Government action on the social aspects of ESG continues to focus on pay transparency requirements as a way to tackle pay inequality. Employers are still embracing diversity initiatives, although there’s an ongoing debate about how far employers should go.
The United States has been a front-runner on pay transparency. Estimates suggest that more than 25 percent of the U.S. workforce is covered by pay transparency requirements. In September, New York State enacted its Pay Transparency Law for employers with four or more employees. Adverts for job, promotion or transfer opportunities, including electronic postings, must list a salary, hourly rate or pay range stating the minimum and maximum salary or hourly rate for the role.
The law applies to roles where the individual physically works wholly or partly in New York State. It catches remote roles if the worker will report to a supervisor or office in New York State. Postings must contain a job description where one exists. Employers that breach the requirements face fines on a sliding scale, with a maximum fine of US$3,000 for repeat offences.
Other countries take a less granular approach to pay transparency. In the United Kingdom employers have to publish overall gender pay gap and bonus gender pay gap information annually. The government encourages employers to report ethnicity pay gap information, but this isn’t mandatory. It published guidance this year to help employers take a consistent approach to ethnicity pay gap reporting and develop action plans to address pay disparities.
Pay reporting requirements in the EU are fragmented. In France, employers with 50 or more employees have to publish a gender equality index each year. It’s calculated using indicators such as the gender pay gap, promotion rates between men and women and gender distribution among the highest paid employees.
Italy requires employers with 50 or more employees to prepare an equality report bi-annually. It covers matters such as wage information, numbers of male and female employees and their distribution within the organisation and information about promotions and dismissals.
Spanish employers with 50 or more employees must prepare an equality plan and keep a pay register, accessible by employee representatives, containing salary information by sex and job category.
The EU’s Pay Transparency Directive will harmonise the position over the next couple of years as countries implement it by the June 2026 deadline. The directive requires employers with 100 or more employees to report their gender pay gap in a similar way to the United Kingdom. Smaller employers only have to report their pay gap every three years. Employers with 250 or more employees will report annually, with the first reports due in 2027. A gender pay difference of 5 percent or more in any category of workers doing equal work will trigger a compulsory pay audit.
The directive also incorporates U.S.-style pay transparency requirements. It will be compulsory to inform candidates about the starting salary or pay range for a position and unlawful to ask job candidates about their pay history. Employers will have to give candidates information about average pay and the criteria used to determine pay and career progression on request. It will be easier for employees to force employers to provide information about pay levels within an organisation, to help identify equal pay breaches.
In some countries, progress on pay equality is being driven by court cases as well as legislation. Germany implemented its Pay Transparency Act in 2017, again with an eye to revealing equal pay breaches. It allowed women in companies with more than 200 employees to get information about median salaries of colleagues performing similar roles. In 2023 the Federal Labour Court decided that an employer could not justify a pay differential between a complainant and her comparator by arguing it reflected individual negotiating skills of the employees. This was not a gender-neutral criteria.
Positive/affirmative action has been in the headlines this year, with the U.S. Supreme Court ruling on the use of race as a factor in university admissions. Although not directly relevant to employers, parts of the decision could affect affirmative action in employment, notably in relation to the need for policies to have clear time limits.
In the United Kingdom, the government recently issued guidance on steps employers can lawfully take to address disadvantage or underrepresentation among groups with a protected characteristic. The legal risks of taking disproportionate action make employers cautious about adopting overt positive action measures. Culturally, there’s much less emphasis on positive action in countries such as France and Germany.
There is also generally less emphasis on ESG initiatives in Asia-Pacific and Latin America, although investors are starting to focus on diversity issues and this may lead to change. In Singapore, the focus of ESG and diversity initiatives has been on increasing the proportion of women on boards, with a target of 30 percent representation by 2030 for listed companies. In June 2023 the relevant figure was 22.7 percent, a significant increase from 15.2 percent at the end of 2018.
The new Vietnamese Labor Code and its implementing regulations took effect in 2021, emphasising the need for equal pay for work of equal value. The government improved protection against sexual harassment at the same time. It defined sexual harassment in the Labor Code and made sexual harassment a permitted ground for dismissal.
The United Kingdom will extend protection against sexual harassment in the workplace in 2024. From October, employers will have to take reasonable steps to prevent sexual harassment of employees, enforced by the Equality and Human Rights Commission. Employers will face a 25 percent uplift in compensation in successful sexual harassment claims if the employer failed to comply with the duty.
Spain has emphasised protection for LGBTI employees in the workplace. A March 2023 law requires employers with more than 50 workers to negotiate a plan to promote equality for LGBTI employees with employee representatives. Plans must include procedures to deal with harassment or violence. The first plans are due early this year.
Other ESG developments with an employment component include the new obligation in the Netherlands for employers with 100 or more employees to report on employees’ work-related travel. Reports should include details of the total kilometres travelled, and vehicle and fuel type. Enforcement action may follow in cases of non-compliance. This is now expected to come into force on 1 July 2024.