EU transparency directive moves forward, more employers address pay gaps

The widely awaited EU Pay Transparency Directive marks a significant stride in combating the gender pay gap throughout Europe, and employers are preparing for upcoming reporting deadlines. Experts say HR leaders serving global workforces must understand this legislation geared toward ensuring gender equality in compensation.

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Traditionally, the burden of establishing pay discrimination rested on the employee, but Zurich-based reward consultant Rachel Gibbs says the EU directive amounts to an “enormous change,” putting the onus of proof on employers. Now, HR leaders will be more responsible than ever for helping demonstrate compliance.

Even organizations that don’t employ workers in the EU are cautioned to pay attention, as some experts believe this legislation will serve as a framework for other parts of the world. Christine Hendrickson, vice president of strategic initiatives at workplace equity platform Syndio, says that the directive will impact the rest of the world: “Laws do move the needle over time.”

Background of the EU Pay Transparency Directive

In April 2023, the European Council finalized the directive, requiring organizations with over 250 employees to submit an annual report detailing gender pay differentials. If this report exposes a pay gap exceeding 5% that can’t be justified by “objective, gender-neutral criteria,” companies will be penalized.

According to the directive, individuals subjected to gender-based pay discrimination are entitled to compensation, encompassing full reimbursement of withheld wages, bonuses or non-monetary benefits.

The gender pay gap currently hovers at approximately 13%, on average, across the EU, according to the European Council, and the absence of pay transparency is a significant barrier to righting this inequity.

Chris Martin, research economist at Syndio, gets more precise with a reminder that the gender pay gap varies throughout Europe. “In Luxembourg, women earn just as much as men do on average, though women earn less in all other European nations,” writes Martin. He found that pay disparities vary from 3.6% in Romania and 3.8% in Slovenia at the lower end to as much as 20.5% in Estonia and 28.9% in Belarus at the higher end.

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Interestingly, Martin also found that European countries that rank well in the World Economic Forum’s (WEF) Global Gender Gap Index—which measures gender parity across economic participation, education, health and political empowerment—aren’t necessarily leaders in reducing the pay gap. Five of the top six spots are held by European countries with pay gaps near or worse than the average.

According to Martin, in Iceland and Sweden—which rank first and fifth in the WEF index— women earn 10.4% and 11.2% less, respectively. Norway, Finland, and Germany—ranking 2nd, 3rd and 6th on the WEF index—exhibit larger pay gaps than the European average.

How HR can comply with the pay transparency law

The regulations mandate that HR leaders, on behalf of their employers, must disclose the starting salary or pay range for advertised positions to job seekers, either within the job posting or before the interview process. Additionally, employers are prohibited from inquiring about candidates’ pay history.

Once hired, workers have the right to request average pay rates, categorized by gender, for employees performing comparable work of similar value to their own. They also are entitled to proof of criteria utilized for determining pay and career advancement.

Rachel Gibbs
Rachel Gibbs

According to the guidelines laid down by the European Council, HR leaders must examine job roles to identify and address any gender-based discrepancies in compensation. They must also provide information about pay structures so that employees can consider their salaries compared to colleagues within the company.

Additionally, applicants are entitled to ask about the expected salary range for particular positions, so HR teams need to be equipped with that detail to handle such questions.

To be prepared for questions and reporting deadlines—which vary depending on where employees are located—Gibbs encourages HR leaders to document their pay policy and ensure the accuracy and reliability of pay data. She says that now is the time to review pay equity within the organization and address any discrepancies and policy shortfalls.

Pay transparency also has an impact on salary negotiations, says Gibbs. She expects that rewards negotiations will still happen, though they will be less about income and more focused on benefits, flexibility and discretionary perks.

The full agenda for the 2024 HR Technology Conference Europe was recently released, and several sessions will deliver insight into attracting and retaining employees from across the EU. These include sessions on how to fulfill the expectations of multiple generations, building a sought-after culture and how to capitalize on employee learning offerings.

Pay transparency in the U.S.

Though the United States doesn’t have a federal rule on pay transparency, as of February, multiple U.S. states—along with several municipalities—have requirements in place. Even at employers that don’t have staff in one of the jurisdictions with pay transparency laws, HR leaders can expect that employees will be vocal about this topic.

In a 2023 presentation at Gartner’s ReimagineHR Conference, Rebecca Scully, vice president of product at Syndio, noted that 45% of employees consult a third-party site at least once per year to compare their salary to the range for similar positions. Scully notes in terms of culture-building, it’s worthwhile for organizations to provide this information themselves. “Transparency is a key driver of trust,” she says.

In brand new data from Mercer’s Global Talent Trends 2024 study of 12,000 executives, HR leaders and employees in multiple countries, workers report that the number two reason they stay at a job is fair pay relative to their peers and the marketplace. This is second only to job security and well ahead of competitive rewards. This same report shows that nearly two in five employees believed their organization is transparent about the pay range for each job.

Other pay transparency actions around the globe

Meanwhile, Australia’s Workplace Gender Equality Agency recently published the inaugural release of gender pay gap data for companies with more than 100 employees. The study revealed that the average gender pay gap in Australia is 21.7%. “The release of employer gender pay gaps marks a historic step towards transparency and accountability in addressing gender inequality,” said Senator Katy Gallagher, the country’s minister for women, in a statement.

While there are currently no requirements for U.K. employers to reveal pay data to employees or candidates, a report by London-based HR professional body CIPD and ADP found that almost a fifth of U.K. companies with more than 250 employees said they haven’t carried out gender pay gap reporting.

As the debate heats up around the enactment of the Pay Transparency Directive in the EU and state initiatives in the U.S., Charles Cotton, senior policy adviser at CIPD, advised HR leaders to “look at the advantages of increased visibility of pay—not only in attracting and retaining talent but also in reducing inequality pay gaps—and how this can be achieved.”

Syndio’s Scully says that as more jurisdictions roll out transparency efforts, there will be a “cross-pollination” that influences organizational policies worldwide. “Pay transparency is changing rewards,” she predicts.

Jill Barth
Jill Barth is HR Tech Editor of Human Resource Executive. She is an award-winning journalist with bylines in Forbes, USA Today and other international publications. With a background in communications, media, B2B ecommerce and the workplace, she also served as a consultant with Gallagher Benefit Services for nearly a decade. Reach out at [email protected].