Throughout 2023, I have brought up the issue of the gender pay gap in discussions with approximately 45 employers. The majority are convinced that although they have not measured the gender pay gap, they do not pay based on gender, and they treat men and women equally, paying for an individual’s knowledge, skills, experience, and contribution. However, Ilmar Põhjala, an analyst-consultant at Figure Baltic Advisory, observes, “Paradoxically, the biggest pay gaps tend to be in organizations that firmly claim they don’t have one. The first step for any organization should be to analyze real numbers, the results of which will inform further actions.” He comments this while referring to the 2023 wage survey, which has been awarding the title of Equal Wage Payer since 2017.

What is the Gender Pay Gap?

The gender pay gap represents the average gross hourly wage of women in relation to men’s hourly wages. In 2022, according to Statistics Estonia, the gender pay gap was 17.7%.

The largest pay gaps between men and women are in:

• Finance and insurance activities (32.9%),
• Trade (31.6%),
• Other service activities (27.8%),
• Industry (25.8%).

The pay gap has gradually decreased year-on-year (by 9.9 percentage points from 2013 to 2021), but in 2022, it increased by 2.8 percentage points. With this indicator, we are among the top countries in the European Union.

Where Does the Gender Pay Gap Come From, If There’s No Discrimination Based on Gender?

Although organizations may believe they pay fairly and without discrimination, data analysis often reveals otherwise. So, where does this pay gap originate?

Factors influencing the gender pay gap include:

• Gender stereotypes and prejudices – what jobs are deemed suitable for women and men, and which roles in society are more valued.
• Horizontal gender segregation – women and men are concentrated in different fields of study and work.
• Vertical gender segregation – fewer women in leadership positions. Women make up over half of the workforce, but only a third (34%) of leadership positions in the EU.
• Lack of uniform principles and clear systems for wage determination, thus the significant impact of individual wage negotiations.
• Work-life balance opportunities.
• Unequal distribution of caregiving responsibilities and unpaid work between women and men.
• Discrimination.

Despite caution in organizations regarding measuring and reducing the gender pay gap, data from the 2021 Gender Equality Monitoring shows that 83% of Estonians are aware of the gender pay gap, and 84% believe that women and men doing different but equally responsible, skilled, and strenuous work should receive equal pay. Women view the pay gap as a significantly bigger problem than men (71% of women consider it a major or very major problem, compared to 35% of men).

Increasing wage transparency has been seen as an effective measure in reducing the pay gap. According to Estonian opinions, 63% agree that wages should be public to ensure equal pay for equal work. Half of them agree with internal organizational transparency, and the other half support public wage transparency. An overwhelming 95% of employees agree that job advertisements should specify the salary number or range.

Clear expectations from employees should encourage employers to rethink compensation systems. Additionally, this is important to meet the requirements of the Pay Transparency Directive, which will be implemented in Estonia from June 2026 to help reduce the gender pay gap.

What Does the Pay Transparency Directive Entail?

The directive aims to strengthen the principle of equal pay for equal work for men and women and protection against discrimination. Transparent, well-thought-out, objective, and gender-neutral compensation systems will help employees understand how their wages are determined, when and on what basis they increase, ensuring that employees are satisfied and feel that their work is valued and treated fairly.

From 2027, organizations with 100 or more employees will be required to report and measure the gender pay gap. If the gap exceeds 5%, they must explain why. The Labor Inspectorate will conduct oversight.

To reduce administrative burden on employers, the government is developing a digital solution, “Palgapeegel,” which will display wage gap analysis based on registry data and facilitate future reporting and oversight. These developments and legislative changes are being led by the Ministry of Economic Affairs and Communications.

Practical Recommendations:

• Implement a job evaluation system with clear compensation principles.
• Conduct annual wage reviews, measuring differences between women’s and men’s wages. Publicize and explain measures taken to reduce the gap.
• Regularly train managers on equal treatment and compensation rules and benefits (e.g., better work environment, happier employees).
• Employees should understand how their wages are determined.
• Wage ranges should be visible to employees at all times, for example, in the HR system. Exact wages within these ranges should be based on competence and experience and must be justified.
• If an employee receives a salary above the range, it must be justified and approved by a higher-level manager.
• Adjust salaries of employees returning from parental leave according to market movements and changes in organizational wages.
• Show wage ranges in job listings.

It is advised to start increasing wage transparency, creating clear compensation systems, and measuring the pay gap immediately, not just to wait for 2026. These actions are important not just for reporting purposes but to ensure employees feel their work is valued and understand why. This leads to greater job satisfaction and better work outcomes.

For immediate assistance, contact Helen Talalaev at helen.talalaev@humanrights.ee to discuss next steps.

This article was inspired by the Diversity Network seminar held on October 13, 2023, titled “Why and How to Address the Gender Pay Gap: Should Women and Men Be Paid Equally?”. Experiences were shared by Piret Prangel from Swedbank, Elo Võrk from Telia, Monica Klaas-Kütt from Tallinn University, among others. Lee Maripuu and Eva Liina Kliiman from the Ministry of Economic Affairs and Communications opened the topic of wage transparency. If diversity is a key value in your organization, join the Diversity Charter for inspiring meetings and collaborative and learning opportunities.