Pay transparency can help close the gender pay gap, but at what cost?

How much you earn compared to your peers has traditionally been a taboo subject that you may feel too shy to discuss with your colleagues. But normalizing pay transparency is an important step in achieving gender pay parity.

Companies around the world are increasing pay transparency policies as a way to communicate pay-related information to employees. The European Union is too, and has set a proposal to make payment by gender available.

Women in the EU earn on average 14 per cent less per hour than men and the bloc is currently negotiating legislation to require companies to be more transparent about these gender pay disparities.

Although pay transparency sounds like a simple solution to achieving pay parity, it raises other questions, such as whether it is really effective, whether companies will level the playing field, and whether it goes far enough for women’s rights.

Research has shown that pay transparency reduces the pay gap, but it is not achieved by simply increasing women’s pay, rather the growth rate of men’s pay decreases, according to a study in Denmark.

“There is no way that both can raise women’s wages and men are equally happy and the company earns more because something magical happens,” Morten Bennedsen, an economist and professor at the University of Copenhagen who worked on the study, told Euronews. . Next.

Other U.S. research found there is “a drop in productivity” that “appears to be offset by a lower payroll bill,” said Elena Simintzi, an assistant professor of finance at the University of Carolina Kenan-Flagler School of Business. from North. .

How does pay transparency benefit women?

While it may cause lower productivity in men, Simintzi found positive effects in women in her research.

“Our research found that the law was a success in that it significantly reduced the gender pay gap, as it was intended to do. It also had several unintended positive effects on women’s employment outcomes,” she told Euronews Next.

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In those companies, Simintzi explained, not only are there higher rates of hiring and retention of women, but they are also more promoted. Employees are more likely to stay with a company and pay transparency also helps attract new talent.

According to software and data company pay scaleIf there is no salary transparency, employees, especially younger ones, are more likely to leave the company within six months.

Poor pay transparency can also seriously damage a company’s reputation, as the BBC discovered in 2018 when 200 employees urged their bosses to make all pay and benefits public.

In new research, Simintzi found that pay transparency also benefited mental health, seeing that women used less antidepressant medication when pay transparency rules applied. But she noted that there were no significant changes for men.

“This suggests that equity in the company has a profound and important effect on women’s well-being,” she said.

While many companies are in favor of pay transparency, they worry about the cost and legal inconvenience.

headache for companies

The pressure group representing business in the European Union, BusinessEurope, said that while it supports the goals of improving gender equality and achieving more equal participation of men and women in labor markets, it is concerned that the draft EU directive on pay transparency is too detailed and prescriptive.

“This doesn’t really create a trustworthy work environment, but rather a springboard for costly compliance and the risk of unwarranted litigation,” said Maxime Cerutti, director of Business Europe’s social affairs department.

“For example, it is crucial that the exemption for companies with less than 250 employees from the obligation to report and the joint assessment of wages be maintained. If this exemption is not included, SMEs will have to bear heavy administrative and financial burdens, with little effect in reducing wage gaps,” he told Euronews Next.

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The European Parliament voted in April to require EU companies with at least 50 employees, instead of 250 as originally proposed, to disclose information that makes it easier for colleagues to compare pay and expose any existing gender pay gap in Her organization.

MEPs also want the European Commission to create a label to reward employers who do not have a gender pay gap and to ban salary secrecy in employment contracts.

But exactly how that would work is still being defined, and how managers and employers implement the rules will be crucial.

A Harvard Business Review study found that there was a need for adequate training for managers and learning resources for employees. He pointed to the lack of proper channels for employers to express their feelings about transparency policies, as well as the lack of resources for them to understand the payment system.

BusinessEurope has also raised concerns that if pay transparency is applied, it could create privacy issues.

“It can be very easy, especially in smaller companies or companies where there are only one or two people doing comparable work, to know whose salary you’re talking about, even if it’s an average or median salary.” Cerutti argued, adding that the basic principles of the EU General Data Protection Regulation (GDPR) and the confidentiality of information must be respected.

Undervalued jobs dominated by women

Another point, with which Morten agrees, is that it is difficult to compare salaries when there are certain job categories that are typically held by women and are paid less. This is more an “occupational bias” than a gender pay gap, Cerutti said.

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He added that “it is no longer appropriate to compare between companies and even more so between sectors, since the situations that determine remuneration are very different.”

But Laeticia Thissen, a gender equality and women’s rights policy analyst at the Foundation for European Progressive Studies think tank, argues that pay disparities still need to be looked at across industries given that the COVID-19 pandemic put the focus on the real value. predominantly female jobs.

“The pandemic highlighted the systematic undervaluing of women’s work, and I like to use the example of the bricklayer who lifts stones and earns better than a nurse or caretaker who lifts people,” she told Euronews Next.

“And here it all boils down very much to what it means. What do we value as a society?

She said that the pay transparency directive is “a step in the right direction”, but we should also look at, for example, the Reconciling work and family life in the EU directive.

Thissen says that the gender pay gap is about more than pay per se, and that perks like bonuses or company cars and foreign travel also need to be factored in, as do the long-term effects of these disparities.

In many countries, salary can have an impact on pensions, and pensions can also be affected when women have children and take maternity leave.

Thiessen said the EU pay transparency proposal at least has the merit of “breaking the taboo” and removing the complete lack of pay transparency in the workplace.

This, in turn, “has the potential to empower women to access information and subsequently gives them the right to seek more clarity on wages,” she said.

“And that is also very important for women coming back from maternity leave, for example, to make sure they are not harmed.”