Room for improvement in Japan’s gender pay gap disclosure: investors

JAPAN’S gender pay gap disclosure is now mandatory for firms with more than 300 employees, but some investors say improvements are needed for the data to be useful for investment decisions.

Some businesses have disclosed pay gaps according to different job levels, but for the most part, companies are revealing the minimum amount of information necessary.

Under the government’s requirements, firms have to disclose the pay gap for the three categories of “all employees”, “regular” and “non-regular” workers. The data is calculated from the average annual wages of female and male employees, and shows what percentage of men’s salaries women are paid. 

Improving non-financial information disclosures including the gender wage gap is one of the priorities of Prime Minister Fumio Kishida’s administration. The government is also seeking to improve corporate value by tackling some of Japan’s gender disparity problems. Given the country’s rapidly ageing and shrinking population, how Japan treats existing workers remains a key question.

Japanese women were paid on average around 67 per cent the salaries of men, indicated a report based on around 2,000 firms’ financial statements, compiled by advisory firm Willis Towers Watson (WTW) and others this month.

Among nations in the Organization for Economic Cooperation and Development (OECD), Japan also ranks particularly badly for its gender pay gap. Women make 77.5 per cent of men’s salaries compared to an OECD average of 88.4 per cent, as indicated by past data from the organisation. The WTW report said its latest findings hammered home how bad Japan’s pay gap is compared with advanced-economy peers.

With the recent set of mandatory disclosures, it has become easier to compare the state of different Japanese companies against each other, but experts say this is not enough. 

“For non-financial data, it’s important to show an analysis of why the current state exists and how it could be improved,” said Takaaki Kushige, senior director at WTW who was involved in compiling the report. “Without that, it can’t be investment information.”

One reason behind the low wages for women is thought to be the lack of progress in promoting women to managerial positions. At the board level, Japan also lags behind Group of Seven peers in working towards gender equality and has recently been facing more and more pressure against all-male boards.

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Some investors are trying to use the gender pay gap data for engagement, rather than as information for investment decisions. 

“It can be used to compare with other firms in the same industry, and it can become a tool for engagement,” said Naoyuki Inoue, senior ESG analyst at Dai-ichi Life Insurance. One way of improving the situation would be for firms to additionally disclose information on the gender pay gap for per-hour wages excluding overtime pay, and revealing data by age groups, he added.

Referring to how firms in the US and Europe also disclose pay gaps according to different job levels, Haruna Usui, head of ESG Strategy at AllianceBernstein Japan, said that following data of that kind “lets you see the inside of a company.”

“What we want to know is what sorts of efforts companies are making in order to keep attracting labour resources, when the working population is set to keep shrinking,” she said. BLOOMBERG