The Gender Pay Gap: What Global Employers Need to Know
By Caroline Scotton, Senior Manager, Compensation & Benefits
Last year, nearly 100 years since the United States and United Kingdom granted women the right to vote, Saudi Arabia, the lone holdout aside from the Vatican, permitted women limited access to the ballot box. Despite the significant political gains of the past century, women remain economic second-class citizens in much of the world. Perhaps the most telling statistic demonstrating this inequality is the gender pay gap: on average, women earn 46% less than men earn. In fact, the annual pay for women only now equals the amount men were earning 10 years ago.
The gender pay gap is a worldwide problem; it exists in every nation. Unsurprisingly, the Nordic countries have the smallest global gender gap index, closely trailed by other economically developed countries. African and Middle Eastern countries, on the other hand, have a long way to go to achieve total equality. One exception is Rwanda, which boasts the sixth smallest gender gap, sitting just below Ireland.
Rwanda is a notable example of the success of efforts to boost women’s political and economic power following the 1994 genocide. Elsewhere, steps to close the gender gap have been less successful. In the United Kingdom, where pay equity for similar work has been the law since 1970, women earn 14% less than men. In the United States, despite decades of legal battles and legislation, women make 18% less. The gender gap has been extraordinarily recalcitrant. Indeed, a World Economic Forum report projects that at the current rate of progress it will take another 118 years to close the gender pay gap.
Increasing attention to the gender pay gap around the world has inspired governments and advocacy groups to take action. Recognizing the limited effectiveness of laws that simply prohibit pay discrimination, several governments have focused on increasing transparency to help identify discrimination, and publically shaming employers who pay women less than men. In this climate, it is increasingly important for employers to ensure that they are paying their employees fairly and in compliance with the laws of the countries in which they operate.
In the United States, President Obama has proposed the Paycheck Fairness Act, which provides for increased wage transparency, greater protections for workers who suspect wage discrimination, and a requirement forcing employers to justify pay disparities. Opposition in the Republican-controlled House and Senate appears intractable and the bill’s chances of passing in this session are remote.
Though stymied by Congress, the Obama administration is moving ahead with regulatory action. Earlier this year, the Equal Employment Opportunity Commission proposed a new pay disclosures requirement intended to identify employers that might be discriminating against women and minorities. The rule would require employers with over 100 employees to include pay data based on employees’ gender, race and ethnicity. If approved, the rule will mandate this data to be included in employers’ EEO-1 reports from September 2017.
In the United Kingdom, the government is also renewing efforts to close the pay gap. The Equal Pay Act of 1970 mandates that employers "give equal treatment as regards of equal terms and conditions of employment to men and to women," but, as we have seen, it has not eliminated pay disparity. The government is undertaking to close the gap with a focus on increased transparency. New regulations announced at the beginning of this year will make publishing gender pay discrepancies mandatory in the UK for companies with over 250 employees. This measure, which comes into effect in 2017, will require employers to publish pay gap figures — including those related to bonuses, commissions, and stock and share payments — on their companies’ public-facing websites.
Governments are not the only ones pressuring employers to close the pay gap. Public pressure from advocacy groups, the media and even investors is mounting, as is employees’ and potential employees’ awareness of pay equity. This culture of increased awareness means that gender pay will have a significant impact on companies’ ability to attract, engage and retain talent. Even though more forceful regulation may be several years off in many countries, it is sensible for employers to take action now. Companies that are proactively fair and transparent will offer an employee proposition that competitors may find hard to match.
Among the most basic steps an employer can take is gathering and analyzing their payroll data. It is also worth reviewing internal HR policies and practices to determine whether there is any unintentional gender bias. This will help identify whether and why pay discrepancies exist between employees of different genders. If you can account for identified discrepancies and those reasons are justified, document your findings. If discrepancies cannot be accounted for or if their causes are not justified, take corrective action. Whatever your findings, it is advisable to regularly monitor your pay practices.
Employers should also be mindful of action that could expose them to heightened regulatory or legal action. For example, identifying unjustified discrepancies and failing to correct them could make an unintended pay gap appear to be intentionally discriminatory. Another example is violating laws that prohibit pay secrecy: In the United States, for example, it is often unlawful for employers to prohibit or discourage employees from sharing pay information.
Additionally, make sure that you are monitoring legislation and regulation pertaining to pay equity in each country in which you have employees. And, of course, ensure that you are in compliance with applicable laws.
The pay gap has proven intractable and closing it through legislative or regulatory action will be difficult. For now, governments seem intent on increasing transparency and surveillance to identify pay discrimination. Employers must begin to address the issue themselves or face significant reputational, talent, legal and financial risks.