EU Rule Sets ‘New Global High-Water Mark’ for Pay Transparency
Workspan Daily
April 06, 2023
Key Takeaways
  • More transparency coming. A new European Union directive will within the next three years prohibit employers from preventing their workers from sharing their salary or looking into others’ pay.
  • What the data reveals. The gender pay gap in the EU was at 13% in 2021, while American women were paid 84 cents on the dollar compared to men’s wages. 
  • How to prepare. Ahead of implementation, experts said all EU employers should already be tightening their job and pay structures as well as ensuring pay policies are being applied consistently across their organization. 

“Pay secrecy will be banned,” trumpeted a recent announcement by the European Parliament as it formally adopted its Equal Pay and Transparency Directive, which says employers can’t prevent employees from sharing their salary or looking into other people’s pay. 

With implementation set within the next three years, European workers will soon have the right to access both individual and average compensation details in their job category.  

The directive is designed to identify and ameliorate gender disparities as well. Research has identified salary transparency as vital to closing the gender pay gap. 

The rule will also require affected employers to implement pay structures to compare pay levels based on gender-neutral criteria and include gender-neutral job evaluation and classification systems. 

“This legislation makes it crystal clear that we do not accept any kind of gender pay discrimination in the EU,” said Danish EU politician Kira Marie Peter-Hansen, who worked on the new legislation. 

Official data show that women in the EU on average earned 13% less than men for doing the same job in 2021.  

So, what does the EU action mean for employers with operations in one or more of the 27 member countries of the EU and beyond? 

A Deeper Change

The rule steps up the level of information employers must provide employees about their pay, including “information on how their pay compares to male and female peers,” said Tamsin Sridhara, WTW’s global pay equity lead. “Employers will need to be fully confident they are delivering equal pay ahead of the EU Directive provisions coming into effect.” 

While the provisions introduced by a growing number of U.S. states and municipalities are mainly focused on providing information to candidates and employees on the pay range for their job, the EU pay transparency provisions go much further, Sridhara said.  

“Employees will have the right to information on average pay levels for male and female peers,” she said. “Where the difference in male and female pay for peers is 5% or more, and the employer cannot explain this objectively, the employer will need to take action to reduce the difference to less than 5%.”

Four Areas of Focus

Employers with European operations have three years to prepare, but “[they] need to start now,” Sridhara said.  She advised employers to immediately begin assessing their current state to identify priority areas for improvement, as some actions may require a multi-step process in order to embed within the organization. 

Such actions typically involve: tightening job and pay structures; ensuring pay policies are being applied consistently; enhancing the ease of data collection and the scope of analyses; and increasing the education of leaders, managers and employees on pay.  

Whereas the EU directive is “stronger” than what has been implemented anywhere in the U.S., Sridhara said U.S. employers should nonetheless focus on the trend of more states introducing a requirement to provide pay-range information to both candidates and employees.

‘A Big Change and a Big Deal’

Christine Hendrickson, vice president of strategic initiatives at Syndio, called the EU directive the “new global high-water mark” for pay or workplace-equity laws and also advised U.S. employers not to sleep on the issue. 

“Don't fall into the trap of thinking ‘I don't have any employees in Europe, so I can ignore it,’ ” she said. “Ignoring this directive would be a miss because this is the best roadmap for what's to come, not only in Europe but in the U.S. and across the globe.” 

To that end, Syndio, which sells software designed to measure workplace equity, has created an EU pay transparency cheat sheet for employers to quickly catch up on the directive’s possible repercussions for all employers.  

Among other issues, Hendrickson said the regulation’s public pay-gap reporting requirement will require companies doing business there to rethink their approach to global pay reports, “with a focus on coordination and being more strategic.” 

She also called attention to a “very clear trend of global cross-pollination of pay-equity laws” in recent years, such as with salary-history bans and pay-scale disclosure laws in California and New York City. Similar provisions are included in the EU measure.  

But, she cautioned, “there are also a lot of things that are not currently required broadly in the U.S. that are likely to form the roadmap or blueprint of what is to come, including a shift away from ‘equal pay for equal work’ in favor of ‘equal pay for work of equal value.’ 

“This is a big change and a big deal,” Hendrickson said.

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