Shedding Light on Pay Transparency: 6 key tips for preparing for the EU Pay Transparency Directive

Pay transparency is becoming an increasingly hot topic of conversation, prompting important discussions about equality, fairness and accountability within companies — it’s something we see time and again when working with our clients.

Not only this but research has shown the extensive impact transparency can have on hiring, retention and engagement:

→ Jobs that publish salary range receive 43% more applicants than those that do not 👀 — Reed [study]

→ Employees who work for a very pay-transparent organisation are 65% less likely to leave relative to a low transparency organisation —Payscale [study]

→ 70% of UK workers know how much they should be paid for their job. The majority also support salary transparency (85%) and feel comfortable sharing how much they earn with their peers (72%) — Totaljobs [study]

We’ve already seen movement in this area with the US introducing new laws around pay transparency, requiring companies to disclose the compensation (or compensation range) for a job, promotion or transfer opportunity. Now it’s time for the EU to follow suit with the implementation of the EU Pay Transparency Directive.

🤷‍♀️ What is the EU Pay Transparency Directive?

The EU pay transparency directive is a set of measures to increase pay transparency, its aim is to combat pay discrimination, reduce gender pay gaps across Europe, enhance accountability on companies and empower employees. It came into force in June 2023 and EU countries have three years from this date to ‘transpose’ the rules into national law.

The important thing to note is that it’s been implemented as a directive and not as a regulation, meaning that each ‘Member State’ is required to implement the minimum set of standards, but can diverge from the guidelines in their local implementation by introducing additional amendments (known as gold plating🥇).

☝️ What are the key provisions of the Directive?

1. Gender Pay Gap Reporting: Employers with 250+ employees must report their gender pay gap annually. Employers with 100+ must report their gender pay gap every 3 years. Companies that identify gender pay gaps of 5%, that cannot be justified by objective, gender-neutral criteria, will be required to take action in the form of a joint pay assessment carried out in cooperation with workers’ representatives.
2. Hiring: Employers must provide information on starting salaries or ranges on job adverts and will be prevented from asking candidates about salary history.
3. Right to Information: Employees will be able to request information on average pay levels, broken down by sex, for employees doing the same work or work of equal value.
4. Pay Levels and Processes: Companies are required to be more transparent around how pay decisions are made, and be able to demonstrate they use objective and gender neutral criteria.
5. Access to Justice: There will be provisions in place for the treatment of victims of pay discrimination including access to compensation (e.g. full back pay), the burden of proof lying with companies, sanctions for employers found to have discriminated (including fines) and provisions for protecting employees from intersectional discrimination including gender, ethnicity, sexuality, disability etc.

🤔 So what can you do to get prepared?

It probably goes without saying that the introduction of these provisions will no doubt cause some challenges for companies, such as increased compliance burden, data privacy concerns and an increased accountability for clearly defining pay levels and processes. Below we’ve highlighted 6 key things you can start doing to get ahead:

1. Keep abreast of any updates to the standards set by each member state you hire in (remember gold plating!)
2. Define your levels — levels represent the layers of accountability and responsibility in your organisation (and when done well, they map back to the wider market!). One of the first steps in ensuring you can accurately benchmark salaries for roles is to define the levels you have, this can be achieved through a levelling and progression framework to help you to define the appropriate rates of pay.
3. Consider and clearly define your compensation strategy by aligning and signing off on key decisions such as; how you approach location-based pay, how compensation may differ between certain departments, how pay increases with levels (i.e. seniority), what data sources you opt to use and how you position yourself in the market.
4. Complete a compensation audit to highlight any existing inequities or inconsistencies. Once you’ve completed a levelling process and have defined your compensation strategy, you can start running analyses on your workforce to highlight any gaps or discrepancies. Not only that but as employees will have the right to request information on average pay by levels and companies over 100 will have a responsibility to report on gender pay gaps so getting familiar with reporting means you’ll be in the best position to start sharing this information.
5. Forecast cost implications and outline a roadmap for addressing any inconsistencies. Once discrepancies have been highlighted (if any), you can start to build a plan for how you’ll address these to give you an overall view of how much any changes needed will cost and how you can manage these in a way that is fiscally responsible.
6. Define, build and launch your compensation philosophy to bring clarity and transparency around how pay is determined and the relevant process you have in place. Your compensation philosophy is the way you articulate and communicate your compensation strategy to your employees. It should be clear, transparent and educate individuals on all the factors that play a role in defining a salary.

With one year down since the directive came into force and just 2 years left for EU countries to transpose the rules into national law, the clock is ticking to start building on the foundations and working through the 6 key points above. At the People Collective, we’ve supported 100’s of clients when it comes to levelling, progression and compensation so for any organisation that wants support on any of the above, we’re offering a discount of 10% if you sign a contract with us by the 10th May 2024.

📞 Get in touch and quote ‘Transparency10’ to find out how we can help and 10% off any of our service offerings.

People Collective have been my go-to advisors for all people related matters, in particular on progression and compensation planning. At Multiverse they helped us accelerate our hiring and introduce a powerful progression framework that supported our team’s development and gave visibility of different pathways they could take within the organisation, then helped us benchmark and build our compensation structure to support it.” Sophie Adelman, Founder at Multiverse