Iceland’s equal pay for equal work system is still in the early stages, but initial signs suggest that requiring organizations prove they compensate employees fairly may be very effective. Much more effective, in any case, than the alternatives currently in place elsewhere. Introduced in 2018, the policy requires companies and institutions with more than 25 employees to prove that they pay men and women equally for a job of equal value. If companies show they pay equally for the same positions, they receive certification. Beginning in 2020, certification became a requirement and companies without certification incur a daily fine. The few issues that have thus far emerged, such as the burdensomeness of the process for managers, are start-up problems, moreover, not long-term consequences. And what’s more: the system has stimulated both-in-firm and societal discussions about how jobs are valued, based on what criteria, and whether these criteria are still relevant in the current society and labor market.
In most countries, men and women doing the same work earn different amounts. This discrimination is popularly known as the gender pay gap. And despite efforts to close it, particularly amongst advanced industrial countries, it persists. Part of the problem is that policy solutions to eradicate unequal pay have focused on changing individual workers’ behavior. More often than not, women are tasked with entering male-dominated professions; or female employees are expected to more effectively assert themselves in the workplace. There may be a better way.
In 2018, Iceland introduced the first policy in the world that requires companies and institutions with more than 25 employees to prove that they pay men and women equally for a job of equal value. The policy is implemented through a job evaluation tool called the Equal Wage Management Standard, or simply, the system. If companies show they pay equally for the same positions, they receive certification. Beginning in 2020, certification became a requirement and companies without certification incur a daily fine.
Both workers and managers have reported that this job evaluation tool improves the work environment and increases women’s trust in their employers and wage policies. But how exactly does it do that? And can its success be replicated?
When I recently conducted the first qualitative analysis of the system, I charted how key economic and political stakeholders in Iceland viewed the consequences of this novel equal pay legislation. From this analysis I found three main factors that enabled the Iceland system’s success and which could similarly ensure successful implementation of equal pay for work of equal value in other places, too.
1. Shift the burden of proof to the employer
Usually, the employee must present evidence of inequality in the workplace, but under Iceland’s system, the employer is responsible for evidence that employees are paid fairly. They do this using a two-step job evaluation system to disassociate work tasks from skills, an exercise the managers I spoke to said generally proves difficult. Still, this two-step system forces managers to value the task itself regardless of who is currently in that position. And though managers agreed that the process was burdensome, they appreciated the positive outcomes it resulted in: a straightforward structure, absolving some of the responsibility of individual managers; a confidence in the abilities of — and amongst — new hires; an increase in trust in the employer amongst female employees; and a sense of pride amongst all employees for being part of such a progressive project.
2. Demand evaluation and compliance
Research on voluntary employer job evaluation schemes in Canada point to the importance of an effective enforcement system to limit the deterrent effect of the legislation. This is also the case in the Icelandic example. After the implementation process, the system obliges employers to obtain certification from an accredited body to evaluate whether their equal pay scheme meets the system’s requirements. Previous research indicated that equal pay certification schemes are only effective when strongly enforced. The case at hand mandates that employers undergo an external certification process that checks whether their salary system pays equally for work of equal value. In the case of non-compliance, the state issues a daily fine of USD 500.
3. Create transparent pay systems
When companies increase accountability and clarity in their performance award system, differences in pay are reduced. Iceland has made transparency mandatory by requiring organizations to create a traceable pay system. Employees now have the right to ask the employer to inform them of the wages and terms under which they are employed. Thus, employers cannot demand that employees enter into wage agreements that includes a provision not to reveal their contents. Such provisions are unlawful and therefore have no validity, shifting the burden of proof from employee to employer and forcing companies to develop or re-think their job evaluation systems.
While Iceland’s system is still in the early stages, initial signs suggest that requiring organizations prove they compensate employees fairly may be very effective. Much more effective, in any case, than the alternatives currently in place elsewhere. Companies and institutions adopt the measures needed to receive certification, organizational operations run more smoothly, and employees are happier. The few issues that have thus far emerged, such as the burdensomeness of the process for managers, are start-up problems, moreover, not long-term consequences. And what’s more: the system has stimulated both-in-firm and societal discussions about how jobs are valued, based on what criteria, and whether these criteria are still relevant in the current society and labor market.
Understandably, all of this positively impacted the organizational culture and shows that the process of wage formulation between a manager and an individual is never a technical matter — instead, a social process predominates in determining salary. This underlines the importance of the system: a pay raise or promotion depends on pre-defined and mutually agreed criteria as opposed to a manager’s mood or personal preferences, recognition, or an employee’s negotiation skills or vocalness about accomplishments.
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January 08, 2021 at 10:02PM
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How Iceland Is Closing the Gender Wage Gap - Harvard Business Review
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