Is there anything more frustrating than finding a great role that offers a ‘Competitive salary’? What does that phrase even mean? Competitive for the town, the market, or the current employees? For people with a certain skillset? The wording immediately puts us on edge, arouses suspicion that candidates may be treated differently, and is a perfect example of non-transparency.
In fact, according to a survey by Reed.co.uk, 78% of jobseekers are less likely to apply for a job that does not display a salary. Most of us are fed up with it. According to a CIPD survey, 63% of workplaces advertise salary information on job adverts, most commonly an amount or a salary range. The public sector leads the way with the private sector lagging well behind.
What is the EU Pay Transparency Directive?
The EU Pay Transparency Directive came into effect in June 2023 to make information related to pay more accessible. The good intentions of the legislation are to ensure that workers of all genders receive equal pay for work of equal value, eliminating pay discrimination and helping to close the gender pay gap.
The directive comes into force in 2026 and organisations will then have up to a year to ensure they have everything in place. As an EU measure, exposure to the UK is limited and UK-only businesses are not directly within scope. However, it will increase pressure on UK companies to be transparent on pay in order to win the talent race with EU competitors.
What legislation has there been in the UK?
Equal pay has been on the docket in the UK for over 50 years. The Equal Pay Act 1970 was brought in to “prevent discrimination, as regards terms and conditions of employment, between men and women” but had limited long-term impact due to the narrow definition of equal pay, which made it difficult to uphold claims of unequal treatment. In 2017, Gender Pay reporting became mandatory for businesses but only of a certain size, while ethnicity pay gap reporting is seen as best practice but is not mandatory. In short, the UK government has put measures in place moving towards transparency but has not yet made any of them a universal legal requirement.
What are the key arguments for Pay Transparency?
A lack of transparency opens the door to inequality and unfairness. Hiring managers asking candidates for their salary history can skew starting salaries and exacerbate the proven fact that women are less confident pay negotiators than men. Internal promotions based on unintentional favouritism or managerial discretion can go directly against pay policy. All these are pitfalls that can be overcome having defined and transparent pay ranges, starting salary policies and clearly published promotional increases by grade.
Furthermore, Pay Transparency is already seen as best practice in other countries, for example in Scandinavia where pay gaps are now lower as a result. In the USA many states now require far greater transparency in how roles and pay ranges are advertised. So in a global market sense, a shift towards transparency will help keep UK businesses competitive.
For employees, Pay Transparency can foster a sense of fairness by reducing pay gaps and disparities and promote trust between management and staff. It also plays a role in helping with career and development planning by giving people a line of sight to the future.
For companies, it can add motivational and brand appeal by demonstrating a commitment to social responsibility. It can enhance external and internal reputation, which in turn can help attract and retain staff. On a practical level, it also helps streamline the recruitment process and saves time on pay negotiations.
What are the challenges?
Money is an emotive subject that not everyone wants to share. Where total Pay Transparency has come into effect without the necessary frameworks, it can create unrealistic pay expectations among workers and have a demotivating effect on employees whose pay is below average. This puts an added onus on management to be able to explain any differences in pay, which often requires more training and investment in those managers. If they’re not able to answer key questions, they risk a staff backlash.
For companies, there is also a concern that transparency means needing to pay everyone the same, which might inflate salaries or cause companies to lose a competitive edge in the market by giving rivals too much information on their pay and benefits. There is certainly a fine line to tread and a lot of that comes down to the amount of context and background information given alongside pay, and how the whole thing is framed and managed.
Paving the way to Pay Transparency
Pay Transparency starts well before hiring and promotions. It begins with a clear and simple job evaluation framework supported by robust pay benchmarking. Together, these level out and define roles and provide a pay structure that enables true progression.
If you would like to explore Pay Transparency, but could benefit from help with your job evaluation framework or pay benchmarking, contact sarah.nash@innecto.com
Download: Pay Transparency whitepaper >>
