Insights
Understanding and Preparing for
the Rise in Pay Transparency
New regulations in the U.S. and Europe will require companies to be
more transparent about their pay practices. Combined with willingness
among workers to talk about salary, the era of pay transparency is here
Key Takeaways There is not a single argument why — for
the same type of work — a woman should
get paid less than a man. Not a single
01 Pay transparency continues to gain
argument, not a single one […] It's a basic
momentum, as more jurisdictions
principle of equality, it’s finally cast into
pass regulations.
law. Equal work deserves equal pay.
02 Increasing transparency requirements Ursula von der Leyen
are also moving companies toward European Commission President
equity in pay.
03 The EU Directive on Pay Transparency
marks a sea change that will affect
companies worldwide.
The rise in pay transparency and pay equity ●
Reporting and sharing information on the gender
initiatives around the world is catching up with a pay gap in the organisation overall and in distinct
cultural shift, especially among younger employees. categories of jobs with workers
Where it was once considered impolite or taboo to ●
Working with employee representatives to assess
publicise salary information, a movement has grown
the causes of pay gaps and remedy those gaps
around the notion that shielding the numbers has
allowed companies to reinforce and exacerbate Under these new regulations, companies will be
gender gaps in pay. Thus, regulatory bodies across required to go beyond paying the same for identical
Europe and North America are mandating more work. Rather, a set of gender-neutral job evaluation
salary disclosures around pay. methodologies and classifications will need to be
developed and pay equity will be required across
Arguably the most sweeping pay transparency
similar categories of jobs. The criteria will include
regulation is the European Union Directive on
skills, effort, responsibility and working conditions.
Pay Transparency. The directive requires member
Employers must not undervalue soft skills or reflect
countries to pass legislation mandating greater
gender biases.
transparency and equity in pay.
The penalties for non-compliance have not yet been
Taken collectively, these regulations aim to address
spelled out, but the directive requires them to be
wage disparities, promote fairness and empower
“effective, proportionate and dissuasive penalties.”
employees to make informed decisions about their
Laws allow employees who have suffered from
careers. Compliance is important — and many
inequitable pay practices to recover damages or
multinational companies may not be fully aware of
reparations. Victims of pay discrimination would
the degree to which they must comply with the EU
be entitled to compensation, and the burden of
Directive or other regulations in jurisdictions where
proof would fall to the employer once a claim
they are hiring.
of discrimination has been made. This means
How can companies navigate the emerging companies must have documented evidence to
patchwork of pay transparency regulations? show they are not engaging in discrimination.
United States (U.S.)
The State of Global Pay More than 20 U.S. states, and nearly two dozen
Transparency cities and counties, have restrictions on asking
applicants about their salary history. Ten of those
states also mandate that all job listings contain
Here’s a roundup of some of the key pay a salary range. Some apply to private business,
transparency regulations happening around while others only apply to governmental entities.
the world. Additionally, some restrictions only apply until an
offer is made, while others carry all the way through
European Union (EU)
the hiring process.
The biggest, and potentially most impactful,
Some U.S. companies think of pay transparency
regulation is the EU Directive on Pay Transparency.
as an EU concern, or as something that will never
Its goal is to reinforce gender pay equity. In April
actually affect them. Certain industries are also
2023, the European Union adopted a pay
reluctant to publicise salary information, as they
transparency directive aimed at closing the pay
fear a backlash from clients and the loss of what
gap between men and women. While not binding
they see as a competitive advantage. But more than
legislation itself, the directive requires member
half the U.S. population lives in places with some
states to pass new legislation by June 2026 that will
form of regulation. This, coupled with the growing
require all companies with 100 or more employees
compliance issue and social movement toward pay
in Europe to comply with a set of stringent rules,
transparency, makes such assumptions seem unwise.
including, but not limited to:
●
Providing pay ranges to job applicants
●
Providing information on the criteria for
determining pay and pay progression to
all workers
Canada Australia
While there is no national requirement for pay Australia banned pay secrecy in December 20222,
transparency in Canada (with the exception of meaning companies are not allowed to prohibit
some higher-salaried government jobs), adopted employees from discussing salary. Employees have
legislation in British Columbia requires companies to the right to share (or not to share) information about
disclose pay ranges and prohibits asking candidates their pay with each other. Additionally, companies
about previous pay. Similar legislation has passed with 100 or more employees must report on their
in Newfoundland and Labrador, as well as Prince gender pay gap annually3.
Edward Island, and is being considered in Ontario.
Companies in these areas are also required to
publish wage gap information. The Impact of the EU Directive
Canada also has stringent requirements around job on Multinationals
evaluation for public employees. These requirements
mandate that gender neutral standards are set to
Any multinational company with a certain number
establish the appropriate classification level for jobs.
of employees in one or more EU member states will
United Kingdom (UK) need to comply with the directive and related laws of
each EU state in which they have employees.
Since 2017, the UK has had gender pay gap
reporting requirements in place. Because so many While the EU directive will not apply outside the EU,
companies in the UK are multinational and have a other countries — especially the UK — have used
presence in the EU, there is speculation that the UK the directive as a model and may implement many
will eventually adopt elements of the EU directive. of its elements. The EU directive also reflects global
trends that other nations around the world, including
These could include:
some U.S. states, may adopt. Multinationals should
●
Publishing pay ranges in job listings assess pay practices globally to ensure they are
prepared for these changes beyond Europe.
●
Giving all workers information on the criteria for
determining pay and pay progression
●
Compelling companies to provide equal pay for
equal value.
Don’t let the deadline date lull you into a false
Japan sense of security. This shift is going to take time,
The government’s 2022 Framework Policies1 plan and companies need to start preparing now to
requires companies with more than 300 employees make sure their new systems are in place and
to calculate women’s pay as a percentage of men’s they’ve worked out all the details.
pay across all employees. The same information Kelly Voss,
must then be broken out by regular and irregular Head of Rewards Advisory, North America
(e.g. part-time, contract and contingent workers)
employees. The gender pay gap must be disclosed
annually and within three months following the end
of the fiscal year. These percentages must be posted
on the company’s website. Beginning in January
2023, gender pay gap data was also required in
annual securities reports for listed companies.
Smaller companies are currently exempt from pay
gap reporting, but this could change in the future.
1
Outline of the Act on the Partial Amendment to the Act on Promotion of Women’s Participation and Advancement in the Workplace
2
Fair Work Legislation Amendment (Secure Jobs, Better Pay) Bill 2022
3
Gender Pay Equity
Six Steps to Prepare for Pay Transparency
Preparing for the coming changes may seem like a daunting task; these are big deviations from the culture around
pay that most companies have built. But by asking tough questions and following the lead of a trusted advisor,
companies can make a smooth transition.
01 04
Assess Compliance With Regulation Prepare People Managers to Communicate on
This Issue
Determine which laws and regulations apply to
your business — and which segments of your How ready are people managers to handle
employee population. Consider whether voluntary these tough questions from employees? Do all
disclosure or compliance with certain laws makes managers have a solid understanding of how the
sense, particularly if laws apply to certain segments pay program works?
of the employee population and not others. Communication will be key. Offer simulations
For example, as part of the EU Directive, job and role play tough conversations to make sure
evaluation methods to compare and assess pay your managers are answering difficult questions
levels must be based on gender-neutral criteria effectively. Ensure all people leaders are well
and include gender-neutral job evaluation/ educated on the process for setting and moving pay.
classification systems.
05
02 Address the Bigger Philosophical Question
Consider Your Pay Transparency Foundation Around Transparency
Start with an updated job architecture to make Understand your organisation’s approach and
sure you have jobs and people in the right roles in focus on being prepared. Regardless of current
the first place. This will serve as the foundation of requirements, take proactive measures: perform a
pay equity. You could also conduct an accelerated pay equity analysis, identify existing gaps, revisit
salary structure design initiative, which many total your job architecture and salary levels to improve
rewards teams are dropping everything to complete. your reward programs and implement continuing
Part of this requires ensuring you have clear manager training. Even if your organisation is
processes, guidance and governance to underpin not subject to specific pay transparency laws, lay
rewards, recruitment, talent and promotion decisions. the foundation for future disclosure and consider
whether proactive disclosure makes sense for
03 your business. For example, are your competitors
disclosing salary ranges? Do leaders think it will be
Create a Roadmap for Change beneficial for talent acquisition efforts to have this
Conduct an internal pay equity audit and ensure that level of pay transparency?
follow-up audits are scheduled regularly. Determine
if pay equity gaps are statistically significant, and if 06
so, examine the root causes.
Look at the Full Picture of Pay Transparency
Next, move on to remediation strategies. Determine
Posting salary ranges is probably the most visible
who is eligible for equity-based adjustments, and
step in pay transparency, and the one that requires
how much closing the gaps will cost. After equity
the most preparation. But by no means is it the only
gaps are remediated, decide if hiring and promotion
step. Being prepared to discuss and, if necessary,
practices need to change. Revisit your pay equity
close a pay equity gap requires a culture change
analysis with a focus on what it is you are paying
that may challenge many organisations.
for. Is it true that only fully proficient employees
are paid above the midpoint? What else drives
pay? Is it tenure or experience, or education or
reporting lines?
Pay Transparency Opens the What do these challenges have in common? They’re
all the by-products of poor preparation or existing
Door to Opportunities and pay equity issues. Companies that are prepared for
Challenges pay transparency and have a solid foundation of pay
equity, can expect the following benefits:
●
Increased fairness and equality, improving
There are genuine business advantages to pay
diversity, equity and inclusion (DE&I) and pay
transparency. This truth sometimes gets lost in
parity between men and women
the compliance discussion. Pay transparency
can eliminate the applicant guessing game that ●
Identification of underlying issues within the
often costs time and money when candidates’ culture of the business
expectations don’t match the salary range a ●
Removal of embedded bias in recruitment practices
company is offering. However, for those companies
that are not properly prepared, pay transparency
●
A rise in talent attraction and retention
can also cause short-term difficulties. The burden of ●
Improved trust, loyalty, performance, retention and
workers knowing what the salary range for a position brand recognition
is, and then knowing where they stand on that ●
Increased motivation for employees to develop
range, usually falls on supervisors. They will be the
their career
ones fielding complaints from workers whose pay is
not in line with others. Beyond the compliance aspect, companies see pay
transparency as a component of their commitment to
There are a few easy-to-see challenges that the pay
DE&I and pay equity. Pay transparency is also viewed
transparency movement presents. Compliance with
as a positive driver of retention and culture — a key
regulations may:
asset in today’s evolving workforce and war for talent.
●
Lead to wage inflation and increase costs Similarly, the open communication connoted by pay
●
Lead to a loss of talent and talent wars transparency resonates with many younger workers.
●
Increase risk of employee relations issues Being compliant and transparent about pay is a
including grievances big step, but it’s only the first step toward pay
equity. And while equity may seem like an elusive
●
Trigger new waves of equal pay claims goal, it’s one that will bring a host of competitive
●
Highlight weak or non-existent frameworks, advantages. Companies that become known for
processes and data (e.g., job evaluation paying their workers equitably, even if that wasn’t
methodology, regular pay equity audits or always the case, will be able to compete for talent in
sufficient compensation market data) a competitive marketplace.
●
Reveal ambiguous pay policies around pay setting, Learn more about how Aon helps organisations
job evaluation and levelling, pay scales and pay prepare for pay transparency and pay equity.
governance
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