2019 volume 29 issue 4

Gender Pay Gap Disclosure: Time to Tell the Whole Story



(Left to right) David Frost, Bosa Kosoric, Geena Lee, McCarthy Tetrault LLP

With the movement towards gender diversity at the Board and management level over the last few years, investors are turning their attention to other related areas of environmental, social and governance (ESG) disclosure. Specifically, questions related to the gender pay gap (i.e. the difference in pay between male employees and female employees, also known as ‘equal pay for equal work’) are becoming more prevalent. Issuers should pay close attention to this issue and be proactive in gaining insight into their current positions and addressing investor concerns.

Why should issuers care about the gender pay gap?

  1. Disclosure of the gender pay gap could become legally required in Canada.
  2. While Canadian securities laws presently require disclosure related to the number of women on Boards and in management, they do not require the more detailed disclosure regarding the gender pay gap. However, in April 2017, the U.K. passed new regulations under the Equality Act that significantly altered public disclosure requirements for issuers. As a result of such changes, the U.K. now legally requires issuers with over 250 employees to disclose their gender pay gap figures at the end of every financial year. The consequences of failing to disclose result in enforcement action by the Equality and Human Rights Commission, as well as commercial risk of reputational damage. The U.K.’s efforts to eliminate the gender pay gap through legal reform speak to the rising tide of ESG disclosure. Government-mandated disclosure of gender pay discrepancies is indeed a possibility in Canada; accordingly, issuers should shift their disclosure practices now rather than later to align with this growing trend of ESG disclosure. 

  3. Issuers may have to respond to shareholder proposals regarding the gender pay gap.
  4. Institutional investors in the U.S. have recently used shareholder proposals to pressure issuers to provide transparent information on the gender pay gap. Such shareholder activism has resulted in at least 64 companies facing more than 100 shareholder resolutions related to gender pay gap disclosure. Some of these shareholder resolutions are demanding even further detail: not only are they requesting disclosure of the gender pay gap, they are demanding disclosure of the median gender pay gap. Understanding the difference between the two is crucial to making real progress for women in the workforce. The median gender pay gap is significant because it does not simply compare male and female employees with directly comparable positions; instead, median gender pay gaps reveal who is holding the highest paying jobs.

    Institutional Shareholder Services (ISS) and Glass Lewis have stated they will provide case-by-case recommendations on shareholder proposals requesting an issuer’s gender pay data by taking into account: (i) the issuer’s current policies and disclosure related to both its diversity and inclusion policies and its compensation philosophy and practices; (ii) whether the issuer has been the subject of recent controversy, litigation or regulatory actions related to gender pay gap issues; and (iii) whether the issuer’s reporting regarding gender pay gap policies or initiatives is lagging behind its peers.

  5. Negative publicity regarding an issuer’s gender pay gap can harm its brand.
  6. Whether gender pay transparency is imposed by law or demanded through shareholder proposals, issuers do not want to be caught off guard. In today’s market, the reality is that a sizeable gender pay gap can cause significant reputational damage to issuers in both the short and long term. When Arjuna Capital released a Gender Pay Scorecard for Equal Pay Day this year, 23 of 46 issuers were evaluated and received failing grades. Being viewed as a ‘boys club’ is neither on trend nor economically desirable. Issuers should not injure their current position in terms of the gender pay gap and should take proactive measures to address it properly if they wish to be ready to address the situation.

  7. The gender pay gap is not simply about compensation; it is an opportunity to be progressive, while attracting broader talent.

Many studies have proven that diversity is a necessary component for success, whether it is in relation to gender or otherwise. Turning a blind eye to the gender pay gap runs the risk of issuers misallocating or missing out on potential talent. Efforts to close the gender pay gap will contribute to increased diversity in the workplace and will lead to a stronger workforce.

How should issuers meaningfully address the gender pay gap?

The combined effect of potential regulation and the increased expectations of shareholders will likely have an accelerated effect on the transparency of the gender pay gap. Issuers can look to the following strategies as a starting point for identifying and closing the gender pay gap:

  1. Face the issue directly by conducting a salary audit and confronting the numbers.
  2. Issuers need to start having honest discussions with management about the existence of gender pay gaps and what they can be doing to address them. Issuers should consider hiring advisory firms to conduct salary audits and have a hard look at the numbers.

  3. Implement pay policies to ensure male and female employees receive equal pay.

Issuers should review compensation and nominating charters and adopt pay policies that will provide a standard to keep the gender pay gap in check. Expressly stating the commitment to eliminating the gender pay gap with a clear plan in place to accomplish this goal will have a positive impact not only on employees but also investors. Continuing the dialogue on the gender pay gap and gender diversity in general will contribute to ensuring an open and fair environment for all.

Overall, forward-thinking issuers should make the gender pay gap a mandatory agenda item to ensure that they will be prepared for shareholder proposals and disclosure requirements when they arise. 

David Frost is a Partner at McCarthy Tétrault LLP. This article was written with co-authors Bosa Kosoric (Associate) and Geena Lee (Articling Student) at McCarthy Tétrault LLP in Vancouver. 

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