Navigating equal pay and the gender pay gap in today’s workforce

Thomas Kohler:
Today’s guest, Dr. Alexander Insam.

Dr. Alexander Insam:
So we had this shift to fixed payment system. Now I think in the next five years we will see the opposite direction. I mean, it’s often like that in life, right? You go one way. Centralization, decentralization, centralization, decentralization. Now we moved into fixed payments. Now I think we’re moving back to bonus systems because it’ll give you an additional legal security that you basically have everybody on the same fixed pay level for the same job description. And then you can differentiate performance based in the bonus. But then, of course, you also need a budget for the bonus and you need to come up with ideas.

Is it target based system? How do you make the decisions again? How can they be made in a transparent way? And obviously also if you pay a different bonus, you need objective criteria in doing so. So that remains the challenge. But I think we will see the shift back to more bonus system.

Thomas Kohler:
Alexander and I talked about equal pay and the gender pay gap. And we drilled down into several topics like equal career issues, because it’s not just about equal pay, it’s also about equal careers and opportunities there. And then also about different ways of negotiations, bonus payments and also esg agenda and what’s the purpose of it. And that it’s not just about equal pay.

Thomas Kohler:
Today we have Dr. Alexander Insam again in our show. He was already guest in episode number 15. And today it’s actually when we record the World Women’s Day, right? And we thought about, let’s talk about the gender pay gap and equal pay in a deep dive episode. And I’m looking forward to it. So everybody who wants to also get context on Alexander, please check out episode number 15 on the people Factor show. And then you can just get the context there because now we dive directly into the topic. So nice to see you again.

And we always stayed in contact. That’s what I love with also these type of formats, right? That you also really create relationships, and that’s what we currently do as well. So what is really interesting about yourself, that you are a lawyer with a very, I would say broad but also in depth expertise. And we take a bit of your brain today regarding, let’s start maybe with equal pay. How would you define equal pay? And maybe you can also give some context on it because I think you have a very broad and interesting view to it.

Dr. Alexander Insam:
Well, first of all, thank you, Thomas, and great to be on the show again. It’s amazing to see how it evolves and which topics you cover. So I’m very honored and happy to be here again. Thanks for having me. And, yeah, equal pay is still, I would say, a very important topic. I mean, the basic idea is not new. The basic idea is that men, women, basically all employees should receive the same amount of remuneration for the work they do. If the work is comparable, if it’s the same work, if it’s different types of work, obviously you can pay differently.

Dr. Alexander Insam:
But if they’re doing the same job, same job description, that should be equally paid. And I think it’s interesting why it’s still a legal and a political topic, because when you take a deeper look into the discussion, there are a few more questions than just the question. Is it really so easy that two people do the same job and are paid differently? So I think the first thing to notice is when you take a look at the data, and I know you’re very good with data. In the most cases, it’s not so easy when you take a look at companies that you say, well, here’s the same job description. Let’s take a look at five men and five women. What are they paid, and is there a difference? I mean, for instance, in Germany, when we have collective bargaining agreements, tariff, obviously, they guarantee the same amount of money regardless whether you’re a woman.

Thomas Kohler:
But that’s more for minimum pay, isn’t it?

Dr. Alexander Insam:
No.

Thomas Kohler:
That you need to pay at least?

Dr. Alexander Insam:
No. Again, those are two different questions. From the legal point of view, every employer has to pay a certain minimum wage, which is a certain amount of money per hour. So, for instance, you’re not allowed to pay eight or €10 per hour. It’s now twelve. Then it climbs to 13. So it’s basically set every year to guarantee a certain minimum amount. But a collective bargaining agreement, the main job of the collective bargaining agreement is you have a whole lot of employees doing different jobs, and what you try to do is put them into certain groups and to determine what is the right amount of pay for each group level.

For instance, when you now take a look at the strikes that are happening with the railway and also airport, I guess, right? Also airport, the pilots in a collective bargaining agreement, you have different seniority, you have different job titles. So it is a difference if you’re the first officer or the captain. It makes a difference if you’re in a train steering the train, or if you are in the back of the train serving food. So it depends on the job description. And then you have what we call in the collective bargaining agreement, the eingraphy rung. So your job is set on a certain amount of remuneration, but that’s then paid regardless if you’re man or woman. So in every remuneration system, the system is usually constructed in a way that does not differentiate between men and women. And I think that’s important to understand because sometimes when you listen to the debate, it looks as if the systems are unequal.

That’s not the case, but what we need to take into account for also, when you take a look at the current regulation that comes from the European Union. So right now we have, well, you could call it an equal pay directive. The full name is Endgael transparency, which would translate to remuneration transparency directive, and Germany has to adopt it, just like Austria, in the next three years, until 2026. And for instance, it gives the applicant for a job the right to be informed about the amount of money that’s connected to the job description. So in the future, as an employer, you need to inform the applicant for the job before the interview about the amount of money you want to pay. And you’re no longer allowed to ask what he was paid in the last job, because now when we take a deeper look in how inequality evolves, typically one case is you have your system, your system does not differentiate between man and woman. But then you get a new hire, and right now you have a shortage of people.

So you ask the new hire, would you be able to come here and do the job for, let’s say, 50k? And then your applicant says, well, no. I’m getting 55 at the moment. So if you raise the money to 55, yeah, then I might consider coming. But actually I don’t want a 55 because 55 is my current pay. So I would come if you give me 58. And what do you do now? You have a job that’s worse in your company, 50K.

Thomas Kohler:
Exactly.

Dr. Alexander Insam:
And you need a new hire and he wants 58.

Thomas Kohler:
And what’s happening then with the existing employees that are in that role for doing it for 50K, right?

Dr. Alexander Insam:
Absolutely. The first decision you need to make as an employer is do you budge, do you give in, do you pay the 58? Or probably you’re able to negotiate a 54 or 55, but that’s still more than the 50.

And then what happens to the existing employees? If you decide to pay the new employee 58 and you raise all your existing, let’s say eight people also to 58, they will be very happy. But you need a lot of money because then it’s not just the plus eight, but it will be plus eight times eight.

Thomas Kohler:
It’s another full time role.

Dr. Alexander Insam:
Yeah, it’s another full time role. So the major challenge for all companies is always, we have a system in place and then we have new hires. And how do the new hires match to the system in place? That’s one challenge.

Thomas Kohler:
The second, before we go to second, dive a bit into it also from a talent acquisition perspective, because I think what I see is very often the case that many companies or managers or hiring teams are either they don’t get the transparency of what would be maybe budgeted for a certain area, function, whatever it is. So they don’t even get access sometimes internally, to the data to be able to make a decision to say, based on the funds we have available, we need to hire for these maybe five roles, we can maybe evenly distribute, if it makes sense or no, for one role, we need to plan maybe this amount of budget for the other roles, maybe an average amount or a lower amount. And then we have two more junior entry level positions to fill, for instance. Sometimes that’s often even the problem that hiring teams not even have the transparency or the knowledge about money, what is affordable. And then second, there’s also a problem that sometimes, often there is no system in place, as you said. Right. The system maybe is then also broken or not broken, but not reflecting reality at the moment, what you currently really need to fix in terms of problem.

Dr. Alexander Insam:
Right.

Thomas Kohler:
The system is always a reduction and a simplification of reality, but the actual reality is in the moment. And this can differ to the system. But the system, of course, is important to simplify and to make something scalable, but that’s also, I think, really important. And then also from a talent acquisition perspective. So if you go in and just go in with a straight amount to say, this is what we pay for it. It could also be very much possible that it’s harder for you to really gather market information because some candidates then won’t share maybe expectations upfront. Of course they do. And of course you can still ask for not what did you get in the past? I think that was also not even allowed.

But I think you could also ask what would be expected for a scope like this or for role like this. And also that you would be happy to change, for instance. Right? I think that’s a fair question. And then it can also be a lot of poker playing there. So I think if you always go in with a fixed amount, that can be tricky if you’re going with ranges. It also has advantages and disadvantages. But I think there are so many fundamental internal problems or things to solve and prepare or to mature in an organization before being even able to discuss, should we now raise the band, yes or no? And then the implication is to also take, I don’t know, the budget of one role and split it even out to do salary increases at the end of the year, for instance. Right? That’s just what I wanted to add, because it came top of mind.

Dr. Alexander Insam:
Absolutely, I agree.

Thomas Kohler:
In case you like my show, please subscribe. I would really appreciate it.

Dr. Alexander Insam:
It’s a complex situation. That’s what I meant when I started saying it’s not as easy as just compare existing data and then say, problem solved. But you have to understand the different situations, why inequalities arise. So this is one situation, and we actually had a ruling of the highest labor court in Germany last year in February about a situation like this. And the situation was even more complex because the woman decided to claim, in addition to the money the employer offered, she wanted money to complete an external training. So an additional budget for external training, and the man for the same position, he wanted a pay raise. And the employer in both situations consented. But later the woman found out that the man had negotiated a pay raise and said, well, I got my external training, but this is still unfair because obviously the pay raise stays for the whole life.

So she decided to claim the difference and she won. She won because the employer could not prove that he had objective reasons to pay differently. And this is now very important for the future.

In the past until now, we had many decisions made on the spot, just like you said, very dynamic situations. In the future, the employer needs to be way more conscious about a remuneration system, regardless whether it’s in a collective bargaining agreement, or if it’s in a works agreement with the works council, or if it’s just set in the employment agreements. But he basically needs to have a system that’s also in the equal pay directive. You basically force as an employer to have a system, because without a system you cannot prove if there are differences in the pay levels. If there are objective reasons and you need objective reasons, you need to be able to show to a court, if there’s a different pay level, why is it? I think this will also lead in the future to, again a new debate about fixed and variable remuneration about the bonus system. It’s way easier from a legal point of view for an employer to pay a different bonus than to pay a different remuneration on the fixed monthly pay.

If you want to pay a different monthly gross payment to the employee, you basically need a different job description, or you have to show and to prove within the same job descriptions that there is in terms of competence, in terms of, in terms of additional values to the role.

Thomas Kohler:
However it is measured, right?

Dr. Alexander Insam:
However it is measured, you have to come up with a measurement. You can say it’s seniority, which for.

Thomas Kohler:
Revenue contributing role, it’s maybe easier because then you have maybe direct implications. And okay, there may be some commercial metrics, right? What are impacts?

Dr. Alexander Insam:
Yeah, you need to make up your mind. You could say, okay, now let’s play the other way around. This woman has five more years of experience with sales clients in the market. She comes here, I have a guy that has only two years of experience. They do the same role, but then there is an objective reason to give her more money. That would then be the objective reason of seniority and previous experience. You could also say, I require two languages for the job, german and English. And now there’s a candidate that has a third language, for instance, speaks Chinese, which is very rare, obviously.

And then you say, okay, if I have chinese clients, this might be an optional additional value to the role. That’s worth another ten k every year through the fixed payment. If it’s not relevant for the role at all, it’ll be hard in legal terms to use this as a reason. So the employer has to put a lot of more thought into the remuneration system and into documenting the remuneration system. Transparency, on the one hand, often means for the employee an additional effort in terms of keeping the personal files in great order and having all the arguments ready if trouble arises, if conflict arises. So this is the one challenge.

The second challenge I was about to talk is actually a challenge during work. So what happens? What we see, and that’s actually a different KPI. When you take data from companies with employees between 25 and 40 years, let’s take that 15 year span. What happens in those 15 years? It’s a little bit like two people start in grade one in school and one already finishes and the other one is still in grade nine or ten. And why is that?

Because women on a statistical level, just now, on a statistical level, in the majority, they take the parental breaks, so they miss out on job time. So what happens in the time is that the man get promoted, they get promoted more often. So it’s a little bit like the equal pay issue becomes an equal career issue because the career path is the same. Probably they have the same opportunities. But right now, when you’re on parental leave, you don’t get promoted. If you don’t get promoted, you don’t get a higher payment. There’s also an inequality here that we’re about to address. It will be addressed way often in the future.

Dr. Alexander Insam:
It’s also part of the ESG, part of the s, the social agenda that we need to look into. What happens after day one in the workplace? How does the career evolve? What has that to do with payment? And then there’s a third topic, which I think is also broad in debate, but which is actually, I think, quite a bit unfair. We have statistical data that shows that there are lower paid jobs. They’re called socioeconomic jobs that are done more often by women than by men. When you take a look at a kindergarten, when you take a look at a school, when you take a look at a hospital, you find way more women than men doing the low paid jobs.

And if you then derive the statistical data, and that’s also in the reasoning from the European Commission in the new directive, it’s set out in a text, it says, yeah, we have that data, and we think it’s unfair. We think it’s unfair that we have this structural inequality, that women do more low paid jobs in society. This might be true from a data point level, but then it’s also hard for employers and companies to do something about this structural inequality. I mean, if they are looking for someone who does the cleaning, the caring jobs, and they only have women applicants, of course they can raise all the pay levels, but it’s hard then to get more men into the job, for instance, or they would love to pay men.

Thomas Kohler:
Yeah, I think it’s also sometimes a bit of like with construction workers. Right, the other way around.

Dr. Alexander Insam:
But it’s just interesting to know that it’s also part of the discussion, these structural inequalities, from a then society point of view, that you have jobs. On the one hand, there are some jobs where you have more women statistically doing those jobs. On the other hand, you have more men. And then there’s a fourth topic connected to that, and that’s the part time job challenges. You also have the statistical data that on average, we’re always talking about average numbers here.

Not to mention one woman or one man in particular, but the statistical average on part time jobs, again, is more women working part time than men. And that’s what we then often call the unbarinacten pay gap. So if it’s not compared part time to full time, you will discover that because more women work more part time jobs, they earn on average, again, less money.

So there’s a lot of society challenges. And of course the family challenge are in a family, both partners willing to spend time with the children. I think the employer situation, how to cope with that.

Thomas Kohler:
I think also what I see just from a talent acquisition perspective, when we just look at executive hiring, I get male candidates way easier on the phone than female. It doesn’t mean that I would say maybe there are even more for certain positions, but for some positions, like a CHRO role or a VPP role or something, I would not say that there are necessarily more men out there than women, for instance, doing that job, but just from the time of an outreach to get a response and then do a call. I think a woman typically thinks more and is maybe also a bit more, I would say, loyal to the employer and less, maybe opportunistic, driven out there. Just, okay, I go for the best shot all the time. And I think also the overconfident man, let’s make it very, let’s say typical, then would go out and say, of course I can do everything. And yes, I already earned that amount and I would need more. And then maybe they even poker play and not are even looking. But if they can create a situation where they think, oh, that’s actually a situation, but I would not expect it.

And I now draft it in a way or create it in a way for myself that it makes sense for me, I go after it, right. I’ve not seen and also had not the feeling that a lot of female candidates in executive positions are approaching searches from a job searching perspective or just headhunting perspective in that way, for some men, I get a feeling that this is often the case, not always, right? But if I would go for a tendency just from my subjective view, that’s the case.

Dr. Alexander Insam:
And again, we’re probably working with average data here and of course, also some stereotypes, right. I think if you, for instance, take a look at LinkedIn, there is a great visibility of very confident, very competitive women that do a great job, and they would probably answer your phone call immediately. But on average, if you relate to something like competitive attitude or loyalness and confidence, probably it’s still true that on average, men are. It’s easier for them to ask for a pay raise. It’s easier for them to ask for a higher pay. And this is part of our, I.

Thomas Kohler:
Also have a situation. I can also give you an example there. I recently did a few director VP searches and then we had a good mix of male female candidates. And then I asked for salary expectations and then male all they wanted to increase, right? And then there were some female candidates. It’s really true. That said, yeah, usually I would take this, but now I understand the economic situation and so on and so forth. So I would also be fine with that. And I was like, it’s also fine if you take that.

What you would usually take. It would also be within a range or so on, right. I would just ask for what you ask for. And then just by saying what they usually get, a few of them significantly, I found the patron that I remember said, but I’m also fine with less because I understand circumstances currently in the economy and so on and in this field, there are currently not so many jobs out there and so on and so forth.

Dr. Alexander Insam:
Right.

Thomas Kohler:
Where I thought about, okay, that’s not necessary.

Dr. Alexander Insam:
So I think this relates very well to what I was about to say that think it’s safe to say the average data coming from a past where obviously more men were in charge, it’s easier as a man to be confident because you’re playing with your peers. And this is part of the structural inequality that also the legal framework now tries to address. That’s part of the reason why the EU says, well, please don’t negotiate. Employer, you say, what’s the amount of money you’re willing to pay for this job? And then you have to offer it before you even start to talk about it.

Thomas Kohler:
In case you have any feedback or anything you want to share with me, please send me an email on thomas@peoplewise.com or hit me up on LinkedIn. And in case you really enjoy the show, please subscribe. I would really appreciate it.

Dr. Alexander Insam:
Probably we can still debate if negotiation skills, which I would always say, well, first of all, there are men and people equally capable of obtaining negotiation skills. And there are very high ranked universities like Harvard that have excellent negotiation courses, so it’s worth pursuing them. And it’s part of the skill and competency level, but it’s probably no longer part of the first negotiation when you’re starting a job. And that’s also adding to what I say. If you now take a look at the employer side and you ask yourself, what can I do? It’s probably one option in the future.

Dr. Alexander Insam :
As a starting point for men and women with an equal amount of money in my remuneration system for the fixed pay.

And then I will take a look at the first year and their performance, and then I will add a performance based bonus. And in that bonus period I can find out if it’s just the confidence of the man or if it’s backed up by performance. And I can also find out if probably a woman is just too shy, but she has an excellent performance and I can reward her for that. Or she learns to speak up more, depending also on the job situation.

Dr. Alexander Insam:
The combination in the remuneration system, because between the fixed pay and the variable remuneration will change. Again, we just had, I would say in the last five to probably ten years, variable remuneration was on the recline. It’s difficult to measure. You need to make additional decisions, so there’s more effort, more costs into having a bonus system. I mean, you do a lot of sales jobs and sales jobs, it’s still popular all the time and you have revenue goals. But for the other jobs, people were more about like, well, let’s do team goals, let’s have a company goal and…

Thomas Kohler:
…and then let’s don’t do bonuses or so on, right? So that’s also, I think, what they all then say.

Dr. Alexander Insam:
We had this shift to fixed payment systems. Now I think in the next five years we will see the opposite direction. It’s often like that in life, right? You go one way. Centralization, decentralization, centralization, decentralization. Now we moved into fixed payments. Now I think we’re moving back to bonus systems because it’ll give you an additional legal security that you basically have everybody on the same fixed pay level for the same job description. And then you can differentiate performance based in the bonus. But then of course you also need a budget for the bonus and you need to come up with ideas.

Is it target based system? How do you make the decisions again? How can they be made in a transparent way? And obviously also if you pay a different bonus, you need objective criteria in doing so. That remains the challenge. But I think we will see the shift back to more bonus system.

Thomas Kohler:
Super interesting and super interesting also right on time. So I would cut it off here. And thank you so much for the insights. I think bonuses definitely, if done right, a big lever and also something. What is then providing the possibility to do equal pay plus also have an individualistic view, because not everything can always be equal, right? So that’s also something I think there is even a book and probably, if.

Dr. Alexander Insam:
You grant me one last sentence, Thomas, the inequality as a result is actually wanted by ESG. ESG and diversity means that we value that people are different, also that people can perform differently. So it’s part, actually, of the ESG agenda that people may be paid differently. It’s not part of the ESG agenda that everybody does the same and gets the same. What we need to make clear between those two goals, equal pay and diversity, is that they’re paid differently for the right reasons, and that as an employer, you can give the reason, and as an employee, you can understand the reason. And that also then adds in to having more bonus, more discussions about performance and why you pay differently for different performances.

Thomas Kohler:
Nice. Thank you so much.