The gender pay gap for the UK government’s “strategic suppliers”

In brief:

  • The companies that win the most UK government contracts have a bigger gender pay gap than their competitors.
  • The largest government contractors typically pay men 19% more than women, but they represent industries where the average pay gap is 15%.
  • To better incentivise companies to close their gender pay gap, perhaps the UK government should factor it into their contract tendering process

UK companies with more than 250 staff must report their gender pay gap each year.  Having to publicly declare their pay gap incentivises firms to address the disparity.  It also ensures that every executive is aware of the scale of the issue in their company.

The UK government could further strengthen firms’ incentives to close the gender pay gap.  It could, when tendering government contracts, explicitly consider whether firms reward their staff fairly.  But our analysis suggests this is not the case.  In fact, the government tends to give contracts to firms which have a larger gender pay gap than the average for their industry.

We’ve looked at the 35 firms which the UK government describes as “strategic suppliers”. Since 2015, these firms have won around £35bn of government contracts.  The chart below shows how the gender pay gap reported by these firms compares to the average for their industry (based on their “Sic Code”).

On average, these large government contractors pay the typical man 19% more than the typical women, even though they represent industries where the median pay gap is 15%.

A key question is whether public reporting creates sufficiently strong incentives for firms to close this pay gap and reward their staff fairly.  There is good reason to think not.  Consider KBR, which has won £2.1bn in government contracts since 2015.  Their median male employee earns 29% more than their median female employee.  That is worse than the pay gap of 22% typical for their industry (“specialised construction”).  Despite this, KBR attribute their pay gap to… “a talent gap caused by a gender imbalance across the industry.”  They also claim “women represent 20% of the UK workforce”.  The actual number, according to ONS data is 47%.

If firms believe they can “explain away” pay gaps with such assertions, then they’re unlikely to change their behaviour quickly.  So perhaps the Government, to properly incentivise companies to close the gender pay gap, should factor it into their contract tendering process. 

Methodology:

  1. We first identify the government’s strategic suppliers, listed here: https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/859244/Crown_representatives_and_strategic_suppliers_update.pdf
  • Where a firm has multiple UK operating entities, we calculate the weighted-average gender pay for the firm. We use as weights the number of workers each entity employees.
  • We then calculate the weighted average gender pay gap for each firm’s industry.  For this, we use Sic Codes.  These are codes which specify the industry which the firm thinks best describes its activity.  We use as weights the number of workers each firm employs.
  • If a firm reports multiple Sic Codes (e.g. because it has multiple entities) we calculate its “industry” gender pay gap as the weighted average of the pay gaps for each of those Sic Codes. We use as weights the number of workers each for each entity the firm employs.