factors which contribute to the ethnicity pay gap outside of HR and People teams’ control such as social, regional, economic, educational issues and a range of policy interventions are needed to address these at a governmental level.

However, HR and People teams have a role to play and they can begin to build the pipeline of future managers and leaders from ethnic minorities in their own organizations to improve the ethnicity pay gap.

As well as being the right thing to do, it makes economic sense. Full representation of Black, Asian and Minority Ethnic individuals across the labor market could be worth £24 billion a year to the UK economy alone.

First of all, HR and People teams need to be comfortable talking about race openly and honestly and may need to bring in third party diversity and inclusion experts to help them with this as it is a sensitive issue.

It’s also vital to engage the leadership and ensure that diversity is a priority issue within the business. They can then pursue a program of eliminating racial bias in the workplace, instilling a culture of diversity and inclusion and reducing the ethnicity pay gap.

But with the best will in the world, it is very difficult for HR and People teams to embark on a program to reduce the ethnicity pay gap without understanding their People data.

Do you know your workforce?

Did you know that in the US, black men and women represent only 8% of the professional white-collar workforce?

How many people from minority backgrounds do you have in your organization? HR analytics can help organizations to use their data to improve workforce visibility and make better business decisions.

Although there are sensitivities around collecting data on ethnicity from employees, it is important to start the diversity dialogue. Launch an internal communications campaign to explain to employees what you are doing and what you hope to achieve. It is imperative that this is not seen as an exercise to simply collect data but to use that data for the benefit of everyone.

If employees trust you, they will help shape the dialogue around diversity and will willingly contribute their ethnic data to you. You may even consider extending this to collecting data on social mobility, sexual orientation and disability but be careful not to infringe any privacy laws in your quest to create a more inclusive workplace.

Some companies have already, in fact, started to report their ethnicity pay gap. Companies such as PwC and Deloitte acknowledge that they have a long way to go, but stress the importance of not sugar coating their figures.

If your ethnic pay gap figures are bad, you must tell your employees the truth and provide them with a realistic plan as to how you will level the playing field.

Is knowing the ethnic makeup of your workforce enough?

No. Once you have established who is working in your business, you need to understand how much they are paid, what positions and roles of responsibilities they hold, their performance and engagement levels. This can then form a strategy to alleviate some of the problems of the ethnicity pay gap and why it is happening.

What data do you need to look at?

Leadership positions

How many people from ethnic minorities are in leadership or managerial positions in your organization and how much are they paid?

Did you know that there are currently only three black CEOs of Fortune companies? It’s not because people from minority backgrounds don’t have the right skills. It’s because black people and those of ethnic minorities can often be overlooked in recruitment, promotion and training. They tend to hit the glass ceiling way before their white counterparts do.

Start closing this gap by providing internal and external training programs for talented employees from minority backgrounds and introducing mentoring programs for them.

Mid-level positions

How many people from ethnic minorities are in mid-level positions? Is there a clear point where they stop progressing and why?

At what level does the glass ceiling fall for people from ethnic minority backgrounds in your organization and why? If you can assess where this is, then you can start to implement training programs to motivate and up-skill employees, so all workers have equal opportunities to progress.

Entry level recruitment

At the entry level, how many candidates from white backgrounds and from minority ethnic backgrounds are applying? How many are getting the job from each group? How much are they paid and how many progress beyond junior level jobs?

If candidates from ethnic minorities are not coming to you, then you need to go to them. Xerox and IBM have been known to aggressively recruit minorities on college campuses; and Google actively recruits from historically black colleges such as Alabama A&M.

You can actively work with universities and recruitment agents to attract candidates from a diverse background, but don’t stop there. Provide them with the opportunities to grow within your business and continuously analyze your data so you can see the progress made year on year.

Finally, consider making your pay packages more transparent. It is harder for ethnic minority workers to land a job at the start of their careers because of discriminatory behaviors, so they often accept lower paid jobs. If a candidate’s pay is based on their last paycheck, then they are constantly playing catch up.

Improving ethnic bias and changing pay inequality

There is a checklist of actions businesses can take to eliminate bias in recruitment and provide opportunities for workers from minority backgrounds. But, ultimately data is key to understanding the ethnic make-up of your workforce and where inequality lies in order to make these changes.

Do you know whether your organization has an ethnicity pay gap – and what it is?

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