Beyond the Numbers: Why the Nominal Gender Pay Gap Isn't Enough
Within Highberg we look at the topic of Equal pay from both an organizational and a legal perspective, but also through a methodological lens. After all, People Analytics is one of our expertise. There is not one way to Rome, and the same counts for doing an Equal Pay analysis. But you might ask yourself which methodologies are available, what benefits or disadvantages they have, and the ultimate question: which method to choose? In this blog series we will explore just that. We will explore the different Equal pay methods we have seen in our field of work, the pros and cons of each, and which one we prefer. But, before we deep dive into the details, why do you even need a "method" when working on Equal pay?
Disclosing the gender pay gap is part of current legal reporting requirements, like the Corporate Sustainability Reporting Directive (CSRD) and the EU Pay Transparency Directive. This gender pay gap figure is based on a straightforward calculation: the difference in average (hourly) pay between men and women, divided by the average (hourly) pay of men. However, the more advanced corrected gender pay gap, called the equal pay gap, which accounts for background variables like job level and years of experience, is not required by law. So, why invest time and resources in a more complex equal pay methodology to calculate it?
The answer lies in the growing demand for transparency in pay, both from society and regulators. This trend is being formalized in legislation such as the EU Pay Transparency Directive, which asks companies to explain significant gender pay gaps within peer groups and to be transparent about pay practices with current and potential employees.
To meet these expectations, companies need more than surface-level statistics. They need insights into why a pay gap exists. Is it due to legitimate factors, such as a higher number of experienced men compared to women in the workforce, or is there an unexplained, potentially unfair difference?
While the gender pay gap helps flag potential issues, it lacks the depth to uncover root causes. This is where an equal pay analysis, based on an advanced equal pay methodology, becomes valuable. It can provide insights such as:
- Whether there is a mobility issue: A large gender pay gap that shrinks significantly after correction may indicate unequal career progression rather than direct pay discrimination.
- Which portion of the gender pay gap is explained by employee characteristics, and which part is not, potentially pointing to bias or structural inequality (or variables that are not taken into account).
- The impact of each background variable, like job level or tenure, on pay disparities.
- High-risk areas within the organization where pay inequality may be more prevalent.
- The estimated cost of narrowing the gap, useful for strategic planning.
- The effect of policy changes, such as revised compensation frameworks or diversity initiatives to improve pay equality.
In short, advanced analysis helps organizations understand the story behind the numbers and thereby respond to external (legislation like the Pay Transparency Directive) and internal (employees or strategic management) demands.
Convinced yet of the importance of going beyond the gender pay gap?
In our next blog post, we will walk you through several equal pay methodologies.
Learn more about our Services Around the Equal Pay Transparency Directive here.
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