Rewards Solutions Spotlight: The Pay Equity Landscape in Europe Continues to Evolve

Published: July 2020

 

The Spotlight is a regular Q & A feature that showcases our people, their expertise, and trending topics that are on top of our clients’ minds directly from the voices of our business leaders.



Elin Bredenberg
Senior Consultant, Employee Rewards, Europe

Rob Paton
Director, Employee Rewards, Europe

The Pay Equity Landscape in Europe Continues to Evolve

The world’s heightened focus on equality and fairness is intensifying by the minute. This was true before recent protests across the United States and the world, which brought issues of inequality and injustice to the forefront, and will continue to be true going forward. One area we have seen progress in addressing systemic inequality in the workplace is around pay equity analyses and more transparent communications with employees over how their compensation is determined. Organisations that address pay equity on an ongoing basis find themselves in a much stronger position with respect to their employer brand, employee experience, pay transparency and overall fairness.
 
We recently had the chance to speak with Rob Paton and Elin Bredenberg, two experts on our Rewards Solutions European employee rewards team, to discuss trending topics in Europe related to pay equity. This Q&A offers insights into what’s new, what we have learned and where pay equity legislation is headed for firms across Europe.

What do existing pay gaps look like in Europe?

In 2018, the gender pay gap in Europe was around 16%, its size differing by country. Across all the EU Member States, the gender pay gap varied by almost 20 percentage points, ranging from 3% in Romania to nearly 23% in Estonia. The gap is close to 20% in Germany and the U.K., and about five to 10 percentage points lower in France and Sweden. The countries that have made the most progress in closing the gap from 2010 to 2018 have seen a reduction by four to six and a half percentage points. This category includes Hungary, Romania, Estonia, Austria and Belgium. Interestingly, Estonia and Austria saw the highest gaps back in 2010 and continue to remain on the largest gaps list, whereas Belgium had the relatively low gap of 10.2% and has since reduced it even further to 6%. [1]Elin Bredenberg

What are the best key performance indicators (KPIs) to use when measuring gender equality and perceived gender pay gaps?


Not surprisingly, the most typical measures are the gender pay gaps themselves and gender composition targets (e.g., composition of board or executive/management levels). These measures can be organisation-wide or by business unit or country. Once the levels in these areas begin to even out, you are well on your way. Organisations can also consider measuring the net pay gap, which includes the difference in pay after correcting job distribution and the difference in overall employee experience, combined with additional factors, such as attraction, retention and promotion rates by gender, gender composition of talent, promotion and leadership development pools and more. With a clearer picture of where your firm currently stands on the pay equity journey, pinpointing top priority areas based on determined strengths and weaknesses will help move your efforts forward. – Rob Paton


Does a well-established pay equity strategy correlate with better business results?

Developing a pay equity strategy is a building block for achieving sustainable business performance and growth. It should be paired with diversity and wider people and culture tactics, as well as your overall business strategy. The advantages of this approach are clear. For example, having a strong pay equity strategy in place ensures you are making a well-targeted investment where every program or initiative can be tested before proceeding. Ask yourself: Will the plan help achieve our chosen business objectives? Pay equity strategy also serves as a basis for measuring success and providing clarity of direction and purpose. Having this knowledge at your fingertips offers a robust basis for determining progress, including return on investment. – Elin Bredenberg
 

What are some key challenges firms are facing when complying with gender pay gap reporting and tackling gender pay equality?

We hear and see a number of challenges among our clients. They often encounter difficulty in keeping up with ever-evolving legislative requirements, the resources and time involved in maintaining fair pay systems and articulating messages to employees of key findings and actions based on pay equity analyses. Additionally, many tend to focus primarily on compliance and overlook the broader gender equality journey. Closing the gender pay gap is linked with compliance, but it is also simply good for business. More needs to be done to overcome these challenges and aim for a “sustainable” rather than “compliant” mode, where gender equality is the norm. We encourage organisations to continue making targeted efforts by:

  • Building a business case that is company-specific and data-based
  • Securing leadership commitment to ensure understanding of the business case
  • Taking a holistic approach and recognising that pay equity is only one part of achieving gender equality
  • Being persistent — it’s a long and continuous journey

Rob Paton

What data elements do you recommend firms use for their pay equity analyses?


We advise analysing as many data elements as possible and exploring the relationship between variables using multiple regression. Ultimately, you have to ask yourself what determines or should determine pay for your employees. The following elements help explain pay levels:
  • For compensation, include all available components for base salary, short-term and long-term incentives
  • For performance, use performance ratings history where available. In cases where performance data is not recorded, other performance-related elements may be used, such as base salary increases as a percent of previous base salary, bonus as a percent of base salary and promotion rates
  • Other elements to incorporate include grade, location, job family, age, experience, tenure with company, time in grade/ role, supervisory responsibility, employment status and education
Elin Bredenberg


For more information on how to address pay equity at your firm, please visit our website here. You can also write to rewards-solutions@aon.com.

Sources:

  1. Eurostat, 2020