Despite diversity quotas, the gender pay gap persists

Across the world, gender diversity in the workplace has become a defining goal for companies, investors and regulators alike. More women than ever are joining executive boards, and corporate commitments to gender balance have multiplied. These days, it is not uncommon to see organizations pledge a goal of reaching male/female parity. One example is the European Union’s Women on Boards Directive, which requires listed companies to ensure at least 40% of their non-executive directors are women by 2026.

These efforts reflect a growing recognition that diverse teams drive better innovation and organizational performance. But does greater representation of women also translate into greater fairness — specifically when it comes to gender pay equity? Or are organizations celebrating progress on diversity while leaving disparities in compensation unaddressed?

My recent research, published in Human Resource Management together with Claudia Holtschlag, Carlos Morales and Aline Masuda, found that having a gender-balanced team doesn’t always translate into fair distribution of pay. While there are often strides towards offsetting pay gaps, these equity-based accomplishments tend to weaken or stop altogether in teams that have already achieved gender balance. In other words, once visible diversity goals are met, managers feel their work is “done” and often unconsciously stop focusing on what else they can do to build an equitable workplace.

We call this the diversity paradox: When well-intentioned diversity efforts signal progress but may inadvertently stall further action towards real equity. In the study, my co-authors and I gained rare access to salary and pay increase data from a large multinational company in Germany, which allowed for a fine-grained analysis of gender pay differences across the company’s 300-plus work units and 4,000-plus employees over the span of three years. This was a company that was open about dedicating time and resources to fighting for a more equitable workplace. Yet despite their efforts, the salary gap between male and female colleagues continued.

This paradox is especially relevant now, when the gender pay gap remains stubbornly high, despite significant progress in female representation. According to the World Economic Forum’s 2025 Global Gender Gap Report, no country has yet achieved full gender parity.

Worldwide, women earn about 23% less than their male counterparts. That varies according to country and sector, reflecting differences in labour markets, social policy and occupational segregation. In advanced economies, the average gender pay gap is closer to 12%, though that too varies, as evidenced by South Korea’s pay gap of over 30%.

Policy initiatives around the world have attempted to improve these figures. A regulation passed by the Spanish government requires companies to disclose the system they use to establish base salaries and other employee benefits — or else pay a fine of 187,000 Euros — with the idea of tackling gender pay biases through transparency. Australia’s Workplace Gender Equality Act compels companies with more than 100 employees to report gender equality metrics to a government agency. And Canada’s Pay Equity Act requires federally regulated employers to establish and periodically update a pay equity plan.

These reforms are based on the idea that public disclosure creates pressure for change. And while reporting requirements are important, they do not automatically change day-to-day managerial choices. That’s what our diversity paradox highlights: When a work unit visibly reflects corporate diversity goals, it may gain symbolic legitimacy with internal or external stakeholders but create little change with regard to pay decisions, which are typically taken by line managers during annual reviews. If managers interpret representation as sufficient evidence of fairness, they may apply less scrutiny to promotions, bonus allocations and informal decisions that cumulatively determine employee earnings. This contributes to persisting pay gaps despite headcount parity.

Closing the gender pay gap is not just about fairness — it’s also an economic lever. A World Bank analysis from 2024 estimated that eliminating barriers to women’s full economic participation could lift the global GDP by more than 20%. In other words, pay equity affects productivity, employee retention and reputation in markets where skilled labor is a strategic asset.

The good news is: It doesn’t have to be this way. In fact, a lot of the leeway for improving gender equity lies in companies’ own hands. So what can managers do to ensure they continue striving towards a more equitable workplace?

First, don’t confuse an equal workforce with equitable pay. Managers should treat diversity quotas as merely a stepping stone, not as an endpoint. Having 40% of board positions held by women, for example, is a strong and positive move, but it should be accompanied by transparent systems for comparing pay: classification of roles, pay bands, performance evaluation criteria, bonuses and promotions.

Second, run regular salary audits. These audits should examine compensation not only by gender but by job level, seniority, function and performance. If any gaps are found, companies should commit to corrective steps and monitor progress over time. Most firms already track base pay, but the real inequities often hide in annual pay increases — which is why companies need a systematic way to compare people in similar roles and ensure salary raises are fair and comparable.

Third, companies should invest in training programs about the nuances of achieving gender equity. This can help educate managers about implicit biases and give them the necessary tools to tackle those issues. Our research highlights the extent to which managers’ choices determine whether equity goals stick or not. To deal with this, companies may want to push line managers to make fairer and data-informed decisions during pay reviews by including compa ratios — i.e. how an employee’s salary compares to their counterparts within the company or the equivalent market rate.

Reaching gender balance in workplaces is important, but it is not sufficient in and of itself. This is evident across the world, where recent regulations and data show both diversity progress and institutionalized gender pay gaps. With regulation intensifying, talent expectations evolving and economic conditions shifting, focusing on gender parity is not only the right thing to do — it’s a smart business move.

At the end of the day, firms that rely solely on achieving equal numbers of men and women may misjudge where the real work remains.