An example: the slide with the good news
Picture the compensation team of a mid-sized bank, a constructed but not untypical example. The slide for the board shows the pay gap between women and men, and it has fallen for the second year running. The measures, so the reading in the room goes, are working: the revised salary bands, the promotion round with a target quota, the training for line managers. Nobody on the slide and nobody in the room asks how the financial year went. Yet the bonus pool was smaller in both years than before, and the profit-sharing payment, which in good years lands mostly in the upper levels, did not happen at all. The gap fell because men's pay gave way more than women's did. None of that is visible in the figure, and that is precisely why it looks like progress.
That this example describes a mechanism rather than an exception is shown by the Institute for Employment Research (IAB), the research institute of Germany's Federal Employment Agency, in an article on the gender pay gap in the financial sector whose finding fits into one sentence: a shrinking gender pay gap is not always good news [1].
The gender pay gap in the financial sector falls more slowly, and the reason is profitability
Between 2011 and 2023 the pay gap among full-time employees in Germany fell from 25 % to 15 %; in the financial sector it fell only from 30 % to 24 % over the same period [1]. These figures refer to full-time employees and are therefore not the same indicator as the unadjusted gender pay gap published by the Federal Statistical Office (Destatis), which stood at 16 % for all employees in 2025 [2]; both are correct, they simply answer different questions.
The reason the gap is so persistent lies, of all places, where the sector likes to describe its pay as performance-based: in the profits. Banks pass earnings on to their employees through base pay and through performance-related bonuses, and in that distribution men come off better. The underlying discussion paper quantifies the mechanism: women in German banking, even in similar roles, negotiate only around two thirds of the profit share that men obtain, and between 16 % and 28 % of the pay gap in banking can be traced to this bargaining gap [3]. That the gap in bonus payments is often wider than the gap in fixed pay is also familiar from compensation studies of management populations [4].
The natural experiment: when profits fell, the gap narrowed
The most instructive part of the study is a natural experiment. When the state guarantees for Germany's public savings banks (Sparkassen) were withdrawn in the 2000s and the institutions' profitability declined, the pay gap narrowed, not because women earned more but because men's pay fell further [1] [3]. The figure moved in the desired direction without anything having changed in the distribution; there was simply less to distribute.
This fits with what the article reports on leadership positions: the share of women on executive boards and in management in the financial sector has fallen since 2017 from about 18 % to below 17 %, while in the economy as a whole it stagnates at 22 % [1]. And in eastern Germany, where pay gaps are generally smaller than in the west, the gap in the financial sector stands at 22 %, in the west at 27% [1].
What the figure measures and what it does not
A gender pay gap is the difference between two averages, divided by one of them. It registers that the distance has changed, not why. If the male average falls because the bonus pool is smaller, the gap falls exactly as if women had caught up; the arithmetic does not distinguish between the two cases. Anyone who calculates the figure on total pay alone treats base pay and variable pay as a single sum and cannot even detect the mechanism the IAB describes, because the variable in which it takes place does not exist in the model. What is not measured does not exist for a model.
Only the breakdown by pay component makes the movement readable. A gap in base pay that stays stable over the years while the gap in bonuses and profit-sharing breathes with the earnings situation tells a different story from a single falling number. The breakdown by hierarchy level adds the question of whether the bargaining gap sits across the workforce or in the levels where the profits actually arrive.
What this means for reporting under the EU Pay Transparency Directive
Directive (EU) 2023/970 has already provided for this breakdown. Article 9(1) (b) requires the pay gap in complementary or variable components to be reported separately; Article 10 ties the joint pay assessment with workers' representatives to a difference of at least 5 % in any category that is neither justified by objective, gender-neutral criteria nor remedied [5].
The 5 % threshold measures a result, not its cause. A bank that, as in the example at the start, slips below the threshold with a falling figure has triggered no pay assessment and has still learned nothing about its distribution; in the next good year the gap is back where it was, this time above the threshold, and then the history needed to explain it is missing. There is not much time left to build that history: the first reporting obligation applies to employers with 150 or more employees on 7 June 2027 [5] [6].
In closing
The consequence is unspectacular: analyse variable pay and participation schemes separately from base pay, by gender and by hierarchy level, and start not at the reporting date of the first report but this year, so that the trend over several years becomes readable rather than a single reporting date. On the slide from the beginning, a second figure would then stand next to the falling overall gap, showing whether something in variable pay was distributed differently or merely less of it. The board would have less good news, but news it can understand.
Frequently asked questions
1. Does the gender pay gap have to be reported separately for bonuses and variable pay?
Yes. Article 9(1)(b) of the EU Pay Transparency Directive requires the pay gap in complementary or variable components to be reported separately, as mean and median [5]. How the requirement is transposed in detail is a matter for the Member States.
2. Can a falling gender pay gap be a "bad" sign?
It can be a sign of nothing at all. The figure is a difference of averages; if the male average falls because variable pay is not paid out, the gap falls without anything having changed in the distribution. The IAB demonstrated this case using the withdrawal of the savings banks' state guarantees in the 2000s [1].
3. What is the gender bargaining gap?
The share of company profits that employees receive through their pay is unevenly distributed between women and men. Women in German banking negotiate around two thirds of the profit share that men obtain; between 16% and 28% of the pay gap in banking can be explained by this bargaining gap [3].
Sources
[1] IAB-Forum, Coskun/Taskin/Weber (22 June 2026): Warum ein schrumpfender Gender-Pay-Gap nicht immer eine gute Nachricht ist (why a shrinking gender pay gap is not always good news; in German). https://iab-forum.de/warum-ein-schrumpfender-gender-pay-gap-nicht-immer-eine-gute-nachricht-ist/
[2] Federal Statistical Office (Destatis), press release no. 453 of 15 December 2025: Gender Pay Gap 2025 unverändert bei 16 % (gender pay gap unchanged at 16%).
https://www.destatis.de/DE/Presse/Pressemitteilungen/2025/12/PD25_453_621.html
[3] IAB Discussion Paper 6/2025, Coskun/Gartner/Taskin: Rent sharing and the gender bargaining gap: Evidence from the banking sector. https://doku.iab.de/discussionpapers/2025/dp0625.pdf
[4] Mekler/Fiodarava: An der Spitze wird es nicht automatisch gerecht. VersicherungsPraxis 04/2026 (in German; citing Lurse Gehaltsstudien 2025).
[5] Directive (EU) 2023/970 of 10 May 2023 (Pay Transparency Directive), in particular Articles 9 and 10. https://eur-lex.europa.eu/eli/dir/2023/970/oj/eng
[6] CMS Legal, EU Pay Transparency Directive: comprehensive reporting obligations for companies (deadlines and thresholds; in German). https://cms.law/de/deu/legal-updates/eu-entgelttransparenzrichtlinie-umfassende-berichtspflichten-fuer-unternehmen
