Iceland Equal Pay Law Could Be Road Map for U.S.

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By Genevieve Douglas

Iceland’s recent enactment of a law that requires employers to prove they are paying employees equally could offer insights to U.S. companies that strive to close gender wage gaps.

“As we see other countries identify new tools within policy making to close gender gaps, that will have ripple effects” in the U.S., Victoria Budson, founder and executive director of the Women and Public Policy program at the Harvard Kennedy School of Government, told Bloomberg Law Jan. 8. “The population of Iceland is a more manageable data set, so it will be very interesting to see what we learn from it.”

A gender wage gap persists in both countries. On average, women in Iceland are paid 14 percent to 18 percent less than their male colleagues, according to data from the World Economic Forum. In the U.S., women are paid 82 percent of what men make on average. Just over 50 percent of Iceland’s nonagricultural workforce is made up of women, according to Bloomberg Terminal data.

Iceland’s Equal Pay Standard was written in cooperation between its government and its federation of employers, which means it should be “fairly easy” to adapt the standard to other markets and help inform change in the U.S., Brynhildur Heiðar- og Ómarsdóttir, executive manager of the Icelandic Women’s Rights Association, told Bloomberg Law Jan. 10. The standard is innovative in that it puts the onus of proving equal pay onto the employer instead of on the individual, Ómarsdóttir said.

Lessons Learned

Starting Jan. 1, companies in Iceland with 25 or more employees must meet certain standards to obtain certification that they offer equal pay for work of equal value regardless of gender. These certification requirements are based in the Equal Pay Standard, which addresses companies’ pay policies, classification of jobs, and wages, as well as policies and processes related to pay decisions.

The effort to pay equal wages, however, isn’t a new concept for many companies in Iceland. In 2011, Reykjavik Energy was in financial crisis and as part of an overhaul of company practices, it committed to hiring more women into management positions and eliminating the gender pay gap, Sólrún Kristjánsdóttir, the company’s head of human resources, told Bloomberg Law Jan. 11. The company started by examining its pay practices and calculated a gender pay gap, but it wasn’t able to pinpoint which employees were being paid unfairly. “The first couple of years, we didn’t know where to start correcting the gap, we just knew the gap existed,” Kristjánsdóttir said.

Reykjavik Energy eventually partnered with Pay Analytics in the U.S. to design a tool that would accurately find pay discrepancies so they could be corrected. In the past few months, the company has measured its pay practices once again since implementing the tool, and last month’s data revealed the pay gap was 0.02 percent in favor of women at the company, Kristjánsdóttir said.

Discrepancies in wages weren’t purposeful discrimination, “it was an unconscious bias that made the gender pay gap exist,” Kristjánsdóttir said. Now the company performs an analysis using the new technology before determining any salary or pay raise, to keep the wage gap at zero.

The frequent analysis is key to maintaining the status quo, according to Kristjánsdóttir. “If you only measure once a year, and not before pay decisions are made, then the wage gap can creep back in even where it has been eliminated before. This doesn’t mean that pay salaries are static or men can’t get raises, it just means that you have to look at the group and see if there are any women who would need a raise as well.”

Icelandic Water has taken a different approach to conquering the gender pay gap. The company pays a salary according to the role—not seniority or years of service, “which can inadvertently discriminate against women who take career breaks,” Jón Ólafsson, chairman and co-founder of the water company, told Bloomberg Law in an email Jan. 9.

When asked to give best practices for U.S. employers, Ólafsson recommended companies “treat employees as people—as unique individuals, on their merits and not on the basis of gender, race, creed or any other potentially discriminatory factor.” He also said that employers should accommodate for career breaks, as that can be a major culprit of the gender wage gap.

A New Branding Strategy?

Women won’t likely be the sole beneficiaries of the new law, as employees from diverse backgrounds and even employers themselves stand to benefit as well.

“The Equal Pay Standard isn’t just going to benefit women, but will enable companies to make sure that there is no one individual being grossly overpaid or underpaid compared to the rest of the company,” Ómarsdóttir said. It can help companies pinpoint other types of discrimination as well, such as race, religion, or disability, Ómarsdóttir said.

The standard also gives employers the opportunity to brand themselves in a way that can differentiate an organization from its competition, she added. Once a company has been certified as being an equal pay company, it can advertise this certification to attract customers or improve business, Ómarsdóttir said.

Today, many customers make purchase decisions based on commonly shared values. A designation of an equal pay employer could have the same marketing effect as designating products as fair trade or organic, she said.

To contact the reporter on this story: Genevieve Douglas in Washington at gdouglas@bloomberglaw.com

To contact the editor responsible for this story: Jo-el J. Meyer at jmeyer@bloomberglaw.com

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