While the drive and legislation for Pay Transparency differs from country to country, one consistent thread is the aim to address and alleviate pay disparity. Even if more has been done in other countries than in the UK, the trickle-down effect of those pay equity laws is still a driving force behind UK companies taking the issue more seriously.
In Europe, the EU Pay Transparency Directive was passed in June 2023 and comes into force in 2026. Its principal aim is to ensure equal pay for equal work, or work of equal value, between men and women by giving employees extensive new rights to information about their own pay and the pay of male and female peers. While UK exposure to that EU legislation is limited to companies with operations in Europe, the global shift is raising expectations among employees, candidates and suppliers, and increasing pressure on UK companies to be open on pay if they want to stay competitive in the market place.
Key EU Pay Transparency measures
- Recruitment – employment ads will need to provide information on a role’s pay level or range. Employers will not be able to ask applicants about their pay history.
- Right to information - employees will have the right to request information on average pay levels or ranges, broken down by gender for comparable work.
- Pay setting and application - employers will need to make this information accessible, alongside the criteria used to determine pay, pay levels and pay progression.
- Regular assessment of pay infrastructure – there will be an onus on employers to assess pay structures and policies to keep them free from gender bias and promote equal pay.
- Accessibility of Information - all information provided must be accessible to everyone, including those with disabilities.
- Reporting and remedying – female/male pay gap reporting every three years for employers with 100-249 workers, and annually for 250+ workers. Where a gender pay gap of 5% or more can’t be justified, employers will need to carry out a pay assessment and address any unjustified gaps, with penalties for failure to comply.
The case for change
The argument for Pay Transparency in the workplace is that it pays dividends in several ways:
- When employees believe their pay is fair, job satisfaction and morale increases
- Staff retention receives a boost, along with productivity and engagement.
- Workers are more likely to recommend their place of work
- Job adverts that include salary information receive twice as many clicks on average, and six times as many applications
Barriers to change
Even with legislative and societal pressure, many companies are still resistant to change:
- There is resistance among older workers who have developed careers and pay in a more secretive environment
- Perceived salary consequences such as comparisons among staff and inflated pay
- Negative impact on morale and staff attrition
- Fear of losing a competitive edge in the market.
Moving towards Change
A company’s next steps will depend on its readiness for change, for which we have devised a Pay Transparency Readiness Framework. However, the following checklist should apply to all.
1. Plan and gain buy-in - HR should provide clarity and guidance to business leaders around legislation and relevant context. Start by working with your senior team to define transparency, explore the challenges you face as a business and how your business could directly benefit from being more transparent. Plan accordingly.
2. Understand your data – Scrutinise your current data and identify any new data requirements around pay decision and role definition:
2a. Pay approach – question your guiding principles for how reward should work:
- Could we stand behind and articulate our pay policy and approach if challenged?
- How confident are we in how we assess roles and audit pay?
- Can any differences in eligibility, opportunity and outcomes be explained and defended with gender-neutral reasons?
- Can you explain objectively why pay or benefits eligibility differs between categories of worker?
2b. Job Evaluation – ‘comparable work’ is key in the requirements of the EU Directive and will place scrutiny on how roles are assessed and classed as comparable. Ask:
- How confident are you in the way roles are defined?
- Is your job evaluation methodology robust enough to assess roles doing the same, similar work or work of equal value?
- Could you benefit from a clearer reward strategy or Job Evaluation framework?
3. Create an Action plan – decide what needs to be addressed. Document the reasons and lay out a plan of action to reduce pay gaps.
4. Engage and educate managers and employees - Managers play a crucial role in bridging the gap between the leadership team and employees, and in determining everyday employee experience, buy-in and engagement. Make sure all managers know the same around compensation and any legislation. Give them access to any sharable data and train and support them in how to discuss issues around pay.
5. Monitor change - Track the impact on pay gaps of any changes you make to benefits, recruitment and education and stay agile to further change.
It is easy to think of 2026 as the finish line for Pay Transparency but it is just one point on a long journey of change management - one with bumps in the road, and no obvious end in sight.
