Financial services gender pay gap must not be exacerbated by bonus policies

Analysis by Pinsent Masons has found that there is a 30.56% difference in the mean bonus payments made to men and women in UK financial services, according to gender pay gap data published by hundreds of employers across the sector for the year 2022-23.

While this represents a fall from 35.2% as reported in 2021-22, the lifting of the UK bankers’ bonus cap earlier this year presents a risk to further progress.

Across the sector, however, there is evidence of positive industry action being taken to address the gender pay gap. The focus we have seen from financial services firms on diversity and inclusion in recent years is only likely to increase in light of proposals from the UK’s Financial Conduct Authority (FCA) to require annual data reporting and target setting for larger firms.

The roots of the gender pay gap in UK financial services

Data published by employers in UK financial services shows a disparity between what men and women employees are paid. Like in many other sectors of the economy, a major factor in that is the disproportionate number of senior roles in organisations held by men compared to women.

Many companies are targeting this directly by setting goals to increase the number of women in these positions, but for some companies, their overall gender pay gap position is being negatively impacted by the fact there are now more women than men in junior and lower paid roles.

The question of bonuses

In 2014, the EU introduced a bankers’ bonus cap, which limited the bonuses of banking staff who are ‘material risk-takers’ to 100% of their fixed pay – or 200% with shareholder approval. That cap, which remains in place in EU member states, had applied in the UK post-Brexit until recently – a joint policy statement issued by the Prudential Regulation Authority (PRA) and Financial Conduct Authority (FCA) resulted in the cap being lifted in the UK at the end of October 2023.

In our view, however, there is a risk that the lifting of the bankers’ bonus cap could result in the progress that has been made on the bonus gap being undone. Firms need to carefully consider how they remunerate their employees in light of this, and that there is no gender bias in the policies that they put in place to address these issues.

Examples of positive action

A review by HR Datahub of the FTSE100 2017-18 to 2021-22 identified that the five most common actions taken by banks to reduce the gender pay gap across that period were: the implementation of external forum or charter membership; dedicated leadership programmes; flexible working patterns; targeted development programmes; and setting of diversity targets.

Our analysis supports those findings, with a clear growing emphasis emerging within the financial services sector of firms taking a data-driven approach to make effective change and close the gender pay gap: we found examples of companies setting targets and establishing regular reporting to track progress in internal and external recruitment.

Admiral is an example of a firm that has set a target, having committed to increasing female representation at an executive level to 40% by 2023 – which it said it had achieved a year ahead of schedule. Similarly, Lloyds has set a target to have 50% of women in senior roles by 2025, up from the 38.4% representation it reported as at the end of April 2022.

Barclays, Credit Suisse and Abrdn are other firms to have set targets: Barclays’ gender ambition is to ensure at 33% of senior leadership roles are held by females by the end of 2025; Credit Suisse is seeking 42% female representation across its entire UK workforce by 2024 and for at least 20% of managing director roles to be held by women by 2025; Abrdn has set a target to be gender balanced by 2025 and ensure a breakdown of 40% women, 40% men, and 20% any gender, within senior roles and the board by 2025.

Our analysis also found a continuing focus on the recruitment process and the implementation of gender-neutral language in job descriptions in a bid to attract more female applicants – with some firms even using gender decoding software.

Other companies said they are ensuring that there is female representation on interview panels to allow for balanced decision making, while others said they ensure a gender balanced shortlist of candidates. Barclays reported using recruitment partners to actively identify external female talent where possible.

As well as using gender-neutral language at the recruitment stage, some companies are reducing or removing self-assessment elements of reviews, as research has shown self-assessment to increase gender disparity. Some companies are also monitoring the proportion of male and female employees at the promotion stage and ensuring there is transparency with employees of the promotion process and outcomes.

Companies continue to use role modelling to profile employees to show more visibility of women in senior roles and men in senior positions working flexibly. Investec Bank said it placed a particular focus on recruitment, policies and practices and actively encourages “conversations about flexible working and have created a more agile environment that is responsive to the needs of individuals”.

Leadership training, mentoring, and sponsorship programmes are also popular among financial services companies seeking to promote more women to senior leadership roles, while some companies are also increasing leadership accountability to ensure that those in senior roles are accountable for diversity, equality and inclusion progress within their companies.

Various companies have also set up employee networks or held events to show their commitment to diversity and inclusion and as a way of supporting and raising awareness of issues, such as gender, in the workplace. Such groups are also being used by some companies to understand the needs of employees and how flexible working could look in the future.

Co-written by Lesley Finlayson of Pinsent Masons.