Mind the gap or close the gap?

February 2023
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Compensation and pay equality: from strategy to execution

Growing pressure from investors, regulators, employees and customers have made compensation and pay equality a board-level issue. In our blog series we’ll be highlighting how companies can leverage Anaplan to take Compensation and Pay Equality from Strategy to Execution:

Part 1: Regulatory FAQ: what EU legislation is coming our way and what is the impact and imperative for EU businesses?

Part 2: From strategy to execution:  Tackling data quality and pay data risks

Part 3: From strategy to execution:  The need for Cross-functional collaboration

Part 4: From strategy to execution: moving beyond reporting -  target setting, forecasting, and initiative setting/tracking to close the gap

Part 5: Lessons Learned: What can we learn from the UK gender pay gap reporting legislation introduced in 2017?

Part 1 – The first step towards pay equality is pay transparency

Reducing the gender pay, earnings and pension gaps is among the European Commission’s top priorities. It has undertaken a number of initiatives in this field as part of the Gender equality strategy 2020–2025.

On 4 March 2021, the Commission proposed a directive on pay transparency to ensure that women and men in the EU get equal pay for equal work. Following multiple assessments, reviews and negotiations an agreement has been reached in December 2022 between the European Parliament and EU member states on the directive. The European Parliament and the EU Council must now formally adopt the agreement for the text to enter into force. A vote on the text in Plenary is expected on 29 March 2023.

So how big is the gender pay gap today?

The latest data published by the European Commission and Eurostat show that the average difference in the EU in gross hourly earnings of male and female employees as %of male gross earnings is 13% in 2020.

Have we made any progress in recent years?

The gap has only decreased by only 2.8% pp in 10 years.

In its 2017-2019 action plan on tackling the gender pay gap , the Commission assessed the need for further legal measures. The assessments concluded that the right to equal pay is not adequately applied nor enforced in practice and that pay transparency is lacking in many EU Member States.

What are the objectives of the EC directive?

The Directive (which you can find here is aimed at tackling the persisting inadequate enforcement of the fundamental right to equal pay and ensuring that this right is upheld across the EU, by establishing pay transparency standards to empower workers to claim their right to equal pay.

The proposed directive pursues these objectives by:

  • establishing pay transparency within organisations;
  • facilitating the application of the key concepts relating to equal pay, including ‘pay’ and ‘work of equal value’; and
  • strengthening enforcement mechanisms.

Will all businesses be impacted?

No. Employers with over 100 employees will have the duty to report the gender pay gap in their companies. If the pay gap is higher than 5% without justifications, employers will also need to perform a pay assessment together with the workers’ representatives and take corrective measures.

What is the impact? Right of information (article 7)

  • Workers have the right to receive information on their individual pay level and the average pay levels, broken down by sex, for categories of workers doing the same work as them or work of equal value to theirs
  • Employers are required to provide, prior to a job interview, information on the initial pay level or a corresponding range (based on objective and gender-neutral criteria) to be paid to the future worker in relation to a specific position or job
  • Employers are required to make available to workers a description of the gender-neutral criteria used to define their pay and career progression

What is the impact?  Reporting requirements (article 8)

Unlike existing regulation, the directive determines that employers are required to compare pay for the same work, or work of equal value. The following information is in scope:

(a) the gender pay gap  
(b) the gender pay gap in complementary or variable components;
(c) the median gender pay gap;
(d) the median gender pay gap in complementary or variable components;
(e) the proportion of female and male workers receiving complementary or variable components;
(f) the proportion of female and male workers in each quartile pay band;
(g) the gender pay gap between workers by categories of workers broken down by ordinary basic salary and complementary or variable components

What is the impact? Pay Assessment (article 9)

For organizations where there is a gender pay gap of 5% or higher, which cannot be justified using objective and gender-neutral criteria, are required to conduct a Pay Assessment in partnership with their employees’ representatives, covering:

(a) an analysis of the proportion of female and male workers in each category of workers;
(b) information on average female and male workers’ pay levels and complementary or variable components for each category of workers;
(c) identification of any differences in average pay levels between female and male workers in each category of workers;
(d) the reasons for such differences in average pay levels and objective, gender neutral justifications, if any, as established jointly by the workers’ representatives and the employer;
(e) measures to address such differences if they are not justified on the basis of objective and gender-neutral criteria;
(f) an evaluation of the effectiveness of measures from previous joint pay assessments

What is the Impact?  Worker’s right to compensation (article 14)

Any worker who has suffered harm as a result of an infringement of any right or obligation related to the principle of equal pay between men and women for equal work or work of equal value shall have the right to claim and to obtain full compensation or reparation.

The directive also introduces the right for equality bodies and workers representatives or other legal entities to act on behalf or in support of a worker, and for them to bring collective claims to court

What is the scope - Shift of burden of proof (article16)

The directive increases the burden of proof on the employer: the employer, not the worker, should prove the absence of discrimination in relation to pay.

When will this directive turn into a legal requirement?

In December2022 EU negotiators reached an agreement on between the European Parliament and EU member states on a directive. EU ambassadors and the Parliament will now have to formally approve the agreement. Member states will then have three years to transpose the pay transparency requirements in their national law.

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