Australia: Surfing the diversity wave and how to avoid getting dumped

There is a tidal wave of new legal developments that impact diversity, including the proposed Workplace Gender Equality Act 2011, changes to the ASX Corporate Governance Principles and Recommendations which have now come into effect and the first equal remuneration case under the Fair Work Act 2009 (Cth).

In our update, we set out some of the key changes and what your organisation needs to do in order to stay ahead of the wave and avoid getting dumped.

Reform of EOWA

As outlined in our May update (click here), an overhaul of the Equal Opportunity for Women in the Workplace Agency (EOWA) was announced earlier this year by the Federal Government. The reform was announced following a review of EOWA, which was done in consultation with business, unions, academics and women's organisations.

Change in the pipeline

Currently, organisations with 100 or more employees are required to develop a workplace program aimed at eliminating discrimination and contributing to equal opportunity for women in the workplace, and then submit to EOWA an annual report detailing those workplace programs and processes. Historically, reporting organisations deemed by EOWA to be non-compliant have not been eligible to tender for government contracts and were 'named and shamed' in Parliament.

One of the failings of the current system is that organisations who fall within the coverage of the Equal Opportunity for Women in the Workplace Act 1999 (Cth) are required to make themselves known to EOWA. However, one-third of organisations who are required to report have failed to identify themselves to EOWA. As EOWA does not currently have the power to conduct self-initiated action or investigations, in practice EOWA has been reliant on the cooperation of organisations.

One of the issues highlighted during the consultation process is that the gender pay gap between the earnings of full-time employees has improved only slightly over the last 25 years. From February 1984 to February 2009, the gender pay gap has only narrowed 2.1 percentage points.

There is currently a gender pay gap between male and female earnings of 17.2%. This means that in order for a female to earn the same as her male counterpart for the 2010/2011 financial year, she would need to work an extra 63 days. A female would therefore need to keep working until 1 September to earn the same as her male counterpart had earned by 30 June.

A new name, a new message and new requirements for business

In order to address this concern, among others, the Federal Government announced the reform of EOWA. New legislation is expected to be introduced to Parliament this month called the Workplace Gender Equality Bill. The new legislation will see the name of EOWA changed to the Workplace Gender Equality Agency to ensure that the focal point of the agency is equality for men and women.

A number of key changes under the proposed Workplace Gender Equality Act include:

• enshrining pay equity in the objects of the Act;
• streamlined reporting against gender equality indicators, focusing on outcomes for men and women in the workplace; and
• reporting on the gender composition of boards and organisations as a whole.

These measures are intended to change the focus of annual reports from workplace programs and processes to tangible outcomes. A new requirement will also mean that both the CEO of an organisation and an employee representative will need to sign off on the accuracy of the report, with the report then made accessible to shareholders and employees.

The power of the Director of EOWA to waive reporting requirements will also be removed with the effect that each reporting organisation will be required to submit an annual report without exception.

Giving the 'toothless tiger' bite

Organisations that have failed to identify themselves to EOWA will be targeted under the reform. The new Agency will also have an inspectorate function, which will audit the accuracy of information contained in reports. In addition to naming and shaming in Parliament and more widely, non-compliant organisations will not be eligible to receive Government-funded grants or access to industry assistance programs. It will also be against the law for Government to trade with non-compliant organisations. The Government's move to use its power as a consumer to promote gender equality in the workplace is significant, particularly given that its current annual spend as a consumer is $42 billion.

Don't get dumped

The reforms are all designed to "address the promotion of women through the pipeline and appropriately foster their career advancement". The new legislation will improve transparency by requiring organisations to report on tangible outcomes and provide the facts and figures needed for the Agency to provide industry level benchmarks. In order to comply with the new regime, organisations will need to demonstrate progress over time against those benchmarks.

The new changes are intended to come into effect progressively up to 2013, when the first reports under the new regime will fall due. Organisations are encouraged to start preparing for the new regime now and ensure they have appropriate systems and processes in place to meet the new requirements.

ASX Corporate Governance Principles and Recommendations

In June 2010, the ASX Corporate Governance Principles and Recommendations (CGPR) were amended as part of a move by the ASX to improve gender diversity within ASX listed companies. In the ASX top 200 listed companies, women are present in almost equal numbers to men in the workforce as a whole. However, women remain increasingly under-represented in senior positions within those companies, until at board level there are over 10 men to every woman.

For the ASX, the impetus for change was threefold:

• corporate Australia has a poor record on gender diversity, evidenced in the ASX 200 by the ratio of male to female CEOs. There are approximately 32 male CEOs to every female CEO;
• international developments which have seen the adoption of gender diversity initiatives, including a phased-in quota system in Norway, Spain and France to achieve 40% female representation on boards. Many other countries have also introduced diversity initiatives, including the UK, Germany, Netherlands and USA; and
• financial studies have suggested that diversity could help drive competitiveness. Research by Goldman Sachs JB Were found that closing the male/female employment gap could boost the Australian GDP by 11%.

Staying between the flags

The amendments commenced on 1 January 2011 and require that in each financial year commencing thereafter ASX listed companies are required to establish a diversity policy and disclose a copy of the policy or a summary of it. 'Diversity' is broadly defined to include gender, age, ethnicity and cultural background so that companies can define diversity according to their particular circumstances and consider other forms of diversity in addition to gender.

At a minimum, the diversity policy must include a requirement that the board establish measureable objectives for achieving gender diversity and a requirement for the board to annually assess both the measureable objectives and the progress made in achieving those objectives.

Other factors which a company may wish to consider when preparing a diversity policy include:

• the company's commitment to diversity and key areas of focus;
• the benefits of diversity on boards, in senior management and across the company as a whole;
• the selection and appointment process for directors and employees to create greater transparency; and
• programs and initiatives which have been introduced to increase diversity, such as mentoring programs.

The ASX CGPR also raise the issue of linking key performance indicators and bonuses to the achievement of diversity policy objectives for the board, CEO and senior management team.

Amping up diversity

Each year, all listed companies will need to comply with the requirements or explain in their annual reports why they have not done so on an "if not, why not?" basis. The annual reports will then be the subject of scrutiny by shareholders, future investors and the public.

While the changes apply to listed companies and commence in the first financial year on or after 1 January 2010, the ASX encouraged early transition to the changes from 1 July 2010. The effectiveness of the principles is evident already. In 2002, women represented 8.2% of the board of directors. In the eight year period to June 2010, this increased 0.2% to 8.4%. However, in the last 12 months, since the introduction of the amended CGPR, this figure has now jumped. As of 29 August 2011, women comprised 13% of the board of directors – the highest proportion in Australia to date.

Stay ahead of the wave

The CGPR amendments have elevated the issue of diversity to board and executive level, and the imposition of reporting requirements will ensure greater transparency and accountability in respect to diversity among listed companies. While the ASX CGPR set out certain requirements for listed companies, a technical box-ticking approach to compliance is unlikely to achieve genuine diversity. Instead, organisations need to instigate real cultural change so that the importance and value of diversity is fully integrated into the company's culture and endorsed and followed at all levels of the business.

The CGPR contain suggestions from the ASX on ways in which companies may wish to implement the recommendations. When considering the implementation of a diversity policy or new initiatives, we recommend the preparation of a diversity plan which will inform the overall diversity strategy of an organisation. A diversity plan can assist an organisation to meet its legal obligations as well as demonstrating the organisation's genuine commitment to improving diversity in an effective, sustainable manner.

Landmark equal remuneration case

Equal remuneration has been a hot topic in 2011 due to the landmark case currently before Fair Work Australia (FWA). In 2010, the Australian Services Union applied to FWA for an equal remuneration order on the basis that there is a direct link between the large number of women employed in the social and community services sector (SACS) and the undervaluation of work in that sector.

Under the FW Act, FWA may make an order to ensure that there will be equal remuneration for work of equal or comparable value. In making an order, FWA must take into account:

• orders and determinations made by the Minimum Wage Panel in annual wage reviews; and
• the reasons for those orders and determinations.

An equal remuneration order may provide for increases in rates to ensure that there will be equal remuneration, but cannot reduce rates of remuneration, i.e. by reducing a male employee's salary to that of a female employee's. However, an order may be made to implement equal remuneration in stages if FWA considers that it is not feasible to implement equal remuneration from the time the order comes into operation.

SACS case making waves

The SACS equal remuneration case is based on the assertion that the SACS industry is female-dominated, the work in the sector is undervalued and there is a link between the two. ASU claims that at least 80% of SACS employees are women and that the sector has all of the characteristics of female-dominated occupations, including low visibility and work described as creative, nurturing and caring. In the SACS case, the remuneration earned by SACS employees has been compared with that of state and local government employees and the union has asserted that the SACS workforce is undervalued given the difficulty and skill involved and its importance to the community.

In May, FWA found that around 200,000 SACS employees nationally are receiving less pay than public sector workers performing similar duties, and that the disparity is partly gender driven. However, FWA found that the next step involved "identifying the extent to which gender has inhibited wages growth in the SACS industry and to mould a remedy which addresses the situation". Parties have since made submissions on the issue and are currently attempting to reach a conciliated outcome.

This is a landmark case and is likely to have a significant impact on the employers of the 200,000 SACS workers involved. The Federal Government and a number of state governments have committed to either supplementing their grants to SACS organisations to meet the cost of any pay increases awarded by FWA or to provide some level of funding to assist employers to meet the cost of equal remuneration.

Surfing the diversity wave

Gadens Lawyers has specialist expertise in workplace relations and is experienced in assisting employers to meet their obligations under discrimination and diversity law. We can advise your organisation on its obligations and assist you to develop and implement an appropriate strategy for your organisation to ensure compliance with legal requirements.

For more information on the range of services Gadens Lawyers discrimination and diversity practice offers, please see our brochure here.

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This report does not comprise legal advice and neither Gadens Lawyers nor the authors accept any responsibility for it.