The EU’s new pay transparency policy is great, but it won’t solve the gender pay gap

In order to truly combat the gender wage gap we have to fundamentally change the way we think and talk about salaries.

On June 6, 2023, a new law adopted by the European Parliament in April went into force. The idea is commendable – to tackle the gender pay gap once and for all. This would be achieved by ensuring that EU companies of 100 or more employees have to report their gender wage gap, and if found to be above five per cent, they will be required to rectify it.

EU member states have three years to ratify the law in their own countries. 

As a citizen of Latvia, a country that has now had over four years of mandatory wage transparency, I’m sceptical. As an HR specialist in the tech sector, I’ve had a front-row view of how businesses get around mandated wage transparency measures, and I see a few chinks in the EU policy’s armour.

Pay transparency laws – on the modern-day policy agenda

In Latvia we have been living with mandated wage transparency for four years now. The policy went into effect in 2019, and every publicly available vacancy was required by law to list the offered salary.

This was intended to reduce inequality in remuneration, and reduce pay gaps, particularly regarding gender discrepancies, where women often ask for less than men.

This was a measure that employees welcomed with open arms. One local study reported that 96 per cent of job seekers highly appreciated and approved of the new legislation, with their key reasoning being that it was easier for them to find vacancies that they were interested in, they were able to compare remuneration within their specific industry, and that they were able to get a better idea of salary levels in society in general.

Latvia is not the only country to mandate wage transparency. Several states in the US are doing the same thing, and similar practices are generally held in the Western world, though listing salaries is subject to a company’s own discretion. 

However, those who live in societies with mandated salary transparency have come to similar conclusions as we have also observed here in Latvia. Though it’s nice to have, it hasn’t significantly moved the needle regarding the gender wage gap. 

The BBC’s findings in the US align with what I’ve observed in Europe, that “while employers are generally complying with the letter of the law, there’s also evidence that many aren’t complying with the spirit of the law”. 

This comes down to a variety of sneaky approaches that are being used to keep vague enough about salaries while still complying with the legal requirements.

Where there’s a will, there’s a way

One of the most common approaches to get around the mandatory salary statement in vacancies is by listing a range. And the more leeway a company wants, the larger the range is. The same BBC study found that they were even seeing a range of over 100,000 US dollars for an annual salary. 

This echoes what we’ve seen in Latvia. I’ve seen salaries being listed between 700 to 3000 euros per month. This is a huge discrepancy, and the law does not have a legal framework to combat this sort of exaggerated range. 

On top of that, employers will often state that the final salary offer will be “based on qualifications”. Coupled with a wide listed salary range, basing a candidate on “qualifications” leaves a lot of room for discrimination. 

While job seekers appreciate having at least a range of salary to expect in order to choose where to apply, the general consensus is that it hasn’t had a significant impact on the gender pay gap. In Latvia, the current salary pay gap is 18 per cent. That’s an increase of 2.8 per cent from pre-salary transparency laws in 2018, when the wage gap was 15.2 per cent.

If history is bound to repeat itself, and if the drive to squeeze out every penny in the name of profit remains, then it’s likely that human ingenuity will prevail, and businesses will find a way to get around the new EU pay transparency laws as well. 

The EU pay transparency law will unfortunately be no exception

The crux of the new EU pay transparency law lies in who is bound by it. The law states that it refers to companies that have 100 employees or more. EU data states that only 0.2 per cent of Europeans are employed by what the EU classifies as a “large enterprise” (250 employees or more).

Unfortunately, the next classification down is a “medium enterprise”, which is defined as 50-250 employees, meaning that we can’t accurately say how many companies would be affected. But suffice to say, it’s certainly not the majority of European businesses. 

Many companies have fewer that 50 employees, let alone 100. As a result, the law will already miss many people. In tech particularly, you can do a lot with a compact, skilled team.

At my own firm, we run what’s generally considered a major tech software operation, and we do it with a team of roughly 30 people. We would still have a long way to go before this new law would be applicable to us. 

What’s more, there are ways to subdivide a company into smaller, legal entities, if someone really wanted to bypass these laws. 

Achieving a future with no gender wage gap

In order to truly combat the gender wage gap, I believe we have to fundamentally change the way we think and talk about salaries, and it has to be applicable to everyone – small businesses, large corporations, business owners, and employees. 

Salary transparency in vacancies is just the first step, and I’m glad that my home country of Latvia has taken serious steps to implement this as a legal requirement for all companies. This would be an excellent step for other countries to follow as well, but it’s just the beginning.

The next step is rewiring how we have conversations about remuneration. Salaries are still a taboo subject in many circles, and employers often discourage discussions on the topic. While we’re still far off from addressing this employer policy, we, as a society, have to become more comfortable discussing matters relating to money.  

The whole salary gap issue stems from a culture of keeping things quiet. And while the new EU law on pay transparency is an excellent initiative to start, it will only be effective when for one, it applies to every business, and second, when it’s used not as a punishment, but as a motivator.

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