This month will very likely see the EU Parliament and Commission approve a new directive on pay transparency. This will aim to ensure, by 2026, that all companies within the EU are open and honest about pay practices.
Anyone applying for a new role should have a good understanding of the associated pay level of the job. Equally, anyone in an existing position should have insights on how pay is being determined, and how their own pay compares to that of their peers.
Just because this is an EU directive, and the UK has left, does not mean that UK based organisations can breathe.
It’s a direction of travel already firmly established in the gender pay gap reporting, and is simply the next logical step to take for many organisations.
Indeed, given that for many the search for talent is global and not just local, competitive pressures alone will make it an imperative that businesses introduce pay transparency or loose that talent to those who have introduced it.
As a result, it’s not just legislators looking at this area but shareholders and stakeholders alike are demanding that pay transparency is urgently addressed as an essential move towards greater diversity, equality and inclusion.
Any company which ignores this trend runs the risk of looking at worst reactionary and at best behind the times – both stances which are unlikely to attract talented employees.
Pay transparency – what does it mean in practice?
So just what does the EU directive ask employers to do? There are a number of key areas, and these need to be addressed by anyone considering just what pay transparency should look like. These include:
- Pay transparency prior to employment
This needs to be done before any interview. It includes not only being open and up front about pay levels, but companies are not allowed to ask a prospective employee about their pay history.
- Transparency on pay setting
Organisations need to be open about how you have reached any decision both to determine the level set – and the criteria used to determine pay progression.
- The right to information
Employees have the right to request that an organisation demonstrates just how their pay compares to the average male and female pay for the same category of work. Employers then need to remind employees of this right on an annual basis.
- The gender gap and pay
If there are pay gaps by category of worker of five per cent or greater that cannot be explained objectively need to undergo a defined pay assessment. This should be in collaboration with worker, with any unjustified gaps being rectified.
The time to plan is now
As we’ve said, these are merely part of what for many will, and should, become the norm when it comes to discussions on pay. Employees, shareholders and investors will increasingly expect to see these transparency rules applied, so it makes perfect sense to move towards applying them sooner rather than later.
Even if an organisation initially feels it’s not something legally demanded of their business, companies will have to accept that external pressures – and internal pressures, too - will eventually make these the norm.
As we have said, the EU is expected to formally approve the directive this month. Businesses, of course, will be given time to implement these rules – with a further gap before full compliance is expected to allow them to be bedded in.
That may sound generous, but the time to start planning and organising is now, not three years down the line. Transparency on pay is coming – and the sooner an organisation can move towards demonstrating its commitment to this fundamental, fair and open principal, the better.
Eva Jesmiatka, director work, rewards and careers, Europe lead on pay and career equity.
WTW To find out more about the Pay Transparency Directive and what steps your business can start to take now towards making it part of your own drive towards diversity, equity and inclusion click here