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Navigating the EU Pay Transparency Directive:

Insights from Industry Leaders

This article was written in collaboration with Auren Personas.

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With the adoption of the EU Pay Transparency Directive on 30 March 2023, many questions are being raised about the differences to the practices we have been doing to comply with the current legislations. For many it is not entirely clear what they need to do, or when the deadline for implementing the changes is. 

What is clear is that EU countries will have to follow a set of practices that will be the same for all, but what does this vision look like in each country? How does it impact organisations with offices in different countries? How does this directive relate to ESG criteria? Are HR professionals and corporate culture more in the spotlight than ever?

In this article we interview two experts in the field of equality, Mario Rodríguez Lancho, partner at Auren Personas; and Magnus Drogell, CEO and founder of PIHR. They will answer several questions to guide us in this new European scenario and tell us about their extent experiences working with pay audits and equality plans at national and global level. 

Pihr and Auren people have been working together for months to inform and help companies prepare everything they need to comply with these EU guidelines. It is crucial to understand how this new directive affects organisations not only in terms of pay transparency, but also in terms of company culture, and the benefits of being prepared on time (e.g. avoiding penalties, retaining talent, improving productivity, global positioning, etc.).

1.     The EU Directive 2023/970 must be adapted to each national regulation before 7 of June 2026. From your perspective and beyond the legal aspects, what impacts and changes do you think this Directive will bring for the organizations?

 

Mario: I believe we can say that we are facing a change in thinking in terms of compensation and benefits policies in organisations. I am not only referring to aspects of pay equity between women and men as a principle and objective for the implementation of an egalitarian working environment, or to compliance, control, and monitoring of the principle of direct or indirect pay discrimination. I am referring to aspects of organisational culture and trust, people management, job evaluation models, or transparency and information for people, all of which are understood from a broad diversity perspective, and not only from a gender-based application.

 

Magnus: I view the directive as a "game changer" for all organizations. Since we will be moving from a controlled environment in terms of compensation issues to a completely transparent environment, all organizations need to prepare for new processes such as how to handle requests from employees, ensuring up to date salary structures and prepare for media questions and inquiries regarding gender pay gaps. It is an absolute necessity to understand the current situation and understand the organization's readiness level for the directive.  

2.     The term "pay transparency" is being used more frequently in the business world. The reality of this practice can be very uneven depending on the culture of the companies or the country in which they operate, in addition to the legal obligations in this matter. What is your opinion on this issue?

 

Magnus: With the new directive all companies will be forced to be more transparent with their salary settings. Since their salary ranges will be on display in job adverts and employees will be allowed the right to information regarding their pay companies needs to prepare. Let us face it, most large organisations are not in favour of transparency, but with this directive they will have no choice but to comply. Therefore, they should start preparing sooner rather than later.

 

Mario: I fully agree with you, Magnus, on that we must continue to move towards a culture of transparency, and in this sense there will be HR policies and approaches that will have to be redesigned, evolving from a framework of control to one of trust, in which the role of management and managers will be key in this process of change.

It is significant to mention, that in a recent study on pay trends, 80% of the participating companies were aware of the new developments and obligations in terms of pay transparency, 30% considered that there are no impediments to being transparent, but also recognised that on average 75% do not communicate the salary ranges, the ranking of the position in the ranges, which job evaluation factors applied, or the salary range in the job adds published in 2023. Pay transparency should not be an end, but a way to engage and attract talent.

3.     In your opinion, how are transparency and equal pay linked as a factor of sustainability in companies and how do they relate to ESG criteria (environmental, social and governance)?

 

Magnus: Historically, pay equity has gone under “social” in ESG in most countries. With this new directive pay equity and pay transparency will move to the “Governance” piece of ESG, meaning that it will attract a lot more attention from external investors and internally from legal and CSR as well as the Board of Directors. 

 

Mario: We are coming across more organisations, listed or not, in which ESG metrics are used for the long-term variable remuneration system, which denotes an orientation towards the achievement of these environmental, social and governance criteria.

At this point, the adaptation of this EU Directive 2023/97 to each country will be particularly important, as we will find various levels of enforceability, which will give greater or lesser impetus to the issue in terms of its expected regulatory compliance.

In any case, organisations will have to comply with these regulations in each country (Governance), but the most important way forward will continue to be the social aspect and remuneration management of diverse talent through the generation of commitment, trust and motivation of people (internal perception), without forgetting the company's image of sustainability and its competitive advantage in the market (external perception).

 

4.     One of the most important aspects of the pay audit between women and men in Spain is the identification of the equal or equal value positions and the process of collective bargaining with the legal representation of workers (unions). What are the key issues for companies to consider?

 

Mario: One of the moments of truth in the pay audit analysis that we have been carrying out for many organisations is the approach with the legal representatives of the employees to the identification and definition of the job evaluation model, which must be used to identify jobs of equal value, internal organisational levelling and the subsequent salary analysis of the people who occupy these positions.

Companies should bear in mind that it is necessary to inform about which jobs exist in the organisation and what is the basic content of a job card for the purposes of its subsequent evaluation; to share the factors, sub-factors and weightings of the job evaluation model; to show the map of levelled jobs (jobs of equal or similar value); and to explain how the pay audit process has been carried out and its results. This is the only way to approach the collective bargaining process in an objective and aseptic manner with a focus on the actions or measures to be implemented, regardless of whether there are other collective situations that facilitate or complicate this negotiation with management.

 

5.     What is the relationship between equality plans, diversity plans and LGBTI plans in terms of pay analysis?

 

Mario: It is an interesting question, but not a simple one. Right now, in Spain we have different regulations that focus on diversity of people's identities, such as gender (equality plans between women and men), identity, sexual orientation or gender expression (LGTBI), or subjective areas of diversity (diversity plans).

Although EU Directive 2023/970 may seem to focus exclusively on gender-based criteria, it is oriented towards a global vision of people's diversity identities.

The impact will be comprehensive and linked to having pay audits and remuneration analysis of our workforce. This analysis will be based on unique and objective models for identifying positions of equal or equivalent value (using the applicable framework). To analyse the effective and standardised remuneration (objective metrics) of all people under any of their relevant identities (individualisation), and without being able to maintain pay gaps of more than 5% to guarantee equity and inclusion in decision-making, while respecting confidentiality in all cases.

 

6.     What is the key take aways from the new EU pay transparency directive?

 

Magnus: In June 2026, the EU Pay Transparency Directive will introduce a mandatory set of reporting requirements for all EU companies with 100 or more employees. These companies will need to publish both the salary ranges for each job role within their organisation, as well as any pay gaps related to gender.  

What is not widely known, but is of equal importance, is that the directive will also allow employees at companies of any size to be able to request the salary range for their own jobs.

 

7.     How can the new directive impact companies financially, legally, and brand wise?

 

Magnus: The fact that this information will be made public is seismic in its implications. Unions will be able to analyse the records of every company from SME to multinational, leading to the real possibility of collective claims over pay. A media field day is also a possibility, if for instance the Swedish offices of a multinational bank report a much higher gender pay gap than their German counterparts.  

Beyond the risk of fines, it has already been observed in the UK, where similar legislation has already been passed, that companies experienced a decline in female applicants due to negative perceptions surrounding gender pay gaps.  

 

8.     What is your advice to companies regarding preparations?

 

Magnus: We advise our customers to get ahead of the legislation and establish a baseline regarding their gender pay gap statistics. The directive can be seen as an opportunity for employers to strengthen their employee value propositions. If you as a company will be among the first in your markets to openly publish salary ranges in job adverts, as well as make gender pay gap information available to the public, you can gain trust from both current employees and potential job applicants. The directive will lead to pay transparency across the union, so you might as well lead the change rather than playing catch-up.

 

Conclusion

 

The EU Pay Transparency Directive is sure to cause significant changes to European work life. While some companies may be unhappy with the new transparency criteria, others will see the opportunity to attract top talent. Publishing salary ranges in job ads already now, is a good way for employers to build trust before the deadline in 2026.

The work connected with becoming compliant, such as determining equal and equivalent positions, may provide a challenge. Getting it right is key when setting fair salaries. While the directive’s main focus is gender, it is also likely to impact other factors, such as sexual orientation.

Getting an early start is key to successful implementation of the directive. Companies that wish to get ahead, would do well to start now with reviewing their salaries and job structures. This way they will show themselves as fair, trustworthy and transparent.

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