Pay Transparency: Three issues that can turn into big headaches

By Veronica Fridfeldt Hoff

Klar_Reward Agency

Transparency will bring fundamental change. Are you ready?

Pay Transparency is coming. A new directive has already been decided in the EU parliament. Later this year it will be formally ratified. Member states will have three years to transpose it into national law. Key elements are:

  • Pay transparency for job-seekers 
    • Employers will have to provide information about the initial pay level or its range in the job vacancy notice or before the job interview.
    • Employers will not be allowed to ask prospective workers about their pay history.
  • Right to information for employees
    • Employees will have the right to request detailed information from their employer on average pay levels. This right will exist irrespective of the size of the company.
  • Reporting on gender pay
    • Employers with at least 100 employees will have to publish information on the pay gap between female and male workers
  • Joint pay assessment
    • When an unjustified gender pay gap of at least 5% is revealed, employers will have to carry out a pay assessment in cooperation with workers’ representatives.
  • Burden of proof on employer
    • It will be for the employer, not the worker, to prove that there was no discrimination in relation to pay.

The sanctions are yet to be put in place by the member states. We can expect them to be effective, perhaps even severe. For those caught on the wrong side of this directive, the real pain will be felt elsewhere. Becoming famous for having unfair pay practices can be a serious headache for your brand. Better make sure that you support fair pay. The good news is that any change you need to make will be good for you. You should be doing it anyway.

Who needs to worry?

Equal Pay for Equal Work has been a founding principle of the EU since 1957.  While the focus of this directive is fighting pay inequality, transparency will expose the hidden flaws in your pay practices, even those not related to fairness at all. Let’s examine if you need to prepare.

Problem One: Do you have any pay gaps?

A gender pay gap is an inequality in pay distribution that can’t be explained by gender neutral factors such as job level or contribution. We focus mostly on the gender pay gap, but pay gaps come in many forms, such as age, race, sexuality. Pay gaps can be challenging to spot. They are found even in companies with the purest intentions. Better be prepared. Find out if you have one.

Problem Two: Are your salaries fairly aligned?

Transparency will expose your internal pay differences to the scrutiny of all your people. While individual salaries won’t be made public, you should act as if they were. Make sure that you reward the right people for the right contribution to your business, and that your allocation of salaries down to the individual level are aligned with the current and future goals of your business. Then you will have nothing to hide.

Problem Three: Are your salaries aligned with the market?

Make sure that you are competitive in the market you recruit in. Increased transparency means increased focus on pay levels. Will your high contributors make more working for your competitors? Make sure you are their best option.

What to do?

If you have none of the above problems? Be happy. Soon everyone will know that you are a fair employer that rewards high job contribution. The coming regulation is only to your advantage: you will be better able to attract, engage, and retain the right people for your company. If not? Fixing the problem is not that difficult. It involves adjusting processes and policies you should have in place already. It is something to look forward to. You will get in better shape.

“It’s the structure, stupid”

“It’s the economy, stupid” is a well-known saying about what ultimately matters in US elections. We don’t mean to offend, merely to point out that most problems related to fairness are structural, and best addressed on the structural level.
Trying to solve every issue on a case-by-case basis is ineffective. You will replace one unfairness with another, weaken the internal guard rails of your organization, risk salary inflation and reduce your people’s trust in your fairness.
A job architecture is the internal structure of jobs within an organization. It arranges each job in a hierarchy after their contribution to the company, introducing organization-wide levels to determine a position’s value to the company. A well-designed job architecture will make most problems go away. Make sure your job levels are aligned properly, that you have good governance in place and that you benchmark appropriately, then your salaries will automatically be fair, free of pay gaps and engage the right people. Will your pay levels still be challenged? All the time. But if your structure is built on fairness, your policies are being followed and your pay levels are aligned with the market, you will have nothing to hide.

We can help

Klar Reward Agency offers simple, easy to understand solutions with predictable outcomes. We offer a range of plug-and-play packages related to pay transparency, and we are experts in job architecture. Contact me if you need a hand.