The Financial Services Skills Commission has issued an insight paper outlining how companies can collect and evaluate data on employees’ socioeconomic backgrounds.
Socioeconomic backgrounds of employees and socioeconomic diversity at senior levels across the UK financial services industry is beginning to feature more prominently in diversity and inclusion (D&I) discussions. Several government and industry taskforces and studies conducted on the issue of social mobility and class advantages/disadvantages have revealed striking impacts of this bias within the UK financial services sector. Not only is the sector significantly reliant on individuals from higher socioeconomic backgrounds at the leadership level, but the studies also indicate that employees from working class or lower socioeconomic backgrounds are held back in a number of ways (which may lead to their eventual departure from the sector).
- Progression gap: Employees from working class or lower socioeconomic backgrounds progress 25% slower than peers despite no difference in job performance, and they find conforming to the dominant cultures “exhausting” and this impacts on their individual performances.
- Pay gap: A class pay gap of £17,500 appears to exist in financial services (compared with £5,000 in the technology sector).
- Opportunities to upskill talent: Findings suggest that individuals from lower socioeconomic backgrounds are less likely to sign up for training opportunities.
From a regulatory perspective, this lack of diversity at the senior level impacts the culture of a firm, raising concerns around, for example, groupthink and its impacts on effective decision-making.
Looking to the future, UK regulators such as the FCA believe that the industry must tackle the issue of socioeconomic diversity at senior levels if it is to attract and maintain the necessary skills and talent the sector requires to remain diverse, inclusive, innovative, and globally competitive. Forward-thinking firms turning their minds to emerging D&I regulatory requirements, and considering this particular area, are being encouraged to collect data on the issue of socioeconomic bias. In order to do that, they first need to work out the best way to collect it within their organisation to improve the attraction, retention, and progress of employees from lower socioeconomic backgrounds. By collecting and evaluating socioeconomic background, firms will be able to begin to identify these types of links and then devise ways to intervene to close these gaps. The current challenge is how to approach the data collection, reporting, and evaluation of socioeconomic background, and then how to translate the findings into tangible actions.
To assist firms in taking these first steps, the Financial Services Skills Commission (FSSC) published an insight paper on 21 September 2022 setting out best practices for financial services firms to get started (including an FSSC member’s case study). The FSSC was established to work directly with the sector and collaborate to ensure that businesses have the talent and skills needed for the future.
Begin With the Right Approach
The FSSC points out the importance for firms to approach the measurement of this type of data “in the right way” as the workforce must understand why the firm wants to collect this data. Examples of key steps the FSSC suggests to ensure the right approach are summarised in the table below:
|Senior leaders in the firm should be advocates of the initiative, which will be key to ensuring that the messages are cascaded down throughout the organisation.
|Best practice questions should be incorporated from established resources so that results can be benchmarked with the industry and peers.
|A simplified process will enable better employee completion rates.
|Consider running a pilot data collection with only part of the business rather than the whole workforce to allow room for improvement.
|Firms should “bring employees on the journey” as employees need to understand what data is being collected and why their employers are interested in such data.
Measuring Socioeconomic Background
Firms should be careful in the questions they use to try and understand their employees’ socioeconomic background. Firms should refer to the toolkits and guidance emerging from the recent studies, such as the Social Mobility Commissions’ Financial and Professional Services Toolkit for guidance on what questions to ask. A question used to generate cross-sector comparison analysis concerns the occupation of the employee’s main household earner when they were about 14 years old. The FSSC suggests additional questions that can deepen the understanding and insights into different angles of economic advantage/disadvantage. For example:
- Which type of school did you attend for the most time between the ages of 11 and 16?
- Did either of your parents attend university and gain a degree by the time you were 18?
FCA’s Position on Social Mobility
The FCA treats D&I as a mainstream business issue that speaks to a firm’s culture and conduct. In its view, a “diversity of perspectives and thought, when part of an inclusive culture, results in better judgements and decision making in the public interest. It reduces the risk of groupthink and encourages innovation”.
In April 2022, the FCA published its final policy on D&I on company boards and executive management, introducing new Listing Rules requiring issuers to include a statement in their annual financial report setting out whether diversity targets had been met and expanded reporting requirements. (See this Latham blog post for more information.) Alongside that policy, the FCA has been considering ways to improve D&I in the financial services sector. The regulator has also indicated that since the pandemic, the issue of social mobility has been “at the forefront of our minds more than ever”.
D&I is an area of increased regulatory focus following a number of studies on the socioeconomic backgrounds of those who work in the UK financial services industry. Firms are advised to stay abreast of emerging practical guidance to help them focus on this area.