Driving better outcomes - the gender pay gap, fintech strategy and FCA priorities

Posted: 10th August 2018

Huntswood held its fourth Annual Forum in July, which saw industry experts speaking on various issues with the aim of helping organisations achieve better business outcomes at all levels of operation.

The current period of disruption, in which we have seen heightened awareness of social issues alongside technological and regulatory evolution, has been one of challenge and upheaval for many firms and their boards. It is, thus, vitally important to take stock of these changes, discuss what they mean in practice and, most importantly, get to the heart of what really drives success in this latter half of the decade.

In this blog we provide an overview of the themes highlighted at the Forum, outlining the major considerations on which organisations need to reflect before taking action.

FCA Business Plan 2018 / 2019 Priorities

In its 2018 / 19 business plan, the FCA firmly outlined what it sees as priorities within the financial services sector. It recognises the interconnectedness of sectors and that there are circumstances currently outside of its remit that will require future intervention.

The pace of change within markets and firms is relentless, driven primarily by digital development and innovation across global markets. With such development comes the opportunity for new ways of doing business, but also the risk of financial crime and other forms of exploitation of the unwary by those with malign intent. Business model changes driven by the need for increased efficiency may also cause harm to consumers if not adequately governed, implemented and managed.

The business plan draws attention to ‘demand-side’ factors in financial markets, such as demographic changes or inherent product complexity that may lead consumers–either singly or collectively–to become vulnerable or excluded. Of note is the focus on pensions and consumer credit markets, where consumers can experience difficulty in engaging with products and have trouble finding sources of appropriate guidance. This guidance should be readily available, designed to help them select products and services that meet their needs and help them avoid making short-term decisions that have adverse long-term consequences.

The gender pay gap and the value of diversity in the workplace

Widespread reporting on the gender pay gap in recent years has well and truly drawn the public eye to how women are positioned in and valued within organisations. The Government’s ‘Gender Pay Gap Service’ reportedly receives 50,000 hits a day, highlighting a significant public sentiment in relation to the contrast of pay between men and women.

Last year, The Equality and Human Rights Commission passed regulation requiring businesses across the UK to report, yearly, their internal gender pay gap in hourly pay, bonus pay, and the proportion of male and female positions within pay quartiles. Since the regulation came into force, over 10,500 UK companies with over 250 employees have reported on their pay gaps, the results showing that the gap, however it might be closing, still exists. Key facts from the call for response include:

• The median gender pay gap for UK businesses in 2017 / 18 stood at 11.8% (mean 14.3%).
• Around 500 proceedings are set to begin against firms who missed the deadline to report, with the Commission able to hand out unlimited fines for breaches of regulation

Some have criticised the data for failing to distinguish between full-time and part-time employees and not working from like-for-like comparisons (for example, job role), however, the implications for firms remain the same. By failing to report or address gender pay gaps, firms may become mistrusted by current and prospective employees and customers, entering the ‘line of fire’ in terms of negative media attention.

Firms must also recognise that they are not simply defending against negative press by supporting women to reach greater heights within their company. There are many benefits to a diverse team, including the fact that companies in the top quartile for executive gender diversity are 21% more likely to outperform others on profitability (according to a study by McKinsey & Company in January 2018). Research from the MIT Centre for Collective Intelligence also suggested that social sensitivity (in which women tend to score higher on through testing) leads to a smarter and overall more effective team. Diversity within teams challenges the way we think, drives innovation, ups creativity and enables better problem solving.

Businesses should consider whether they have a plan in place to address gender imbalance and if they understand how diversity creates value within their organisation. Having access to accurate pay analytics will help firms both assess and improve their diversity performance and mitigate the growing risks of not paying attention.

The value of talent management and lifelong learning

Job mobility is a key issue within many regulated industries. Employees (and their employers) need to be agile and flexible in a world where artificial intelligence (AI), machine learning and other forms of automation are changing the way we work. Firms need to continue working towards ensuring that individual needs and employee desires align with organisational needs.

If we combine the emergence of AI with the fact that people are living and working longer (the length of a typical career is now 60 years), we can begin to see that systematic and systemic change needs to be made within organisations to foster and manage talent in ways appropriate to our time.

Organisations will have to be fostering the right mindset and culture, developing an appetite for constant evolution and growth. In the face of 60-year careers in a rapidly changing world, employers will also have to the ensure that their employees are continuously developing new skills aligned to business and personal objectives. The most valuable skills for organisations and employees going forward will be those that are easily transferable and difficult for robots to compete with, such as communication and active listening skills, problem solving and creativity.

Evolution, not revolution

The £7bn boost to the UK economy provided by the FinTech industry (not counting the £1.8bn in investment that it has attracted from overseas) certainly cannot be overstated. Further developments, such as the implementation of Open Banking are expected to deliver more changes to the payments landscape and shape how the average consumer interacts with their money for the foreseeable future.

The FCA, in its ‘Strategic Review of Retail Banking Business Models Progress Report’, illustrated a number of potential future scenarios that could occur due to this FinTech revolution. One of these, the ‘Big Switch’— in which consumers totally embrace a FinTech revolution of digitalisation, innovation and sharing of their banking data with third parties — would cause a significant shift in market values and allow customers to shop around and switch with increased ease. While this future may yet seem distant, demand, supply, macroeconomic and social factors will surely affect retail banking business models in interesting and somewhat unpredictable ways. The onus is on firms to innovate and remain agile, able to react to any eventuality.

Of course, reputational, risk-management, regulatory and capital barriers exist that can slow or halt a business’ adoption of FinTech solutions. New business models will always raise their own, unique challenges, but the benefits of ‘getting it right’ are undeniable and attractive to potential new customers.