Why is measuring the gender pay gap important?

Systemic differences in pay between men and women contribute to overall gender inequality – which, of course, needs to be addressed to move us towards a fairer society.

So, it’s important for companies to understand what the gender pay gap looks like in their company so that they can play their part in addressing any bias and discrimination in their practices, towards the overall goal of eliminating gender inequality.

That’s the big-picture view.

On top of that, there’s also:

• Complying with legislation: it’s already required in some countries for companies to report on and address the gender pay gap (e.g. in the UK companies with 250+ employees must report their gender pay gap every year) and further legislation is incoming (e.g. the EU Pay Transparency Directive).
• Employee attraction and retention: compensation is key to winning or losing in today’s talent ecosystem – a McKinsey study found it to be the no.1 driver of employee retention and the no.2 driver of employee attrition.
• Business performance: gender diverse teams have been found time and time again to make better decisions, leading to better business results – for instance, a McKinsey study on public companies found that those in the top quartile for gender diversity were 15% more likely to have financial returns above the industry average.

So, measuring and monitoring the gender pay gap in a company is important – which is why it’s included in Northzone’s Impact and ESG report.

It’s worth mentioning that, as it stands, gender pay gap calculations and reporting focus on binary gender i.e. the gender pay gap between those that identify as men and those that identify as women, and doesn’t account for other gender identities such as non-binary or trans employees. So, it’s evident that even with increasing scrutiny on measuring and reducing the gender pay gap large gaps in terms of overall pay equity remain, and we should expect to see more updates in coming years.

<aside> 💡 Further reading:

• Non-binary workers can be omitted from pay gap calculations
• Employment law and non-binary people - what employers need to know
• Ethnicity pay gap reporting: why it's not that simple </aside>

How will the rollout of the EU Pay Transparency Directive change reporting on the gender pay gap?

The EU Pay Transparency Directive was officially adopted in 2023 and will now be rolled out by all EU member states by 2026.

It aims to ensure all employees are paid fairly – regardless of gender – and that means stricter reporting requirements and action plans for companies.

Many countries across the EU already have some level of pay transparency legislation, including gender pay gap reporting, but with the Directive rollout that reporting will become consistent across all member states (although the exact details may vary from country to country).

Employers will be required to report on their gender pay gap as follows:

• 250+ employees every year
• 150-249 employees every three years