EU Draft Directive on Equal Gender Pay: Biting Tiger

2021-03-22 If the member states agree, employers with more than 250 employees will have to disclose, among other things, the size of the pay gap between men and women in their companies. If wage differences of at least 5% are found, investigations would have to be initiated. Dr. Kathrin van Riesen, Equal Opportunities Officer, and Dr. Patrick Velte, Professor of Business Administration, in particular Accounting, Auditing & Corporate Governance, explain why the draft EU directive could actually ensure more pay equity.

Kathrin van Riesen und Patrick Velte ©Leuphana/Patrizia Jäger
Dr. Kathrin van Riesen and Dr. Patrick Velte explain why the draft EU directive could actually ensure more pay equity.
Professor Velte, the EU draft directive not only requires companies to disclose salary differences between men and women. In addition, it is no longer allowed to ask how much someone earned in their previous job, and employees are even to be compensated in the case of gender-based wage discrimination. Why do we need this new EU law?
Patrick Velte: The "Pay Transparency Act" passed in Germany in 2017 has so far been a toothless tiger and was based on a compromise between the government factions. Workers in companies with more than 200 employees have an individual right to ask their employer about the pay of comparable colleagues. In addition, companies with more than 500 employees, which are obliged under commercial law to prepare a management report, must prepare a report on equality and equal pay. The first evaluation of the law shows, however, that the right to information is used only hesitantly. Unfortunately, the equal pay report does not have to be integrated into the company's other corporate governance and sustainability information, nor does it have to be audited. In this respect, there is a danger of "pinkwashing". According to the Federal Statistical Office, women earn 19 per cent less than men in unadjusted terms, and still around six per cent less for comparable jobs and qualifications. The Federal Republic of Germany thus occupies one of the worst places in the EU despite the introduction of the Pay Transparency Act and the statutory women's quota on supervisory boards. If the new EU directive comes into force, companies will actually be held to a higher degree of accountability and may then also have to pay back salary gaps. Moreover, the burden of proof will then lie with the employer. It is also important that the same rules apply to all member states. Otherwise there could be an exodus of companies. A global solution would therefore be ideal, for example through explicit OECD guidelines.
Why is the gender pay gap so large in Germany in particular?
Kathrin van Riesen: Women are generally considered to be less capable than men and classically female jobs are valued lower. In addition, important industries in Germany used to be often associated with hard physical work, such as coal mining. The gender pay gaps are already unevenly distributed across the EU. Germany, Austria and Latvia are in a very bad position, the former states of the Eastern bloc are in a very good position. There are also historical reasons for this. In the socialist countries it was common for both sexes to work. In the Federal Republic of Germany, on the other hand, tax advantages such as marital splitting further exacerbate the unjust situation. Often there is little left over from a woman's own income. Gainful employment is less worthwhile for her. The Parental Allowance Act, on the other hand, supports diversity somewhat, since fathers have to take two months of parental leave in order to be entitled to full support at all. The more men take parental leave and especially the more they take parental leave for several months, the greater the social contribution to equality. This reduces the potential for discrimination against women on the grounds of motherhood.
Business lobbyists will certainly argue against the EU directive, saying that companies should not be even more constrained by such regulations...
Patrick Velte: This consideration only includes the risks of a future gender pay regulation: Expanded (gender) diversity management concepts and reporting obligations initially cost money to implement and, in the view of many board members, initially restrict entrepreneurial freedom. However, successful (gender) diversity strategies also represent a central entrepreneurial value driver. Business research has shown, among other things, that female board members can increase the sustainability performance, including the climate performance, of listed companies. Today, investors and other stakeholders are very well informed and attach more importance to social and environmental corporate governance. From their point of view, acting legally is not always legitimate. Those who rake in unethical profits over a longer period of time can therefore be punished with shitstorms in the social media or with media bashing if they are in a correspondingly exposed position. This then puts financial performance at risk. I only have to remind you of the controversial buyout of Monsanto by the Bayer Group. When it comes to social and environmental sustainability, media pressure is really on the boil. Companies can avoid reputational risks with a voluntary compliance management system that is oriented towards sustainability. Here, many companies are still at the beginning. A cleverly thought-out and transparent diversity concept is central to this.
The Corona pandemic is repeatedly referred to as a burning glass for urgent problems. Where should we look more closely when it comes to gender equality?
Kathrin van Riesen: The Social Science Research Center Berlin studied the publication performance of female scientists with and without children during the Corona pandemic. The results are clear: female professors with children published significantly less than professors with and without children. Care work also weighed more heavily than additional preparations for online teaching, for example. Due to the pandemic, we are partly falling back into old role models. The main burden of care work is now increasingly on women. This is often also based on the fact that they already have part-time employment within the family constellation and the man with the income of a full-time job is the larger source of family income. Thus, even in times of crisis, more emphasis is placed on maintaining this income. This effectively leads to a greater burden on women, who try to cope with care work and occupation without the previous care structures. But even before Corona, there were already structural disadvantages for women on their career paths. Now, however, women in science are becoming even more invisible.
When could the EU draft directive on the gender pay gap become legally relevant?
Patrick Velte: I don't expect the directive to be passed this year, even though Ursula von der Leyen has declared the topic a top women's issue. Experience shows that it takes a long time for the 27 member states to reach an agreement. The EU directive planned a few years ago to introduce a 40% quota for women on supervisory boards by 2020 was also blocked in the Council, including by Germany at the time. Also with the EU Directive on sustainability reporting from 2014, the German government had used many degrees of freedom and passed them on to the companies. In the coming weeks, we expect a new draft directive with more bite on sustainability reporting at EU level to curb greenwashing. In the course of the Green Deal project, the EU Commission is also currently discussing the regulation of sustainable corporate governance, including sustainable supply chain management. In this respect, the motto is: Sustainable corporate governance regulations ante portas!


  • Prof. Dr. Patrick Velte
  • Dr. Kathrin van Riesen