At a time when Pay Transparency feels more important than ever, Innecto’s team of consultants is focusing on how building the right frameworks and structures plays a fundamental role in supporting Pay Transparency and Pay Equity. In a new four-part series by our Director of Business Innovation and Senior Principal Consultant, Sarah Lardner, we first outline the ramifications of the EU Pay Transparency Directive, and will then (2) examine what Pay Transparency means to employers in the UK, (3) lay out the steps companies can take to prepare and transition, and finally (4) look at how digital platforms are aiding us all in this process.

What is the EU Pay Transparency Directive?

The EU Pay Transparency Directive came into effect in June 2023 and comes into force in 2026, from which time organisations will have up to a year to ensure they have everything in place. The intention of the legislation is to make information related to pay more accessible so that all workers - irrespective of gender or ethnicity - can receive equal pay for work of equal value. Ultimately, it seeks to eliminate pay discrimination and help close the gender pay gap.

As an EU measure, the Directive is for organisations with an EU-based operation so exposure to the UK is currently limited. UK-only businesses are not directly within scope. However, the legislation will raise expectations of employees, candidates and suppliers on the level of pay transparency, and increase pressure on UK companies to be transparent on pay to stay competitive in the talent race.

Key elements for EU employers

1. Recruitment phase - Employers will need to provide information on the pay level or range associated with a specific role when advertising jobs. This helps potential applicants make informed decisions and promotes transparency in the recruitment process. Employers cannot ask applicants about their pay history.
2. Right to information - Employees will have the right to request information on average pay levels or pay ranges, broken down by gender for comparable work.
3. Pay setting and application - Employers will need to make this information accessible and easy to understand, alongside the criteria used to determine pay, pay levels and pay progression.
4. Regular assessment of pay infrastructure – There will be an onus on employers to assess pay structures and policies periodically to ensure they are free from gender bias and promote equal pay, with any discrepancies or inequalities identified and corrected.
5. Reporting on Gender Pay Gaps for all workers – Every three years, employers with 100-249 workers will need to submit information on the pay gap between female and male workers in their organisation and may make it publicly available. For employers with at least 250 workers, this will be an annual requirement.
6. Remedying unjustified gaps - Where pay reporting reveals a gender pay gap of at least 5% which is not justifiable on objective gender-neutral factors, employers will have to carry out a pay assessment and address any unjustified gaps.

Generational shift in mindset

Our client conversations around Pay Transparency tend to be geared in two directions – upwards with leadership and then towards the under-40s.

In terms of strategy, we often work with senior leadership teams to help them articulate what “transparent, fair and equitable” means to them, and how culturally ready they are to broach strategy and comfort levels around the topic. As with Equal Pay Audits, many are nervous about how robust their structures would be in moving towards transparency, and that a transparent pay policy will lead to inflated salaries or losing a competitive edge.

Sometimes, leadership teams think they have Pay Transparency solutions in place, but the company lacks the foundations and structures to make and articulate pay decisions in a transparent way. For example, a company might share a pay range on a job advert (£40-45k) without sharing enough contextual information around skills or experience. Existing staff earning less than this may fill the context/information vacuum with their own poor research or misinformation, which can lead to problems.

PayLab - Innecto’s revolutionary pay benchmarking solution for gaining clarity around your current and aspirational pay stance - including reports by department, gender or ethnicity.

The other conversation is geared lower down organisations, towards the under-40s. This group is hungry for progression and pay growth and will jump ship for either. Typically, the younger generation – who advocate more for transparency and equality - uses online tools like Transparency Street and Glassdoor to glean salary information and will infer meaning from whatever data they access, much of which falls in the same information vacuum. Some of this risk can be mitigated by ‘opening up’ and talking about comfort levels and aspirations around transparency, which is where we have been focusing a lot of our work with clients.

Whether inside or outside of the UK, the growing tendency towards legislative reform in Pay Transparency is likely to require evermore disclosure from employers, so standing still and doing nothing is no longer an option. If you feel you could benefit from a Pay Transparency Assessment and Action Plan, please contact Sarah.Lardner@innecto.com.

Next time, in the second of this four-part series, we look at the core foundations that underpin every company’s pay structure, policies and practice on the path to Transparency.

 

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