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British Journal of Industrial Relations57:2 June 2019 0007–1080 pp. 302–327doi: 10.1111/bjir.12448 Gender Pay Gap, VoluntaryInterventions and Recession: The Caseof the British Financial Services SectorGeraldine Healy and M. Mostak AhamedAbstractState institutions and trade unions put pressure on the British financial servicessector to reform its gendered practices and reduce its gender pay gap followingboth the recession and the Equality and Human Rights Commission (EHRC)Inquiry (2009). This article considers the eﬀect of these pressures by comparingthe gender pay gap pre-, during- and post-recession periods. Using Labour ForceSurvey data, the article finds a marginal pay gap reduction in the post-recessionperiod, a reduction that was greater in financial services than in the rest ofthe economy. However, the financial services pay gap remained resilient andsubstantially higher at the top of the earnings distribution. Union membershipand collective bargaining were shown to reduce the pay gap including for womenmembers with children. In contrast, countervailing factors, including ethnicityand post-recession longer working hours, contributed to the pay gap. The studyreveals the limitations of voluntary interventions against a resilient genderedculture.1. IntroductionIt is ten years since the 2008/2009 recession and when financial services wasrequired by the Equality and Human Rights Commission (EHRC) (2009) tovoluntarily reform its gendered practices including its gender pay gap, bonusand gendered culture. It is particularly timely to revisit financial services’gender pay gap in the light of the UK Government’s aim to ‘eliminate thegender pay gap within a generation’ (Government Equalities Ofce 2016) withpay transparency as a means towards this aim. Government’s business-caserationale for focusing on the pay gap is:Geraldine Healy is at Queen Mary University of London. M. Mostak Ahamed is at the Universityof Sussex.C 2019 John Wiley & Sons Ltd.Gender Pay Gap, Interventions and Recession 303Employers are losing out by not eﬀectively utilising women’s academicachievements, experience and talents. Equalising women’s productivity andparticipation rates would make a significant positive impact on our economy.(Government Equalities Ofce 2016: 4)The state viewed pay transparency as one solution to the gender pay gap.Initially, voluntary pay gap reporting was required following the Think Act,Report (Government Equalities Ofce 2015), but did not garner employersupport. Secondary legislation followed (section 78 of the Equality Act2010 (Gender Pay Gap Information) Regulation 2017) requiring private andvoluntary sector employers with 250+ employees to report their gender paygap to Government and publicly on organizations’ websites by 5 April 2018.While compliance is compulsory, sanctions for non-compliance were unclear.Moreover, the lead-up to April 2018 was the first time that the majority oforganizations examined their pay gaps. This was not the case in financialservices where a light was shone on its pay gap and equality practices by theEHRC Inquiry (2009) and subsequently by the Treasury (2010a, 2016, 2018)and by unions (see Section 2 below). This study shows the change in pre-,during- and post-recession pay gap, in the context of voluntary interventions,and adds to the literature on pay systems post-recession (Stokes et al. 2017). Itaugments our understanding of sector-specific pay gap studies as opposed tonational or regional studies (Blau and Kahn 2017; Dex et al. 2008; Droletand Mumford 2012; Tomaskovic-Devey 1993). Moreover, it reveals stateand union initiatives to change financial services’ culture and pay gap. Ourrationale for focusing on financial services’ pay gap is four-fold. Financialservices: has one of the highest pay gaps in the UK; became the subject ofpublic scrutiny and concern following the 2008/2009 economic crisis; was thesubject of an EHRC Inquiry in 2008; and has long been recognized for itsmale-gendered culture (McDowell 2008; Ozbilgin and Woodward 2004). ¨We begin the article by considering explanations for the pay gap oﬀered inthe literature and consider what the implications these separate but relatedexplanations may mean for the financial services’ pay gap. We then outlineour research questions. Taking a multi-pronged approach (Dickens 1999), weconsider financial services’ context, particularly voluntary state (drawing onthe EHRC Inquiry and subsequent Treasury reports) and union initiatives,and financial services’ organizational culture. We then turn to our empiricalanalysis of the pay gap over time drawing on Labour Force Survey (LFS) datafollowed by discussion and conclusions.2. Explanations for the gender pay gapOur investigation is shaped by the various interlinked and overlappingexplanations of the pay gap. Firstly, gendered diﬀerences in human capital(Becker 1985) stress diﬀerential investment in skill acquisition and paid workbetween men and women. Notwithstanding women’s increased investmentin education and careers, often exceeding that of men, the human capitalC 2019 John Wiley & Sons Ltd.304 British Journal of Industrial Relationsapproach still has purchase in the literature (Burress and Zucca 2004),although Blau and Kahn’s (2017: 789) US study found conventional humancapital variables taken together explained little of the pay gap but thatoccupation and industry remained relevant. We might expect that, if salient, ahuman capital approach will relate the pay gap to human capital investmentsin education, marriage, motherhood (rather than parenthood) and to lengthof service.Secondly, women and men are often segregated horizontally by doingdiﬀerent work and vertically with one sex (male) dominating the hierarchies(Charles 2003), so that wage disparities across male and female occupationsare explained by gender segregation and devaluation (Murphy and Oesch2015). Dex et al. (2008) showed that women’s wages grew more slowly thanmen’s wages because they were located disproportionately in lower growth andfeminized jobs. From this perspective, we might expect not only that women infemale-dominated areas might have a lower level of pay but higher pay whenworking in male-dominated jobs and, in view of voluntary interventions, thatthere would be a reduction in horizontal and vertical segregation over time.Linked to horizontal and vertical segregation is the third point thatworkplace practices and systems shape gender pay inequality (Rubery andGrimshaw 2015; Smithson et al. 2004) and relates to our discussion onunionization and financial services’ culture and practices (below). Followingthe EHRC Inquiry, we might expect greater attention from managers andunions to workplace practices and pay systems leading to a decline in the paygap over time.A fourth explanation, interrelated with the above three points, explains thepay gap as the result of workplace discrimination. Drolet and Mumford (2012)found that a substantial portion of the pay gap in their private sector study inBritain and Canada remains unexplained by the individual characteristics orworkplace. We may expect that discrimination will be a further explanationgiven research on financial services’ gendered organizational practices andculture (McDowell 2008; Ozbilgin and Woodward 2004). ¨3. Research questions and methodTo understand the impact of the EHRC Inquiry in the context of recession, weask the following question and linked sub-questions: what were the changesin the financial services’ pay gap for the period 2003 to 2017 (pre-, duringand post-recession) with respect to: other sectors in the economy; horizontaland/or vertical segregation; human capital factors; the influence of workplacepractices and pay systems including union presence and collective bargaining;and observed (endowment) explanations for the pay gap as compared tounexplained or discrimination reasons?The financial services context was examined to enable an understanding ofthe industrial relations (IR) actors’ approaches over the period. This involvedexploratory interviews and focus groups undertaken with union ofcials andC 2019 John Wiley & Sons Ltd.Gender Pay Gap, Interventions and Recession 305the Trades Union Congress (TUC), and document sources from unionsand the Treasury reports. Against this context, we addressed our researchquestions using a quantitative sectoral investigation outlined in Section 5.4. Financial services contextIn 2008, financial services employed 4 per cent of the British workforce andprovided 1.3 million jobs.1 The economic crisis led to reduced employmentlevels of 1.08 million2 and redundancies and weaker unions (Gall 2017).According to the July Walker Review (2009) on corporate governance postcrisis:The taxpayer has provided UK banks with nearly £1.3 trillion in support …equivalent overall to some 90 percent of UK GDP. Political, taxpayer and socialtolerance of practices, including unsafe remuneration policies, which led to thiscalamitous state, is understandably low. (Walker 2009: 90)Financial services were ripe for reform, not least with respect to governanceand pay.State InterventionsState institutions have played a notable role in reforming financial services’equality context since the recession. Yet, Conley argued the state remainscontradictory, ultimately thwarting legal enforcement of equality when itseconomic authority and the interests of capital are threatened (2012: 349).Nevertheless, Dickens posits that state intervention is central to an equalityagenda because the market tends to produce discrimination, not equality(1999: 13). Thus, we draw specifically on two state institutions which havesought to influence pay and equality in the sector, firstly the enforcement armof equality legislation, the EHRC, and secondly, less commonly used in IRresearch, the House of Commons Treasury committees.The EHRC Financial Services Inquiry and Treasury CommitteesThe EHRC Financial Services Inquiry was conducted because of the sector’sparticularly large gender pay gap and unique barriers for women, includinglong working hours, lack of flexible work, a male-biased culture and thereproduction of diﬀerentials among new entrants and because these barriershave persisted despite some attempts to tackle them (EHRC 2009). Moreover,economic turmoil in the financial sector gave rise to fears that inequalitieswere being exacerbated (EHRC 2009: 22). EHRC used its legal powersunder section 16 of the Equality Act, which include mandatory disclosurepowers, to access information. The Inquiry is a voluntary mechanismwithout sanctions, which arguably seeks to shame the sector into action. Thesubsequent EHRC report made a series of recommendations for increasedtransparency, improved leadership, better support for staﬀ with caringC 2019 John Wiley & Sons Ltd.306 British Journal of Industrial Relationsresponsibilities, more consistent monitoring of the pay and progressionof people from diﬀerent backgrounds, and a clearer articulation of thebusiness-case for ‘getting this right’ (EHRC 2009: 7). While the Inquiryrecommendations are not legally binding, there is an expectation based onEHRC findings and recommendations that organizations ‘must have regardto our recommendations’. The powers, which require voluntary compliancerather than regulated compliance, are seen to stimulate change (Hepple 2011)but signify some ambiguity.Following the EHRC Inquiry, Treasury committees paid attention to genderinequality. Benton and Russell (2013) found that such committees strengthenthe policy-making process inside and outside government by exposingdecision making to rigorous tests and encouraging careful considerationof options. The 2009–2010 Treasury Committee (2010a) focused on sexdiscrimination in financial services drawing on the business-case rationale byacknowledging the need for change to improve corporate governance andoversight within large financial institutions. Part of the debate on corporategovernance focused on the lack of diversity on the boards of financialinstitutions, which ‘may have heightened the problems of “group-think” andmade eﬀective challenge and scrutiny of executive decisions less eﬀective’(2010a: 3) and reiterated in the Government’s response (HM Treasury 2010b:7). Implicit was the view that more women decision-makers may have avoidedthe recession.A further Treasury initiative led to a review by Gadhia (2016) whichrecommended that executive bonuses are explicitly tied to achieving greatergender balance (2016: 47). A key focus of this review was the establishment ofthe Women in Finance Charter (owned by HM Treasury 2016: 9). Signatoriesto the Charter voluntarily commit to: women’s progression into senior roles,and to publicly report on progress to support transparency and accountabilityto drive change. The Charter was underpinned by a clear business-casephilosophy arguing that ‘A gender balanced workforce is good for business —is increasingly being sought by investors, employees, members and customers’(2016: 74). Signatory firms determine voluntary targets and are committedto implement four key industry actions to improve women’s representation insenior management.3Financial Services OrganizationsMultiple sources of evidence reveal that the financial services’ culture has longdisadvantaged women (Banyard and Lewis 2009; McDowell 2010; McDowelland Court 1994; Ozbilgin and Woodward 2004). The compilations of Davies’ ¨media reports4 provide further indications of the resilient hostile culture forwomen in finance. More recently, culture continued to figure strongly inthe Women in Finance Report (Treasury Committee 2018) which receivedthe majority of written evidence from financial services organizations (pp.45–46). The Report continued to find cultural issues, including women’streatment, bonus culture and presenteeism, persistent concerns and notedC 2019 John Wiley & Sons Ltd.Gender Pay Gap, Interventions and Recession 307that gender and other equalities are not key business objectives (TreasuryCommittee 2018). Moreover, it asserted that the ‘Alpha-Male’ was evidentin bonus culture, presenteeism and unconscious bias through persistenceof stereotypes and assumptions. Again in the mode of voluntarism, theCommittee encourages the financial services sector to consider genderdiversity as core to business strategies and to uphold gender diversity as apriority (2018: 21).The evidence provides a dispiriting picture of an organizational cultureresistant to change. Nevertheless, financial institutions have made attemptsto tackle their ‘alpha-male’ culture, primarily through their diversity andinclusion units. A striking exemplar is Lloyds Banking group’s Inclusion& Diversity Strategy which has top level support with Group ExecutiveCommittee members championing the agenda. Lloyds’ strategy to improvethe pay gap is to increase the proportion of women in senior roles so that ‘thegender gaps will reduce over time’ (Lloyds Banking Group 2018). Actionsto achieve this aim include: a target of 40 per cent senior women by 2020,shortlists to be diverse,5 agile hiring to encourage broader working patterns,a ‘returners’ programme, training in agile working and unconscious biasand a women’s leadership programme. This strategy has received externalrecognition: Lloyds was named as: ‘Best bank in the world for diversity andinclusion 2017’ Euromoney Award; Times Top 50 Employer for Women (2018)plus multiple awards for championing gender diversity including top employerfor working families by Timewise.6 However, the transparency regulationsrevealed the average (mean) gender pay gap per hour at banks and buildingsocieties in the UK is 35 per cent and the average (mean) gender pay gapfor bonuses at banks in the UK is 52 per cent.7 Despite their prize-winningdiversity initiatives, Lloyds’ Banking Group (2018) reported an average meanpay gap figure of 32.8 per cent with a bonus gap of 65.2 per cent whichis higher than average for the sector. Pay gap diﬀerences were explained bywomen’s under-representation in senior levels. Thus, while diversity initiativesare important, they are not closing material gaps between the sexes.UnionsKey actors in the dynamics of the gender pay gap are unions, which seekto ensure that equality structures and policies are not separated from IRstructures and processes. Pillinger’s (2014: 4) ETUC study indicated thatnational-level unions have been instrumental in fighting for and implementinglegislation to improve pay transparency, for example, through companylevel pay audits, pay surveys, equality plans and income reports. The majorunion with recognition in UK financial services is Unite the Union with130,000 members, an estimated union density at 20 per cent and collectivebargaining at 25 per cent (Prosser 2011). A union wage premium has beenassociated with high union density (Addison et al. 2017), wide coverageof collective bargaining and multi-unionism (Forth and Millward 2002).Historically, the wage premium was associated with men as the ‘insiders’ inC 2019 John Wiley & Sons Ltd.308 British Journal of Industrial Relationsthe union, however women now outnumber male unionists (Kirton and Healy2013) including in Unite. Studies also indicate that unionization generallyreduces wage inequality, but the eﬀect might be contingent both on theproportion of women in an industry, on union characteristics and employmentconditions (Achatz et al. 2005; Elvira and Saporta 2001; McGuinness et al.2011). Moreover, Gall (2017) argues that financial services’ unionism wasbeing overwhelmed by challenges from employers pursuing policies basedon human resource management, partnership and union exclusion andsignificant restructuring of the sector. Thus, we cannot presume that unionswill always have a positive gender eﬀect on the union pay premium.At organizational level, exploratory interviews with union ofcials indicateda clear relationship between collective bargaining and equality audits:The collective bargaining agreements (with major banks) give us … ouropportunity to push for these organizations to carry out equal pay audits.Our work is, you know, eternal vigilance, to keep the pressure on them through thekind of consultative and negotiating structures we have with them, to hold themto account, to make sure some of the very if you like progressive policies that theirdiversity and inclusion managers talk about are actually put into practiceThe interviews indicated that unions and financial services organizations areadopting integrative/consensual bargaining (as outlined in Williamson andBaird’s (2014: 163) equality bargaining review) through ‘routine’ sharing ofdata and regular communications, monthly or quarterly meetings on equalityincluding pay gaps and bonuses.we get routinely now is all the data showing the amount of the performance payrise people have had versus gender, age, ethnicity and so on, the amount of bonusthey’ve had, you know, so on average, compared across each grade.Ofcials informed us that bonuses are discretionary so ‘we don’t get tonegotiate that (bonuses)’ but they see the statistical patterns with lowergrades (where women are concentrated) receiving 10 per cent but at the maledominated higher grades it may be 40 per cent plus. Moreover, union ofcialsoutlined how the equality climate had shifted from negative to more pragmaticwith respect to the pay gap:… there is a grudging acceptance that the way in which banking and finance hasbeen done and by whom it’s been done has to change.The transparency regulations were cautiously welcomed and a communityresponse was seen as crucial:as long as stakeholders like the trade unions and civic society and others andacademics hold these corporate entities to account and make sure they do what theyare required, legally required to do, then yeah, I think that will have a benefit …Turning to union engagement with their representatives, Unite hasintroduced practical step-by-step guidance on undertaking equality audits, aC 2019 John Wiley & Sons Ltd.Gender Pay Gap, Interventions and Recession 309systematic approach to raise awareness and encourage union representativesto engage with their employers on gender equality andassist all Unite Reps including Union Equality Reps, in negotiating with theemployer to find out what the situation is in the workplace, how to go abouttackling unequal pay between men and women and ensuring that pay systems aretransparent. (UNITE, n.d.)Unite also gave evidence to the Women in the City Report (2010)highlighting the long hours’ culture; opaque pay systems — performance/market related pay, bonuses, wide pay bands, anomalies in starting pay andmanagerial pay; a reluctance to consider managerial roles on a part-time orjob-share basis; attitudes to working women; lack of access/encouragementto career development and training; and the ‘old boys’ network’ (2010: Ev46).As the post-recession period took hold, unions were dealing with the fall-outof redundancies. Unite’s 2014 survey found that long hours’ working hadintensified; unpaid work beyond agreed contractual hours increased with74 per cent of members experiencing job losses where they work and 60 percent of remaining workers working longer hours, three quarters of whomwere not paid overtime (Survation 2014). However, no gender analysis wasavailable. The survey led to a campaign that ‘Unpaid hours are not acceptable’with linked posters and leaflets. By focussing on decent pay, the union is alertto injustice and goes beyond the pay gap focussing on the Living Wage, lowpay, insecure work, as well as the gender pay/bonus gap.A crucial diﬀerence between unions’ and state pay gap strategies is thatunions are more likely to adopt a social justice (see conference motions8)framing rather than the business case framing of state institutions. The abovediscussion indicates that the conversation on gender equality has intensifiedamong key IR actors since the EHRC Inquiry. Given the attention receivedby financial services including from Treasury committees and unions holdingfinancial organizations to account and in the wake of the transparencyregulations with respect to the pay gap and gender segregation, we mightreasonably expect change over time.5. Empirical modelsOur empirical analysis starts with a widely used Mincer type earning function(Mincer 1974). In this, pay gap is measured while using (log) hourly pay as afunction of female dummy, human capital and job-specific characteristics.9A negative coefcient would indicate a gender pay gap. To decomposethe contribution of important factors on pay gaps, we use a standardOaxaca-Blinder (OB) decomposition technique at the mean proposed byOaxaca (1973) and Blinder (1973), which has become the key reference fordecomposition of pay gaps (Rubery and Grimshaw 2015: 325). This approachestimates the raw pay diﬀerentials in the expected value of male and female(log) hourly pay separately for men and women. The pay diﬀerentials arethen decomposed into two parts (see supporting information for details).C 2019 John Wiley & Sons Ltd.310 British Journal of Industrial RelationsThe first part is the endowment eﬀect, the explained part of the pay gapthat is due to the diﬀerences in observed characteristics at the mean, whichis weighted by the coefcients attributable of men. The second part is theunexplained component of pay gap that arises due to the diﬀerences in wagebetween genders attributable to the gender diﬀerences in coefcients includingintercepts. This unexplained part often called the discrimination eﬀect, thatis, the unequal wage for equally qualified workers (Blau and Kahn 2017).As the unexplained part includes the eﬀects of labour market discrimination,unobservable variables (e.g. motivation), and omitted variables, we recognizethat particular care should be taken when interpreting the model residual asdiscrimination (see Ahmed and McGillivray 2015).However, pay gaps diﬀer at the lower and upper tails of the wagedistribution (see Chzhen and Mumford 2011). Therefore, to explore pay gapsin lower- and upper-income brackets, and thus identifying the existence of‘sticky floor’ or ‘glass ceiling’ eﬀects in financial services, we conduct OB typedecomposition at selected quantiles. We apply the unconditional quantileregression based on Recentered Influence Function proposed by Firpo et al.(2009) (for details, see Borah and Basu 2013; Green et al. 2014; Heywood andParent 2012).Data and Descriptive StatisticsWe draw data from the LFS for the period 2003Q1 to 2017Q2. The Ofcefor National Statistics conducts the LFS with a panel design. Each sampledaddress is interviewed for five waves, and each wave takes place at threemonthly intervals where the fifth wave takes place a year after the first. LFSdata advantages are its large sample size and large range of variables oftenconsistent for a long time series. Limitations are that LFS data are selfreported, leading to possible inconsistencies in response and do not capturenon-wage benefits that increase with seniority.10First, a respondent is retained in our sample if s/he is employed at the timeof the interview (including the self-employed), and also if their age is between16 and 64 (inclusive). We exclude those who are inactive to avoid obfuscatingour analysis by including early retirees and those on long-term sickness benefit(Clark and Lindley 2009; Nickell 2004). Second, we collect gross hourly payinformation for each of the respondents in their main job. The definition ofeach variable is in supporting information Table B1. The final sample containsobservations of 30,460, of whom 14,213 are men and 16,247 are women. Wedeflate all monetary values to 2015 (2015 = 100) prices using the UK quarterlyconsumer price index. The set of explanatory variables that are used includeage (eight categories), education (six categories), ethnicity, tenure, occupation(nine categories), marital status (three categories), dependent children (fivecategories), training and establishment size (eight categories).Table 1 reports the descriptive statistics of selected variables for menand women by sub-sample periods: pre- (2003q1–2008q1), during- (2008q2–2009q2) and post-recession (2009q3–2017q2) periods. It shows that realC 2019 John Wiley & Sons Ltd.Gender Pay Gap, Interventions and Recession 311TABLE 1Summary Statistics, by Gender and Recession PeriodsMale FemalePrerecessionDuringrecessionPostrecessionPrerecessionDuringrecessionPostrecessionMean Mean Mean Mean Mean MeanReal hourly wage (£) 25.06 27.52 25.91 14.92 16.32 16.73Log (Real hourly wage) 3.00 3.06 3.03 2.56 2.63 2.64Aged 16–21R 0.04 0.04 0.02 0.06 0.05 0.03Aged 22–25 0.09 0.08 0.07 0.10 0.09 0.08Aged 26–30 0.15 0.14 0.13 0.14 0.14 0.14Aged 31–35 0.18 0.16 0.16 0.17 0.14 0.15Aged 36–40 0.17 0.18 0.16 0.16 0.18 0.15Aged 41–50 0.25 0.27 0.29 0.24 0.27 0.28Aged 51–60 0.11 0.12 0.15 0.12 0.13 0.15Aged 61–64 0.01 0.02 0.02 0.01 0.01 0.02No qualificationR 0.01 0.01 0.01 0.03 0.03 0.02Other qualification 0.05 0.05 0.03 0.08 0.07 0.04GCSE grades A*-C orequivalent0.19 0.18 0.15 0.38 0.37 0.31GCE A level or equivalent 0.29 0.28 0.25 0.26 0.25 0.27Higher education 0.09 0.07 0.08 0.07 0.07 0.08Degree or equivalent 0.37 0.41 0.49 0.18 0.21 0.29Ethnicity 0.94 0.91 0.89 0.95 0.94 0.91Tenure 0.97 0.98 0.97 0.97 0.98 0.98ElementaryR 0.01 0.01 0.01 0.01 0.01 0.01PP and machineoperatives0.00 0.00 0.00 0.00 0.00 0.00Sales and customerservice0.06 0.06 0.06 0.11 0.10 0.10Personal service 0.00 0.00 0.00 0.00 0.00 0.00Skilled trades 0.01 0.01 0.01 0.00 0.00 0.00Administrative andsecretarial0.16 0.15 0.14 0.47 0.43 0.42Associate professionaland technical0.25 0.26 0.33 0.18 0.20 0.23Professional 0.14 0.13 0.22 0.05 0.06 0.11Managers and seniorofcials0.36 0.39 0.23 0.18 0.20 0.13SingleR 0.37 0.35 0.33 0.33 0.32 0.33Married 0.57 0.57 0.61 0.54 0.53 0.54Others 0.06 0.09 0.07 0.14 0.15 0.14No dependent childrenR 0.06 0.06 0.06 0.05 0.05 0.05Children aged 16 0.59 0.57 0.55 0.58 0.58 0.56Establishment size