Time to implement equal pay as a core component of ESG

The Pay Transparency Directive requires disclosure of the gender pay gap. It is not always easy to decide what falls under compensation and benefits. Not all remuneration components are always documented in the systems. The Directive requires a comparison of each individual remuneration component and an overall comparison is not permitted. Even if all data is available in the company, the question of which remuneration components are comparable or different must be legally assessed. In addition, the data situation must be compared with the respective activity - the job profiles must be closely examined and, if necessary, more clearly defined. Sometimes job descriptions can also be susceptible to discrimination, which is why a careful legal assessment beyond reasonable job grading is necessary. Caution is advised if, for example, companies focus solely on the job architecture without a legal review. If the activities have not been properly recorded, no well-founded statement on equal pay can be made. 

To-Do: Companies must be aware of salary differences within the company. The data must be prepared as quickly as possible. Legally, the question must be asked as to which remuneration components must be separated or which can be combined. 

The Remuneration Transparency Directive requires a legal assessment of any remuneration systems that may have evolved over time. If there is still no differentiated remuneration system, but remuneration is freely determined, there is an urgent need for action. According to Article 4 (1) of the Pay Transparency Directive, pay structures must be such that it is possible to assess whether employees are in a comparable situation in terms of the value of their work based on objective, gender-neutral criteria agreed with employee representatives (where these exist).

There is room to manoeuvre, for example in the assessment of the equivalence of work or in the formation of groups. The assessment must consider the extensive European case law. Sometimes, as the Tesco decision shows, the assessment can extend beyond the legal boundaries of the company to the group. If, for example, the level of remuneration is to be determined using a points system that considers qualifications, professional experience or certain working conditions, it must first be checked whether the criteria are really decisive for the job. The Federal Employment Court has ruled that, for example, an academic degree is not a suitable criterion for a pure sales job. Regional employment court rulings also require that the relationship between the assessment criteria must be coherent - in simple terms, how heavily professional experience is weighted compared to qualifications, for example. When dealing with this workstream, it is important to bear in mind that an envy debate can very quickly arise within the company. 

A widespread misconception is that there is no need for action in collective agreements or works agreements. The Pay Transparency Directive requires employers to check the respective grouping logic under the collective agreements or works agreements (description of pay groups, characteristics for grouping) for non-discrimination. From our practical experience, we are aware of several examples where the grouping logic does not work in this way, for example because the bandwidths are too high. Classic assessment criteria that are still permissible include skills, workload, responsibility and special working conditions. Other factors can also be used in individual cases. Collective agreements, which - as is often the case - only summarize the job evaluation, are not sufficient. A higher level of compliance can only be achieved with an analytical job evaluation. The remuneration regulations for (genuine) non-managerial employees or senior executives are often not very transparent.

To avoid an envy debate, consideration should be given to which group of people to start with. If, for example, collective bargaining negotiations are imminent, a feeling for the need for improvement in non-discriminatory remuneration could be generated among employees covered by collective bargaining agreements (e.g. via a random sample). In the case of bonus and target agreements, which are traditionally due in the first quarter, it would also be necessary to ask which hard factors can be used as a basis - it may be necessary to fine-tune personal targets to avoid discrimination. 

To-Do: Proper justification for differences is one of the most important elements of pay transparency. Companies must have their grading or grouping system legally evaluated and checked for consistency. The actual activity must be compared with the intended activity. Existing pay structures must therefore be checked for any need for adjustment. Then, if necessary, an improvement/re-adjustment of the existing system must be negotiated with the employee representatives. 

In connection with the German General Act on Equal Treatment, the Pay Transparency Directive calls for the entire application and promotion process to be non-discriminatory. For example, applicants may no longer be asked about their current or former salary (Article 5 (2)) Pay Transparency Directive). In addition, employers must inform applicants in advance about the starting salary/its range and any applicable provisions of a collective agreement. The topic is particularly relevant if artificial intelligence is used in the application process: when using these high-risk systems, the strict requirements of the AI Regulation must be considered. Due to the principle of human final decision, the sometimes-complex selection decision must also be understood in its basic features. Employers must ensure that job advertisements and job titles are gender neutral. One small detail here are employment contracts that sometimes use ineffective confidentiality clauses regarding salary. 

To-Do: Companies must ensure the neutrality of the entire application and promotion process, not only regarding the job description, but also by training the employees involved. How and what should be documented to prove the correctness of the application process in terms of data protection law must be defined. Recruitment principles often need to be documented in a policy.

This workstream is linked to workstream 1. According to the Directive, companies with more than 50 employees are obliged to inform them in an easily accessible manner about the criteria for determining pay, their pay levels and pay trends. Even if small companies can be exempted, they should also provide basic information due to the market pressure for the best brains. Larger companies (100 employees or more) are obliged to inform the relevant bodies (authorities, equal treatment bodies, employee representatives) and employees about the gender pay gap and the proportion of employees who receive supplementary or variable components. The obligations to inform, report, discuss and provide information will increase. The Directive aims to achieve efficient enforcement of pay transparency through compensation obligations, a reversal of the burden of proof, restrictions under public procurement law and sanctions. 

To-Do: Companies must set up appropriate processes to generate the data for reporting. If reporting is to be carried out by a service provider, it should be carefully checked during the selection process whether the service provider can even meet the requirements of the Pay Transparency Directive. In addition, the often-sensitive salary data must also be transferred properly. However, as the reports are made on a regular basis, standardization can be used (e.g. notification letters to supervisory authorities, equal treatment bodies and employee representatives). 

To ensure remuneration compliance, the associated duties should be delegated. The delegation model must be designed in such a way that the recipient of the delegation is properly empowered and capable of acting to remedy grievances, for example. 

Irrespective of this, there is a need for action if an employer with more than 100 employees has a pay gap of at least 5%. If this cannot be justified by objective, gender-neutral criteria or if it cannot be eliminated within six months, employers must work with employee representatives to identify, correct and prevent discriminatory pay differences. This joint pay assessment requires the previously described analysis of the salaries of the various employee groups and the reasons for the inequality. In addition, measures to eliminate the suspected discrimination must be defined and checked for their effectiveness. This must then be reported on. To clarify: European law also prohibits unequal treatment where the gender pay gap is below 5%. Lower pay compared to the other gender group generally implies gender-based pay discrimination to be justified by the employer (recently, parts of the case law of the regional employment courts have taken a more critical view of this presumption of causality).

To-Do: It can be assumed that there will be increased sensitivity to remuneration in the future. Delegation is therefore a central component. In addition, the process for the joint pay assessment with the employee representatives should be defined in such a way that significant budget problems do not suddenly arise. A regulatory agreement or, if necessary, a works agreement can secure this line of defense.