4. Equal pay audits: A more intensive pay transparency tool

Straightforward, headline statistics can be a simple and catchy tool for comparing employers’ performance on equal pay. However, it is equally important to understand the process of producing gender-disaggregated pay statistics. Depending on the statistical tools used, gender pay gap estimates can sometimes obscure actual pay differences (see Box 4.5). Gender pay gaps can also be influenced by what different components go into these estimates. Ideally, the self-reflection required by employers to fix their own wage inequalities would be encouraged by pay reporting regimes (Cowper-Coles et al., 2021[1]). Yet the simple act of reporting pay gaps often does not go far enough in closing them.

In this way, equal pay audits are a valuable pay transparency tool that goes beyond mere pay reporting (defined in Box 4.1). They offer a means to analyse broader gender inequalities within a firm and attempt to explain their underlying causes. Typically, equal pay audits involve analysing the representation of women and men in different positions, assessing the job evaluation and classification system used, and gathering detailed information on pay and gender pay differentials. An effective pay audit should not only analyse any identified gender pay gaps but also strive to understand the reasons behind these gaps, facilitating the development of targeted actions for achieving equal pay.

Nearly half of the OECD countries with private sector pay reporting rules in place have embedded reporting within equal pay auditing processes (Canada, Finland, France, Iceland, Ireland, Norway, Portugal, Spain, Sweden, and Switzerland). The specific processes required by each country are summarised in Table 4.1, with further details provided in the subsections that follow.

In general, countries with pay auditing systems tend to have more comprehensive monitoring methods to ensure compliance, often involving dedicated government entities such as the labour inspectorate, gender equality agency, or ombudsman (as discussed in Chapter 6). Some countries also involve independent bodies in equal pay audits. For instance, certified auditors conduct external inspection of the systems in Iceland and Switzerland.1 In other countries, regulation mandates that the analysis should be done in co-operation with employees and their representatives (Finland, Norway, and Sweden).

Equal pay audits are often designed with diverse follow-up mechanisms (as detailed in Subsection 4.2.1 and Table 4.2). Some mechanisms are automatically triggered irrespective of gender gap outcomes, while others are activated specifically in cases where gender inequalities are observed.

Occasionally, audits are used as voluntary alternatives to pay reporting (as seen in Denmark), as penalties for non-compliance or breaches of equal pay provisions (as in Italy and the United Kingdom) or are not applied broadly (see Box 4.4). Additionally, in certain countries non-pay reporting rules entail company auditing procedures (as explained in Box 3.8. within Chapter 3).

Equal pay audit requirements can vary across different countries, with varying levels of detail and stringency. Some offer relatively explicit instructions: in Spain, for example, employers are obliged to provided descriptions of job classification and assessment systems, analyse potential direct and indirect gender discrimination between women and men, and aim to detect pay differences and identify their causes. French legislation, too, is comprehensive and detailed (see Box 4.2).

In other countries, such as some of the Nordics2 (as described in Box 4.3), the guidance is relatively more general. Equal pay audits must consider and investigate several potential barriers to gender equality, addressing both direct and indirect forms of gender discrimination. While the specific statistical information required for equal pay audits may be less precisely defined, and the legislation and enforcement somewhat less stringent compared to other countries – meaning that employers have considerable freedom when conducting pay audits – regulations in these countries nevertheless demand from employers an in-depth understanding of gender differences within their organisation. For instance, in Iceland and Finland, legislations call for an analysis of “all information concerning wages” or “of reasons and grounds for gender pay differences”, respectively.

In Norway, recent legislation (Box 4.3) helps to ensure that audits involve several key steps:

  1. 1. Job classes: Employers are required to create job classes that consist of employees who perform equal work or work of equal value. This helps to ensure a fair comparison of roles and responsibilities.

  2. 2. Gender distribution and pay differences: Employers must map the gender distribution across their organisation and analyse pay differences. This analysis includes determining the share of women’s pay in kroner (currency) and as a percentage, both overall and at different levels or groups within the organisation.

  3. 3. Salary comparisons: Employees are given the opportunity to compare their own salaries with the average salary at their respective level or position. This allows for transparency and helps identify potential disparities.

  4. 4. Investigation of gender discrimination risks: Employers are required to investigate whether there are any risks of gender discrimination or other barriers to equality within their pay conditions. This involves reviewing pay structures and analysing the causes of any identified risks and gender imbalances.

  5. 5. Implementation of measures: To counteract discrimination and promote greater equality, employers are expected to implement appropriate measures based on the findings of the audit. These measures can be tailored to address specific areas of concern and improve pay equity within the organisation.

  6. 6. Evaluation of results: Employers are also mandated to evaluate the effectiveness of their efforts in promoting equality. This assessment helps determine the impact of implemented measures and provides insights for further improvement.

To ensure compliance, the onus of holding employers accountable largely rests on workers and their representatives.

In Switzerland, the law does not specify the type of analysis to be conducted. It only states that the method should be scientific and in accordance with the law. Nonetheless, when the recommended analysis tool, Logib, is used, it involves a regression analysis where monthly gross wages are regressed on years of education, potential work experience (including its square), years of service, competence level, professional status, and a gender dummy.

Closing the gender pay gap requires not only equal pay for equal work but also equal pay for work of equal value. Evidence from several OECD countries suggests that a significant factor contributing to the gender pay gap is the undervaluation of occupations and industries where women predominantly work, even in occupations and industries that require valuable skills and may have high demand, resulting in women’s lower wages (Meyersson Milgrom, Petersen and Snartland, 2001[2]; Blau and Kahn, 2017[3]); see also Chapter 3. This can be a function of gender discrimination (Galos and Coppock, 2023[4]). Therefore, analysing wage gaps within job categories alone can only go so far in addressing the overall wage gap.

In countries with equal pay audits, most governments require the analysis of pay gaps for work of equal value (Canada, Finland, Iceland, Norway, Portugal, Spain, Sweden, and Switzerland through recommendations3). In Canada and Spain employers are required to analyse only pay differences for work of equal value. In Spain such analysis is not required as part of equal pay audit itself, but of the special pay report or registry which is required from companies carrying out audits.4 In contrast, France’s pay transparency measure focuses on pay differences for equal work.

Good practice in equal pay includes assessing equal compensation for work of equal value in pay gap assessments, along with guidance on how to compute it. Canada and Sweden, for example, have specified detailed and comprehensive instructions for the analysis of work of equal value as part of their audit processes.

In Canada, under the Pay Equity Act, federally regulated employers in the private and public sectors must follow a five-step process when conducting their equal pay audits.

  1. 1. Employers identify and group employee positions to create job classes.

  2. 2. Job classes are categorised as predominantly male, predominantly female, or gender neutral.

  3. 3. Employers assess the “true” value of work for each predominantly male or predominantly female job class based on skill, effort, responsibility, and working conditions. Importantly, the assessment method must not discriminate based on gender.

  4. 4. Actual compensation is calculated.

  5. 5. Equitable wages are achieved when female job classes within a company are compared to male job classes within the company that perform work of equal or comparable value, and compensation of the female job classes is adjusted accordingly.

In Sweden, equal pay auditing has been mandatory since 1994, though the rules have changed a few times since then (for more information see Box 4.3). Currently, all employers in both the private and public sectors are required to conduct annual equal pay audits in collaboration with employee organisations. This process, referred to as an “equal pay survey” by Sweden’s National Audit Office, requires employers to determine whether pay differences are directly or indirectly associated with gender (OECD, 2021[5]). More specifically, an assessment of pay conditions should be made comparing specific groups of employees (Chapter 3, Box 3.4).

To achieve equal pay for work of equal value, job classifications systems – when used – should be designed or reformed with gender sensitivity in mind. Simply targeting equal pay for equal work (i.e. the same job) may not address existing pay differences across gender-segregated sectors. Such an approach takes the form of gender-neutral or gender-sensitive job classification systems. Chapter 3, Section 3.2.2 (Occupational segregation and the risk of embedding unequal pay) discusses the role of gender-neutral or gender-sensitive job classification systems in preventing unequal pay.

Among countries that require equal pay audits, at least eight (Canada, Finland, France, Iceland, Norway, Spain, Sweden, and Portugal) include gender-neutral job classification systems as part of the audit. In Norway, the salary survey requirements based on groups doing equal work and work of equal value can be considered a gender-neutral and sensitive classification system at the enterprise level, although there is no national standard. Spanish regulation emphasise the need for “adequate, total and objective” job evaluation criteria that should “be strictly linked to the performance of the work” [Art. 8(1)a] (Ministry of the Spanish Presidency, 2020[8]). Portugal’s regulation specifies that transparent remuneration policy, should be based on evaluation of job components, based on objective criteria, common to men and women. Portuguese employers also have access to a guide for objective job evaluation.5

Canadian employers are also required to consider gender biases when identifying predominantly female job classes. The regulations require an objective method that avoids gender-based discrimination and examines the gender composition of past and present employees in the job class, assessing whether jobs are stereotypically gendered.

The EU Pay Transparency Directive6 calls for objective gender-neutral criteria for job classifications. “They shall include skills, effort, responsibility and working conditions, and, if appropriate, any other factors which are relevant to the specific job or position. They shall be applied in an objective gender-neutral manner, excluding any direct or indirect discrimination based on sex. In particular, relevant soft skills shall not be undervalued.” (Article 4[4]). In practice, however, this can be quite difficult. New Zealand offers a noteworthy example: the government is attempting to better quantify the value of soft skills and new skills through a careful evaluative process of jobs (Chapter 3, Box 3.4).

Some countries require employers to analyse potential sources of direct or indirect discrimination in equal pay audits. In Norway, employers must investigate other barriers to equality by reviewing pay figures, pay conditions, and assessing the causes of identified risks. Switzerland provides the Logib analysis tool, which offers evaluations, tables, and graphics to investigate possible direct and indirect discrimination. Spanish employers must assess the relevance of other factors triggering pay differences, as well as possible flaws or inequalities in the designing or use of work-life balance measures or difficulties in the professional promotion (Ministry of the Spanish Presidency, 2020[8]).

In Iceland, companies must fulfil the requirements of the Equal Pay Certificate,7 which include creating a management structure that guarantees pay-related proceedings and decisions are based on objective analysis and without gender discrimination (Iceland's Directorate of Equality, n.d.[9]). Similar certificates have been and are being developed in Italy and Portugal (see Chapter 6).

In pay auditing schemes, employers are required to conduct detailed statistical analysis of gender pay gaps in several countries, including Canada (under the Pay Equity Act8), France, Iceland and Switzerland (under recommendations, see endnote 3). While the specific approach to statistical analysis is not specified in Iceland, more detailed instructions are provided Canadian, French, and Swiss policies.

In Canada, regulations outline two statistical methods to compare male and female job classes: the equal average method and the equal line method. The equal average method involves comparing the average compensation of a group of male job classes with a group of comparable-value female job classes, with pay equity achieved when the averages are equal after adjusting compensation. The equal line method compares job classes using regression lines for all the male and female job classes, with pay equity achieved when the regression lines overlap after adjusting compensation.

In France, the gender pay gap calculator known as Egapro9 incorporates all the necessary calculation formulas and assesses the statistical significance of gender pay gaps.

In Switzerland the legislation mandates that the equal pay analysis be conducted “according to a scientific method and in accordance with the law” [Art. 13c] (Gender Equality Act, 2020[12]). Although the legislation does not specify which statistical method should be used, statistical analysis is part of the standard analysis tool, Logib,10 provided free of charge by the federal government.

In some countries like Australia, France, and Portugal, national statistical departments carry out further statistical analysis of the information gathered during pay reporting. However, this analysis is focuses on an aggregate level and does not consider gender pay gaps at the level of the organisation.

Reporting regimes can be more effective with embedded follow-up mechanisms. To ensure successful follow-up, requirements should include mandates for action with clear deadlines and measurable objectives (OECD, 2021[5]). A survey of worker and employer representatives highlights the importance of requiring employers to take concrete action, as the majority of respondents believe that the most effective pay transparency measures are “specific policies aimed at addressing identified pay gaps” (ILO, 2022[15]).

More than half of OECD countries with pay reporting rules have some form of follow-up mechanism after reporting (see Table 4.2 for a summary). These mechanisms are most often associated with the requirement to conduct a broader equal pay audit (except for Australia, Japan, and Korea11). Some countries require follow-up action only when gender differences in pay are identified (as in Canada, Finland, Iceland, Ireland, and Portugal), while others set a threshold for gender equality below which action must be taken (as in France, Korea and Spain). In Australia, follow-up action is required from employers of a certain size. In the remaining countries, action must be taken by all employers that fall under reporting obligations.

Gender equality action plans are a common follow-up mechanism in nearly all countries. These plans are set up in a variety of ways across the OECD reporting countries. Typically, they entail an initial assessment of the situation (i.e. the process required in pay reporting) and a justification of any differences found or active measures to combat differences. Finally, some countries also require a review of the implementation of said measures and an analysis of their impact on gender equality within the organisation. It is beneficial when these plans for action are selected with input from employees or their representatives (Cowper-Coles et al., 2021[1]), as is the case in at least Finland, Norway, and Sweden.

In many countries with follow-up mechanisms, there is a recognition of the importance of time restrictions and monitoring stipulations. However, the level of detail provided in these mechanisms varies. For instance, Norway reports only that such restrictions and stipulations exist, Iceland states that the action plan is timed, and the Japanese response states that action plans must include specific target periods.

Some countries offer more detailed specifications. In Canada under the Employment Equity Act (see endnote 8) time restrictions are well defined: measures are to be taken in a period of 1 to 3 years with a clear timetable for the implementation (see below). France, too, has opted to offer companies a period of 3 years for correcting inequalities (see below).

Monitoring committees can be beneficial for action plans, and it is recommended that they include an employee representative or trade union spokesperson and a senior member of the employer’s leadership. Certain countries have developed the monitoring aspect further. In Portugal, for example, if pay differences are detected by the Labour Inspectorate, employers must implement an evaluation plan for a period of 12 months. This plan must contain the evaluation of job components, based on objective criteria, in order to exclude any forms of gender discrimination12. After this period, the employer is required to communicate the results to the labour inspectorate. New Zealand’s Kia Toipoto establishes specific milestones for updating and publishing annual action plans based on gender and ethnicity data and union/employee feedback.

Also the EU Pay Transparency Directive (see endnote 6) places importance on monitoring by requiring member countries to designate a monitoring body and to support its functioning (see more in Chapter 6).

Finland requires relevant employers to conduct a pay survey every two years to assess gender equality in the workplace, develop measures for promoting gender equality and achieving pay equality, and review past measures. However, the Finnish regulation lacks built in time restrictions and monitoring stipulations.

Similarly in Sweden, all employers must conduct a wage audit and take active measures each year, continuously analysing any risks or obstacles to equal rights and opportunities and implementing prevention and promotion measures. Time restrictions in Sweden involve conducting work continuously, and scheduling and implementing measures as soon as possible. Box 4.3 details the Finnish and Swedish reporting systems.

Finland and Sweden have longer histories of reporting and/or auditing processes, and their auditing systems reportedly run smoothly and have high compliance – though Sweden has found that their system has had little effect on the gender wage gap, at least in smaller firms (Swedish National Audit Office, 2019[16]). This may be attributed to the tripartite nature of these programmes, with strong collaboration between employers, workers’ representatives and unions, who are trusted to advocate for gender equality in wages. In cases where the other parties are unable to come to an agreement, human rights or equality ombudsmen intervene. On the other hand, the strong presence of unions may also be perceived as a barrier to giving these policies stronger teeth (OECD, 2021[5]).

If a company’s overall score on the Professional Equality Index is below 75 points out of 100, the employer must define and publish appropriate and relevant corrective measures by agreement or, failing that, by unilateral decision. These measures must include actions to ensure effective remuneration. A company with an overall Index score of below 75 points out of 100 has three years to reach this threshold. If it fails to reach this threshold by the end of this period, it may be subject to a financial penalty amounting to 1% of its total payroll.

In the event of an overall score of less than 85 points out of 100, the employer must set and publish improvement targets for each of the indicators. These progress objectives, actions and quantified indicators set must consider the results obtained in the Index as well as, where appropriate, the corrective measures defined in the event of an overall score of less than 75 out of 100. The corrective measures and progress targets must be implemented as soon as the overall Index score is below the set thresholds.

Although the number of employers covered by Canada’s rules is relatively limited, Canada has opted for an ambitious correction of gender pay gaps. Under the Pay Equity Act, when differences in compensation between predominantly male and female job are detected, the compensation for those in the predominantly female job class must be increased to achieve pay equity.

Where relevant, these increases in compensation are due three years after the employer become subject to the PEA. If they represent >1% of the employer’s annual payroll, increases can be phased out over a period of time ranging from three years for large employers (100+ employees) to five years for smaller employers (10 to 99 employees), as long as every annual increase is at least one percent of the employer’s annual payroll. If the employer fails to do this, an employee or bargaining agent may make a complaint to the Commissioner. The Commissioner may order the employer to increase compensation based on the result of an investigation or audit.

It is important to keep in mind that the Canadian Pay Equity Act transparency policy applies only to federally regulated workplaces, which represent about 6% of the workforce. Nevertheless, this is an ambitious and straightforward way to reduce gender pay gaps.

In countries with no follow-up mechanisms incorporated into reporting rules, organisations may be less likely to further pursue the issue of pay equality.

For instance, Switzerland does not have mandatory follow-up mechanisms in place. However, although it remains the responsibility of the employees, shareholders of listed companies and the social partners to ensure a follow-up, in their response to the GPTQ the Swiss Government reports that companies often voluntarily carry out an initial analysis and make corrections on a regular basis.

On the other hand, in Austria income reports were usually drafted and submitted without further comment or follow-up to works councils. In their response, Austria indicated that the further analysis of reporting results and the development of follow-up measures could be strengthened both from company and works councils’ side. An evaluation study (Bundesministerium fur Bildung und Frauen, 2015[17]) identified a lack of detail in the legal basis for drafting the reports that might hinder the further internal use of the income reports, as well as the legal obligation to secrecy seems to hinder communication on the report and thus often the employees’ knowledge of the report.

References

[11] Bennedsen, M. et al. (2022), Do Firms Respond to Gender Pay Gap Transparency?.

[3] Blau, F. and L. Kahn (2017), “The gender wage gap: Extent, trends, and explanations”, Journal of economic literature, Vol. 55/3, pp. 789-865, https://www.aeaweb.org/articles?id=10.1257%2Fjel.20160995&source=post_page.

[17] Bundesministerium fur Bildung und Frauen (2015), “Einkommenstransparenz: Gleiches Entgelt fur gleiche und gleichwertige Arbeit”, Bundesministerium fur Bildung und Frauen.

[1] Cowper-Coles, M. et al. (2021), Bridging the gap? An analysis of gender pay gap reporting in six countries, https://www.kcl.ac.uk/giwl/assets/bridging-the-gap-full-report.pdf.

[13] De Schryver, M. and J. De Neve (2019), “A tutorial on probabilistic index models: Regression models for the effect size P (Y1< Y2)”, Psychological Methods, Vol. 24/4.

[14] Deschryver, M. (2023), Why You Should Avoid p-Values When Examining the Gender Pay Gap, https://medium.com/@maartendeschryver/why-you-should-avoid-p-values-when-examining-the-gender-pay-gap-c96e6477a246 (accessed on 14 March 2023).

[6] Finnish Ministry of Social Affairs and Health (2016), The Act on Equality between Women and Men.

[7] Finnish Ombudsman for Equality (n.d.), “Our work”, Statistics, https://tasa-arvo.fi/en/statistics.

[4] Galos, D. and A. Coppock (2023), “Gender composition predicts gender bias: A meta-reanalysis of hiring discrimination audit experiments”, Science Advances, Vol. 9/18, https://doi.org/10.1126/sciadv.ade7979.

[12] Gender Equality Act (2020), Swiss Federal Act on Gender Equality, https://www.fedlex.admin.ch/eli/cc/1996/1498_1498_1498/en.

[9] Iceland’s Directorate of Equality (n.d.), Equal Pay Certification, https://kvenrettindafelag.is/en/resources/equal-pay-standard/ (accessed on 16 November 2022).

[15] ILO (2022), Pay transparency legislation: implications for employers’ and workers’ organizations., https://www.ilo.org/wcmsp5/groups/public/---ed_protect/---protrav/---travail/documents/publication/wcms_849209.pdf.

[2] Meyersson Milgrom, E., T. Petersen and V. Snartland (2001), Equal pay for equal work? Evidence from Sweden and a comparison with Norway and the U.S..

[8] Ministry of the Spanish Presidency (2020), Royal Decree 902/2020, Boletín Oficial del Estado, https://www.boe.es/buscar/pdf/2020/BOE-A-2020-12215-consolidado.pdf.

[5] OECD (2021), Pay Transparency Tools to Close the Gender Wage Gap, OECD Publishing, Paris, https://doi.org/10.1787/eba5b91d-en.

[10] Profeta, P., M. Passador and X. Caló (2021), “Reporting Obligations Regarding Gender Equality and Equal Pay”, Bocconi Legal Studies Research Paper, Vol. 3953710, https://www.europarl.europa.eu/RegData/etudes/STUD/2021/698641/IPOL_STU(2021)698641_EN.pdf.

[16] Swedish National Audit Office (2019), The Discrimination Act’s equal pay survey requirement – a blunt instrument for reducing the gender pay gap.

Notes

← 1. In Switzerland this inspection can alternatively be carried out by social partners or organisations promoting gender equality.

← 2. In Denmark, equal pay audits act as a voluntary alternative to pay gap reporting (see Box 4.3).

← 3. When the gender pay gap analysis is conducted with the Swiss Confederation’s standard analysis tool, it consists of a regression analysis where monthly gross wages are regressed on years of education, potential work experience (including its square), years of service, competence level, professional status, and a gender dummy. As such, the results try to enable an analysis of gender pay gaps for work of equal value.

← 4. All employers in Spain, regardless of size, are obliged to keep a register with the average values of salaries, salary supplements and non-wage payments of its staff, broken down by sex and distributed by professional groups, professional categories, or jobs of equal or equal value. Employees have the right to access, through the legal representation of workers in the company, to the wage register of their company. These registries are not available to the general public.

← 5. Available at https://cite.gov.pt/documents/14333/297943/CITE+-+Guia+de+avalia%C3%A7%C3%A3o+de+diferen%C3%A7as+remunerat%C3%B3rias.pdf/2a55800d-328a-465f-ad63-12853d3da9d6.

← 6. The European Union Pay Transparency Directive is available at https://www.europarl.europa.eu/doceo/document/TA-9-2023-0091_EN.html#title2.

← 7. More information available at Equal Pay Standard - Kvenréttindafélag Íslands (kvenrettindafelag.is), https://kvenrettindafelag.is/en/resources/equal-pay-standard/.

← 8. Canada’s pay reporting regulation is two-fold, pay gap reporting under the Employment Equity Act applies to federally regulated private-sector employers with 100 or more employees. These employers submit annual reports to the Minister of Labour by 1 June of each year. Conversely, under the Pay Equity Act, federally regulated employers in both the private (10 employees or more) and public sectors (no employee threshold) are required to submit an annual statement on their pay equity plans to the Pay Equity Commissioner.

← 9. Available online at https://index-egapro.travail.gouv.fr for relevant employers or in Excel format at Index de l’égalité professionnelle: calcul et questions/réponses - Ministère du Travail, du Plein emploi et de l’Insertion (travail-emploi.gouv.fr), https://travail-emploi.gouv.fr/droit-du-travail/egalite-professionnelle-discrimination-et-harcelement/indexegapro.

← 10. Available at https://www.ebg.admin.ch/ebg/en/home/services/logib-triage.html.

← 11. These countries self-identified as having pay gap reporting regimes, but not meeting the full criteria for equal pay audits, in OECD GPTQ 2022. For example, Australia’s response to OECD GPTQ 2022 states, “The Workplace Gender Equality Act does not mandate more extensive pay audits be conducted by organisations.” Therefore, while they have follow-up actions, they are not considered as a pay auditing country.

← 12. More information is available at: https://cite.gov.pt/documents/14333/297943/CITE+-+Guia+de+avalia%C3%A7%C3%A3o+de+diferen%C3%A7as+remunerat%C3%B3rias.pdf/2a55800d-328a-465f-ad63-12853d3da9d6.

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