On the face of it, Iceland is a good place to be a woman. For nearly a decade, it has been rated the world’s most gender-equal country. It was the first to directly elect a female president, nearly half its MPs and company directors are women, and first-class daycare and parental leave help ensure almost four in five women have jobs.

So it came as a shock for Fríða Rós Valdimarsdóttir to learn, when she was managing a key team of 10 home carers at Reykjavik council a few years ago, that male colleagues in other departments, with far fewer responsibilities than her, were being paid a great deal more.

“It has been illegal for decades, for jobs that are worth the same, to pay people differently because of gender, but still it happens – it’s simply been allowed,” says Valdimarsdóttir, who is now the chair of the Icelandic Women’s Rights Association, in her bright offices in the country’s capital.

Despite an equal pay act that dates back to 1961, Icelandic women still earn, on average, between 14% and 20% less than men. So Valdimarsdóttir and her association were one of many campaign groups to back a plan that finally resulted, last month, in the island becoming the first country in the world to legally enforce equal pay.

Within four years from January 2018, any public or private body in Iceland employing more than 25 people that has not been independently certified as paying equal wages for work of equal value will face daily fines. “The legislation will take some time to bed in, of course,” Valdimarsdóttir says. “There will be challenges. But it’s possible, and we can do it. Mainly, I’m just so proud we actually made it happen.”

Rósa Guðrún Erlingsdóttir, head of the equality unit at Iceland’s welfare ministry, says equality “won’t come about by itself, from the bottom up alone. Our experience is that you need legislative measures to move things forward. People accept that; we saw it with mandatory quotas for women on company boards. If politicians want to wait until no one opposes it, it will never happen.”

Some in Iceland still do oppose it, albeit cautiously. The new law requires employers to show, through certification by an accredited auditor, that their pay management system complies with a national equal pay standard modelled on the international ISO environmental management standards familiar to all companies.

The standard was published in 2012 and welcomed by Iceland’s trade unions and employers, who helped design it. Hannes Sigurðsson of the Business Iceland confederation says it was considered sound business sense, likely to “improve a company’s image in the eyes of its customers, and make its workforce a whole lot happier”.

It was, however, designed to be voluntary. “It was a carrot, win-win,” Sigurðsson says. “The government has turned it into a stick.”

The process – assessing the worth of very different jobs, classifying and ranking occupations, analysing salary structures, collating and recording data, making sure the new system meshes with collective labour agreements – is “quite complex”, he says. “You need to put resources into it. It’s easier for big companies, with whole HR departments.”

As it stands, the legislation is staggered over four years. Large firms and institutions such as government ministries and the national hospital, with workforces of more than 250 people, have until the end of this year to become certified; those with fewer than 90 employees but more than 25 have until the end of 2021. The fine for those that do not comply is ISK50,000 (£350) a day. And the public shame, it is hoped, will be worse.

None of Business Iceland’s members have openly criticised the new law, Sigurðsson says. “It’s quite difficult to come out publicly against a measure that enhances gender equality. But I think it’s clear there is opposition to the method. We would have preferred the process to be bottom-up.”

Others, however, are delighted. “This will not eliminate the gender pay gap overnight,” says Maríanna Traustadóttir, an equality adviser at the Icelandic trade union confederation ASI. “But it is the best toolbox I have seen, and it will make a big difference. It will force employers to think differently.”

It will not be straightforward, she concedes. “Deciding the relative value of a canteen worker and a driver, for example. Documenting and justifying everything ... But we now have clear guidelines to follow, courses to go on, specialist software, new consultants to help. It’s doable. Several companies already have.”

Traustadóttir cites Reykjavik Energy, the parent company of Iceland’s largest power provider, which was forced to fire one-third of its workforce in the aftermath of the financial crash, but seized on its subsequent restructuring as an opportunity to become a fully gender-equal employer.

Within five years, by “putting the gender glasses on before taking every single decision”, it had boosted the proportion of women in management positions from 29% to 49%. Over the same period, its adjusted gender pay gap shrank from 8.4% to 2.1% – and now stands at 0.2% in favour of women.

The company’s chief executive, Bjarni Bjarnason, says the net outcome has been “more open discussions, higher productivity, greater job satisfaction, improved decision-making, higher morale, and an all-round far better atmosphere”.

For many, the legislation reflects the fact that more than 40 years after 90% of Iceland’s women famously went on strike for a day, the country “is not quite the gender-equality paradise it’s often painted”, says Annadís Gréta Rúdólfsdóttir, an assistant education professor. “That WEF index is fairly crude. It doesn’t reflect the pay gap, or gender-based violence. We have our fair share of toxic masculinity. #MeToo was as shocking here as anywhere.”

Her colleague, Berglind Rós Magnúsdóttir, says a broader “re-engineering” of society is still needed. “This won’t fix the huge gap between typically male and typically female sectors,” she says. “Between engineering, for example, and nursing or teaching. Anything to do with care or education is paid less.”

But there is confidence the legislation is a major step in the right direction. “The pay gap was hidden behind a lack of transparency,” says Magnea Marinósdóttir of the welfare ministry’s equality unit, noting that the standard could be used to justify a pay difference as much as to eliminate it.

“Employers can take into account experience, qualifications – it’s just that it now has to be transparent, and justified,” Marinósdóttir adds. “The standard is simply designed to eliminate factors that are irrelevant by law – such as gender. It could equally be used to eliminate discrimination by race or disability.”

Legislation, she is convinced, “can impact attitudes and behaviour. We’ve seen that time and again. We still live in a very gendered reality in Iceland. Even here, the patriarchal culture, a male sense of entitlement, is deep-rooted. This can be a real impetus for change.”

Erlingsdóttir says the Icelandic model could also be adopted elsewhere: Portugal is exploring doing so, raising the possibility that Iceland’s equal pay standard could eventually become a European one. “The information is there, and the education is there,” she says. “Now we need the effort.”

Jon Henley