Identifying causes of Pay Inequity: Exploring the role of organizational compensation practices and the EU Pay Transparency Directive in supporting pay equity

Summary

The research paper by H. Hartikainen, published in 2024, investigates the persistent issue of pay inequity by delving into its underlying causes within organizational contexts. The study specifically examines current compensation practices and assesses the potential impact of the EU Pay Transparency Directive, which is set to come into force in 2026, as a mechanism to support pay equity. The author notes that despite previous legislative efforts and initiatives, significant progress in addressing pay disparities has been insufficient, underscoring the ongoing need for new regulatory actions like the EU Directive. To achieve its objectives, the research employed a qualitative methodology, specifically conducting semi-structured thematic interviews. These in-depth interviews were carried out with five experts during March and April 2024, gathering their views and experiences on the complexities of pay inequity. The findings revealed that the causes of pay inequity are multifaceted, operating across societal, individual, and organizational levels, and are further influenced by broader market dynamics. At the organizational level, key contributing factors were identified, including organizational structures, prevailing attitudes, company culture, the capabilities of leaders, and the presence of possible systemic biases in compensation processes. The study also emphasized the importance of a company's pay structure, although the abstract snippet provided cuts off before elaborating further on this point. The implications of this research are particularly pertinent given the impending implementation of the EU Pay Transparency Directive. This directive, which all EU Member States must transpose into national law by June 7, 2026, aims to strengthen the application of the principle of equal pay for equal work or work of equal value. It introduces several binding rules, such as pre-employment transparency requiring employers to disclose salary ranges and prohibiting questions about salary history. It also grants employees the right to request information about their own remuneration and average pay levels for comparable roles, broken down by gender. Furthermore, organizations with 100 or more employees will face mandatory gender pay gap reporting, and if an unjustified gap of 5% or more exists, a joint pay assessment with employee representatives will be required. Hartikainen's research, by identifying the systemic and organizational causes of pay inequity, provides a crucial framework for organizations to understand where to focus their efforts in preparing for and complying with the Directive, thereby leveraging its opportunities to foster genuine pay equity and address long-standing disparities.