Background to class pay gap reporting

There have been various moves over recent years by the government to address workplace inequality in the form of mandatory gender pay gap reporting and CEO pay ratio reporting. Calls for mandatory ethnicity pay gap reporting are increasing, although the government is still to set out its plans.

In 2019 the TUC called for mandatory class pay gap reporting to address “institutional discrimination”. This policy also featured in the Labour Party’s 2019 general election manifesto. Although the current government has no plans to legislate to force companies to report their class pay gaps, this is likely to be an area of increasing focus in the years to come.

In the meantime, some employers are starting to take their owns steps to measure and analyse their class pay gaps in the workplace. Accountancy giant PwC recently published its “class pay gap”, showing the difference in pay between their average lower socio-economic background employee and the average professional or intermediate socio-economic background employee. Rival firm KPMG has similarly calculated and reported its class pay gap.

In the wake of the pandemic, employers are increasingly adopting value-driven employment initiatives and policies which go beyond strict legislative compliance. Many organisations explore voluntary pay gap reporting as part of a wider diversity strategy. Applying some of the lessons of gender pay gap reporting, these employers are routinely analysing gaps each year and so forced to continually consider the issues, keeping social mobility high on the diversity and inclusion agenda.

What is class pay gap reporting?

Defining socio-economic status for class pay gap reporting

“Class”, or socio-economic status, is notoriously difficult to define. What does working class mean? What does middle class mean? Where are the lines drawn? Consider the table below:

Most people might agree that the person in scenario 1 is probably working class, and the person in scenario 12 is probably not working class. But what about scenarios 2-11? The line is hard to draw and can be in different places for different people. “Class” is highly subjective.

The main identifiers of socio-economic background

In order to try to cut through some of this uncertainty, the Social Mobility Commission’s toolkit suggests using parental occupation at age 14 as the main identifier of socio-economic background.

The toolkit says that this question typically gets the highest response rates, is accessible to people from all nationalities, and is a strong predictor of outcomes. For these reasons, the Social Mobility Commission recommend that this social mobility data point be given the highest priority by employers (with three other key social mobility data points being highest level of parental qualification, type of school attended at ages 11-16, and free school meals eligibility).

Parental occupation is split into nine categories, then consolidated into three broader groups: working class, intermediate, professional. Both PwC and KPMG have used these broad groups to calculate a gap that compares the average working class person against the average intermediate and professional class person.

The role of data in class pay gap reporting

Any analysis is only as good as the data behind it. Large, complete datasets will give organisations something useful. Small, incomplete ones will not.

Both KPMG and PwC are large businesses with thousands of employees. They also have good response rates for parental occupation data (70% of KPMG employees have provided it and 80% of PwC employees).

The primary focus for any employer looking to take a more data-driven approach to social mobility should be data collection, with a target of at least a 70% response rate from employees (but ideally closer to 100% since incomplete datasets can cause problems in the analysis).

Although the Social Mobility Commission recommends prioritising parental occupation, the other markers (such as type of school attended, free school meal eligibility and parental qualifications) should not be ignored.

How to increase social mobility data

Many employers looking at social mobility issues will be starting from a very low data point. Getting a high response rate will take time, persistence and ingenuity. But it is work worth doing as it is a crucially important first step to identifying and tackling social mobility issues. Without having the social mobility data about employee, it is impossible to understand what issues might affect your workforce. Below are a few ideas to improve data collection.

• Communication: Mass emails to the workforce asking employees to “please provide your data” are generally not an effective way of getting individuals to provide their social-economic data. Employees need to understand why an employer needs it and what they are going to do with it. Making sure it is processed in a GDPR-compliant way is, of course, critical.
• Transparency: All pay gap reporting regimes are measures which increase transparency, so employers need to be clear about their plans. Class pay gap reporting should be part of a more comprehensive strategy to improve social mobility within a workplace. Being clear about that will help build the trust that is needed for employees to provide their data.
• Social mobility advocates: There need to be advocates for social mobility at all levels of a business. Using them to motivate engagement can help with data collection. Employees are more likely to respond to something like a request to provide their social mobility data if the request is coming from a peer that they know.
• Behavioural economics: Once people start providing their data, using a behavioural economics inspired “nudge” can be helpful. For example, telling people “X% of people in your team/department have provided this data so far”, or “xxx people have provided this data in the past week”. Since people often copy the behaviour of others, informing stragglers that they are in the minority can help convert them.

Class pay gap reporting and recruitment

Reporting on a class pay gap will only show the difference between those within a particular workplace. For many from a lower socio-economic background, the challenge is entering a high-value workplace to begin with. How can organisations identify what barriers people might face?

Again, data is vital. Employers need to know the social mobility characteristics of those who apply for roles and should measure the class diversity at each stage in the process. There may be areas that are having more of an impact on particular socio-economic statuses than others.

For example, applications from first generation graduates might score less well than those from people whose parents went to university and who have access to tips on how to progress. In this case, an employer could review what information is available to applicants and more clearly spell out what they are looking for in an application.

Another example might be if data showed the interview process affected one social mobility group more than another. In this case an employer could consider giving interviewers guidance and ensure a more structured interview process.

Regression analysis for class pay gap

Because someone’s socio-economic status or “class” is a product of many different factors, trying to understand the difference between groups is hard. The Social Mobility Commission’s work shows that parental occupation can be a useful measure, but different socio economic “markers” may have a different impact from one workplace to another.

For those employers who really want to get to the bottom of class in their workplace, a more sophisticated type of analysis might be useful. In a regression analysis, each factor related to socio-economic status – parental occupation, parental qualifications, housing tenure, school attended, free school meals entitlement – can all be analysed at the same time. This allows an employer to understand the impact each factor has on pay. It may show that, in their particular workplace, the type of school attended is a bigger predictor of pay than another factor such as parental occupation. Armed with this information, an employer can deploy more targeted diversity initiatives to tackle the issue. For example, outreach to schools or universities in social mobility cold-spots to widen candidate pools.

Comment on class pay gap reporting

Social mobility disadvantages in work have received increasing attention in recent years. Removing social mobility barriers is something politicians want to tackle – the economic benefits could be huge and it is part of the government’s “levelling up” agenda. There is help available and employers might want to consider making a submission to the social mobility index for a critical assessment of what it is doing.

Although not straightforward, class pay gap reporting could play a valuable role in enabling employers to take regular action to tackle social mobility disadvantage in their workplace and gain access to previously untapped talent pools.