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Iceland, Reykjavik Energy Heat Up Their Pay Equity Efforts

BY STEPHANIE N. ROTONDO, WORLDATWORK

Bonus Feature

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ay equity has been top-of-mind for Reykjavik Energy for quite some time, even before the topic was regularly making headlines.

“We, as a company, have been measuring gender pay gaps since 2006,” said Víðir Ragnarsson, group head of people analytics. “That’s quite unusual, even here in Iceland.”

And while the organization strived to be equitable, it wasn’t always successful.

Then, the United States’ sub-prime mortgage meltdown of 2007 led to a broader global financial crisis that created difficulties for the public utility that covers about 67% of Iceland’s population. There were layoffs and then leadership turnover that ultimately brought in a new CEO and CHRO.

“It was decided to use the crisis as an oppor-tunity to change the culture of the company,” Ragnarsson said.

Step one: Change the composition of leadership to reach 50-50 representation (i.e., half women, half men). At that point, about 20% of leadership was female. By 2015, they had reached their 50-50 target.

The next step was closing the gender pay gap, which was hovering around 8% in 2011.

“We had no idea, to be honest, how we were going to do that,” Ragnarsson said. “It was guess-work, all the time.”

But guesswork was clearly not going to cut it. As such, the organization began discussions with analysts and other experts, educating themselves on the best ways to analyze the pay equity problem. They soon discovered, however, that it was not just a matter of gender and pay equality.

“It was also about mapping the structure of what we pay for,” Ragnarsson said. “Are we paying for what we want to pay for?”

Digging for DataThus began the journey of “finding the right

variables and collecting them,” Ragnarsson said. That meant looking at all its corporate entities and their various job categories, then aligning those job categories across the entire organization. Once that sizeable task was completed, it was on to creating the pay structure.

But this remained a daunting prospect. Enter Dr. Margrét Bjarnadóttir, assistant professor of management science and statistics at University of Maryland, Robert H. Smith School of Business, and founder of PayAnalytics.

“We finally found someone that understood what we needed,” Ragnarsson said. Bjarnadóttir had created a tool that “measured every [pay] decision before we took it.”

The tool also allowed the organization to broaden its strategy. It wasn’t just about being equitable and the costs associated with it. It was also about what is fair.

“We wanted to look at more than just costs,” Ragnarsson said. “If we did, we would be raising female pay just because it was cheap, not because they deserved it.”

Therefore, a blended approach of costs plus fairness was taken.

“Data-driven decisions can only take you so far,” Bjarnadóttir said during her presentation, “Data Driven Solutions to Eliminate Pay Gaps,” at WorldatWork’s 2019 Pay Equity Symposium in Philadelphia. “There needs to be input and sugges-tions from the comp professionals that won’t be accounted for in the regression model.”

By the fall of 2017, the pay analytics were ready to be used. At that time, the organization’s gender pay gap amounted to about 4.7% — not bad considering that it had started closer to 8%, but there was more work to be done.

All the hard work paid off, however, and quickly: By December 2017, Reykjavik Energy’s gender pay gap was actually calculated in favor of women for the first time in its history.

“It was a turning point for us,” Ragnarsson said.

“Stereotypes of gender are not helpful. It’s about picking the

right candidate.”– Drífa Sigurðardóttir, Attentus

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In 2017, Iceland passed a law that required organizations with 25 or more employ-ees to show they are paying men and women equally and fairly. Considered to be the first law of its kind adopted countrywide, the law put the onus on employers to prove there are no inexpli-cable differentials in pay based on gender. Organizations must pass muster on its pay practices, which are reviewed by an independent auditor, in order to be “equal pay certified” and then renewed every three years. Organizations that fail to pass the auditor’s examination face hefty daily fines — up to the equivalent of $400 per day — until they reach compliance.

The law went into effect on Jan. 1, 2018 — just one year after female candidates took nearly half the positions within Iceland’s parliament.

Like many other countries, it’s not as if equal-pay-for-equal-work legislation wasn’t already on the books. Those laws have been in effect in Iceland since 1961. And while the World Economic Forum had previously judged Iceland as one of the higher-ranking countries when it came to gender equality, it still dealt with an over-all gender pay gap of about 16%.

Furthermore, the standards set by the new law strongly “suggested” organizations im-plement them since 2012. But once those suggestions became law, it was the first time they were considered mandatory.

According to Drífa Sigurðardóttir, consul-tant and partner at Attentus, organiza-tions now have to apply their pay practic-es to the “Quality Management Standard,” which assesses formal pay policies, job

comparisons, salary analyses and any other formal procedures involving pay.

For the most part, organizations that implemented the standard in 2018 were “mainly larger companies.” For organiza-tions of that size, pay equity strategies and practices “weren’t new, but they had to formalize them,” she said.

But she adds that most organizations — around 80% — are small and therefore, many haven’t always been overly focused on the idea of pay equity. But now that they could be slapped with a $400 per day fine for failing to be in compliance, they have to step up.

Companies that “ implemented the standard last year are coming back in the second year, and they are all saying, ‘This is of great value to us’,” she said. “It’s helping them make better pay decisions.”

A Game-Changing ExperimentIn her work as a consultant for organi-zations looking to implement pay equity practices, Sigurðardóttir has seen it all.

“What we’ve been finding is in line with what pay equity studies say,” she said. That is, there is a higher percentage of men in management/supervisor roles and men in those roles tend to be paid higher than their female peers.

Sigurðardóttir also noted how parenthood can have an impact on women’s pay, but less on men’s pay.

“Women take more time out of the work-force, which impacts their pay,” she said. Once it’s known that a woman is pregnant

Iceland for the Pay Equity Winand then when she returns to work follow-ing parental leave, there’s a perception that she isn’t giving her whole focus to her job — which could be at least somewhat true, given that women tend to have more responsibilities within a household.

But because of those perceptions, that woman likely will not get promoted or get a raise.

The good news is that organizations are looking at ways of combatting this prob-lem, Sigurðardóttir said.

For instance, organizations are looking at more ways women can be pushed up through the ranks, which may mean pro-viding additional support to achieve that work-life balance — and even encouraging men to take a larger role in the household.

Additionally, organizations are also trying to teach managers to remove the concept of gender entirely when looking at poten-tial candidates.

“Companies are thinking, ‘Is this really what’s best for us?’,” Sigurðardóttir said. “Stereotypes of gender are not helpful. It’s about picking the right candidate.”

And, “we are seeing that something is changing there,” she said.

With more than 20 years in the HR man-agement space, Sigurðardóttir is calling Iceland’s pay equity initiative a “ga-mechanger.”

“This is like a live experiment,” she said. “But it’s really interesting.”

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Ongoing AnalysisDespite achieving the goal of pay equity, Reykjavik Energy hasn’t stopped doing its pay equity analysis. In fact, the organization measures the gender pay gap monthly, given the ever-fluctuating flow of talent (i.e., new hires, promotions, raises). The orga-nization aims for gaps less than 1%.

“That’s the acceptable range,” Ragnarsson said. And since December 2017, the gap has hovered close to zero, but never above 1%.

“The model tells us who to rearrange and by how much,” he said.

Ragnarsson also points out that the model — and the tool that powers said model — isn’t the only thing employed when making decisions related to pay equity. The organization also counts on good old-fashioned common sense to “avoid ranking an individual in the wrong way.”

The organization is also looking at how vari-ables aside from gender might affect the model. Ragnarsson noted that when variables are removed, a pay gap of about 13% does still exist and it’s only when specific jobs and their responsibilities are added that the number falls to the 1% area.

“There is a difference because of the jobs,” he said, pointing to the tech side of the business as an example. As is the case in many organizations, most tech roles are dominated by men. And again, Reykjavik Energy sees this as an opportunity to encourage more women to take interest in such roles, even going so far as to work with schools and other community programs to encourage female participation and representation in the technology sector.

Ragnarsson also said that the job analysis showed that men tend to have more responsibili-ties than women.

“That’s really a barometer for prejudices that we have ourselves,” he said. “And that is something we can change.”

One way the organization has sought to change those biases — unconscious or otherwise — was by hiring a gender specialist.

“Their advice helps us understand how the employment journey is different for men and women in our company,” he said. “And that creates an assignment for us.”

Leading by ExampleReykjavik Energy’s pay equity efforts haven’t gone unnoticed.

The organization’s pay equity journey “is extremely interesting,” said Drífa Sigurðardóttir, consultant and partner at Attentus. “They’re not just measuring the pay gaps, they’re also focusing on other issues that affect the pay gap, like the fact that men are the majority of managers. When faced with that fact, companies are beginning to ask, ‘Why are men more often managers and what’s the ideal manager for our company?’”

Focusing on what constitutes a good manager in terms of needed skills can certainly play a role in pay equity, as those in supervisory positions do tend to be male — though not necessarily because they have the right skillsets. And Reykjavik Energy is keeping these things top of mind, not only when recruiting candidates, but also when looking to retain employees.

The success of the strategy meanwhile has given Reykjavik Energy the distinction of being “one of the few companies that has announced that we’ve closed the gender pay gap.”

“It’s been a lot of learning for us,” Ragnarsson said. “But we wouldn’t be where we are today if we didn’t have backup from the top.”

Leadership’s buy-in has also helped to foster trust from employees.

“We outlined what we pay and how we pay for it,” Ragnarsson said. “And that’s something, I believe, [employees] have confidence in.”

And, there’s an even bigger picture to consider.“It’s a human rights issue,” he said of pay

inequality. “And we’re not going to let that happen in our company.”

Stephanie N. Rotondo is managing editor of Workspan. She can be reached at srotondo@worldatwork.org.

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