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Who Earns How Much? Legislature Enacts Transparent Compensation Act

On March 30, 2017, the Bundestag adopted the Act to Promote Transparency of Compensation (the "Transparent Compensation Act"). At its session on May 12, 2017, the Bundesrat did not object to the law; therefore, it entered into force on the day after its promulgation.

The Aim of the Act is to Close the Sta­tisti­cal Pay Gap.

The objec­tive of the Tran­s­pa­rent Com­pen­sa­tion Act is to close the sta­tisti­cal wage gap (in terms of the average gross hourly wage) bet­ween women and men, which is eit­her 21% ("unad­jus­ted" pay gap) or 7% ("adjus­ted" to eli­mi­nate the struc­tu­ral fac­tors and dif­fe­ren­ces in work expe­ri­ence bet­ween women and men), depen­ding on how you read the sta­tistics.

Who Earns How Much? Legislature Enacts Transparent Compensation Act© Thinkstock

The Means: A Right to Infor­ma­tion

The key ele­ment of the Act is that all emp­loyees are now entit­led to obtain infor­ma­tion on the com­pen­sa­tion of their col­lea­gues at com­pa­nies with more than 200 emp­loyees as of January 1, 2018. This is con­fi­gu­red as fol­lows:

  • If emp­loyees have evi­dence that at least six col­lea­gues of the oppo­site sex are paid more for the same or equi­va­lent work, they can com­pare their income with the average income of these emp­loyees.
  • The right to infor­ma­tion covers both the base salary and two other com­pon­ents of com­pen­sa­tion, such as bonu­ses or com­pany cars. Emp­loyees are free to choose the other two com­pen­sa­tion com­pon­ents they requ­est.
  • If the emp­loyer does not con­s­i­der the acti­vity spe­ci­fied by the emp­loyee to be com­pa­ra­ble, the emp­loyer must indi­cate ano­ther com­pa­ra­ble acti­vity and, if there is no such acti­vity, the emp­loyer must jus­tify this.
  • The requ­est for infor­ma­tion can be made wit­hout a hand­writ­ten sig­na­ture. An email from the emp­loyee to the emp­loyer is thus suf­fi­ci­ent. When a works coun­cil is in exis­tence, the requ­est for infor­ma­tion must be sent to the works coun­cil, which will then pur­sue the requ­est with the emp­loyer.
  • The emp­loyer is requi­red to pro­vide infor­ma­tion wit­hin one month. Per­so­nal data about other emp­loyees must be anony­mi­zed.
  • If the emp­loyer does not com­ply with the infor­ma­tion requ­est, an unju­s­ti­fied une­qual tre­at­ment of the emp­loyee by the emp­loyer is assu­med. The emp­loyer is entit­led to state jus­ti­fi­ca­ti­ons for une­qual pay. The emp­loyer must demon­s­t­rate and prove that there are labor mar­ket-rela­ted rea­sons for the une­qual tre­at­ment or excep­tio­nal bene­fits of the emp­loyee who is paid more. Howe­ver, no sta­tutory sanc­ti­ons are pro­vi­ded for emp­loy­ers with une­qual pay.
  • In prin­ciple, the emp­loyee is entit­led to access this infor­ma­tion only once every two years.
Addi­tio­nal Obli­ga­ti­ons for Large Com­pa­nies

If the com­pany regu­larly emp­loys more than 500 emp­loyees, the com­pany must check at least every five years whe­ther or not it is in com­p­li­ance with the equal pay rules.

Impact on the Mana­ge­ment Report

If the com­pany is requi­red to pre­pare a mana­ge­ment report in accor­dance with the Ger­man Com­mer­cial Code, it must sub­mit a report on the pro­mo­tion of women and the estab­lish­ment of equal pay for equal work.

Impact on Practice

With the sta­tutory claim as of January 1, 2018, emp­loyees will be given the oppor­tunity for the first time to receive infor­ma­tion on their col­lea­gues' emp­loy­ment terms, and they can exer­cise this right wit­hout great effort at any time. In this con­text, this instru­ment will pro­bably be parti­cu­larly use­ful in sepa­ra­tion sce­na­rios, since it can give the emp­loyee addi­tio­nal "bar­gai­ning chips".

It is true that, there are no sanc­ti­ons against emp­loy­ers who fail to pro­vide the requ­es­ted infor­ma­tion, e.g., in the form of entit­le­ment to hig­her wages. Howe­ver, the inte­rest in avo­i­ding vio­la­ti­ons is likely to be very high because they could impair the cli­mate at the com­pany and damage the com­pany's pub­lic image.

It is, howe­ver, doubt­ful whe­ther the Tran­s­pa­rent Remu­n­e­ra­tion Act will actually lead to equal pay for men and women—e­spe­cially one that is sta­tisti­cally demon­s­tra­ble.

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