The unadjusted gap for one portfolio company, worked from hourly pay by band, then rolled up to the fund's SFDR principal adverse impact figure.
The unadjusted gender pay gap is men's average hourly pay minus women's, divided by men's, computed once on the mean and once on the median. An illustrative 202-person portfolio company that pays men and women exactly the same rate in every band still has a 17.9 per cent mean gap and a 23.2 per cent median gap, because women are 55.6 per cent of its lowest band and one of its six directors. Rolled up by investment value, the fund's SFDR indicator is 12.0 per cent.
Worked in full in The ESG Manager in Private Equity by Julian R. Sterling, with every figure reproduced in a free workbook.See the book on Amazon →
Mean gap = (mean male hourly pay − mean female hourly pay) / mean male hourly pay
Median gap = (median male hourly pay − median female hourly pay) / median male hourly pay
Excel, with hourly pay in column C and sex in column B: =1-AVERAGEIF(B:B,"F",C:C)/AVERAGEIF(B:B,"M",C:C) and =1-MEDIAN(IF(B2:B203="F",C2:C203))/MEDIAN(IF(B2:B203="M",C2:C203))
Hourly pay, not annual, so that part-time work does not create a gap by itself. In the UK, the Equality Act 2010 (Gender Pay Gap Information) Regulations 2017 require employers with 250 or more employees to publish both figures from a snapshot date; at 202 people the case company is below that threshold, so it reports the gap for the fund, not the regulator. The SFDR principal adverse impact indicator 12 and the EU Pay Transparency Directive use the mean, and the directive also asks for the median. "Unadjusted" means nothing is controlled for: not role, seniority or hours. That is the point of the metric, and the reason it must never be presented as a measure of equal pay.
A fictional manufacturing company held by a mid-market fund. To isolate what the gap measures, every band pays one hourly rate to everyone in it, men and women alike.
| Band | Hourly pay | Men | Women | Women, share of band |
|---|---|---|---|---|
| Operators | 14.20 | 40 | 50 | 55.6% |
| Technicians and team leads | 18.50 | 35 | 25 | 41.7% |
| Engineers and supervisors | 26.00 | 20 | 12 | 37.5% |
| Managers | 41.00 | 10 | 4 | 28.6% |
| Directors | 72.00 | 5 | 1 | 16.7% |
| Company | 110 | 92 | 45.5% |
Step 1, mean hourly pay. Men: the 110 rates add to 2,505.50, a mean of 22.78. Women: 1,720.50 over 92, a mean of 18.70.
Step 2, mean gap. (22.78 − 18.70) / 22.78 = 4.08 / 22.78 = 17.9 per cent.
Step 3, median hourly pay. Sort each sex by pay. The median man is position 55.5 of 110: the first 40 are operators, positions 41 to 75 technicians, so the median is 18.50. The median woman is position 46.5 of 92: the first 50 are operators, so the median is 14.20.
Step 4, median gap. (18.50 − 14.20) / 18.50 = 4.30 / 18.50 = 23.2 per cent.
A 17.9 per cent mean gap and a 23.2 per cent median gap in a company with no unequal pay at all. Both come from one fact: women are 45.5 per cent of the workforce but 25.0 per cent of the top two bands, 5 of 20 people. The gap is a measure of where women sit in the pay structure. That makes it the right metric for an ESG manager to track, because it points at hiring and promotion, but the wrong one to answer with a pay review.
If a band does pay men more than women for the same work, that is a separate and more serious finding. The EU Pay Transparency Directive requires a joint pay assessment where the gap within a category of workers doing equal work reaches 5 per cent and cannot be justified on objective, gender-neutral criteria. Test it band by band, not on the company figure.
| Change | Mean gap | Median gap |
|---|---|---|
| Base case | 17.9% | 23.2% |
| Promote 10 women operators to technicians | 15.8% | 0.0% |
| Two more women managers, two fewer men | 14.5% | 23.2% |
| One woman director replaces one man | 13.7% | 23.2% |
| Hire 10 more men as operators | 15.2% | 23.2% |
Three lessons sit in the table. The median is a cliff: ten promotions at the bottom move it from 23.2 per cent to zero, while changes at the top do not touch it. The mean rewards senior appointments: one director changes it by 4.2 points. And the last row is a warning: hiring ten more men on the lowest rate lowers the mean gap, because it drags down the male average. A target set on the gap alone can be met by a decision nobody would defend, so pair it with representation by band.
At fund level the indicator is the average unadjusted gap of investee companies weighted by the value of each investment. Here the case company is one of five holdings.
| Company | Value | Mean gap | Weight, covered | Contribution |
|---|---|---|---|---|
| Company A, the case | 140 | 17.9% | 33.7% | 6.04 |
| Company B | 95 | 8.1% | 22.9% | 1.85 |
| Company C | 60 | 21.4% | 14.5% | 3.09 |
| Company D | 120 | 3.5% | 28.9% | 1.01 |
| Company E | 35 | not reported | ||
| Fund, covered holdings | 415 | 12.0% | 100% | 12.0 |
Coverage is 415 of 450 million, 92.2 per cent, and must be disclosed beside the figure. The simple average of the four gaps is 12.7 per cent, which overweights the smallest holding. Dividing by all 450 million treats Company E as having no gap and reports 11.1 per cent: an understatement that improves with every company that fails to report.
The core metric set, written as a data dictionary with a destination column for each figure, is among the working documents that come with the free workbook for this book. The same roll-up logic applies to safety data, worked in how to calculate TRIR and LTIFR.
No. Equal pay compares men and women doing the same or equivalent work; the unadjusted gap compares the average man with the average woman across the whole company. In the worked case every band pays men and women the same hourly rate, so there is no equal pay issue, yet the mean gap is 17.9 per cent because women are concentrated in the lower bands.
The median picks the middle employee of each sex, so it jumps when the middle woman and the middle man sit in different bands. In the illustration the middle man is a technician at 18.50 and the middle woman an operator at 14.20, a 23.2 per cent gap, against 17.9 per cent on the mean. Promote ten women operators and the median gap falls to zero while the mean only drops to 15.8.
Principal adverse impact indicator 12 is the average unadjusted gap of investee companies, weighted by the value of each investment. In the illustrative fund four companies with data give 12.0 per cent on 415 of 450 million, 92.2 per cent coverage. Dividing by the whole 450 million instead treats the missing company as having no gap and reports 11.1 per cent.
This article is one calculation from The ESG Manager in Private Equity. The book takes the same case from first principles to the decision, chapter by chapter, and every figure it prints is a live formula in the free companion workbooks.
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