EU Directive Prompts Businesses to Set Global Pay Standards, But Progress is Slow

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For more information:                                                                                      hmiskin@tcb.org  

Report: EU Directive Prompts Businesses to Set Global Pay Standards, But Progress is Slow

Brussels, June 24, 2024…A new report from The Conference Board, based on a survey of 78 of Europe’s largest employers, finds that the EU’s new Pay Transparency Directive is pushing businesses to set global policies on pay. 55% of senior human resource executives surveyed say that they have, or are planning, a single approach to pay across their international operations. However, the report also highlights the need for accelerated action to implement the Directive, with 41% of respondents–whose companies collectively employ approximately three million people globally–saying that they have yet to begin preparing.

Under the Directive, effective starting June 2026, companies that employ more than one hundred workers in the EU must disclose information about pay levels to employees and candidates, and report annually on their gender pay gap. If the gap is higher than five percent, they must take mitigating action or face mandatory fines.

The report, Countdown to the EU’s New Law on Pay Transparency, notes that there are strong concerns among employers about the new requirements. Many are apprehensive about how the regulation will affect wage bills, competitiveness, and the ability of managers to reward their best performers.

The report was launched at The Conference Board’s Future: Reward Europe event, held in Brussels. In a separate live poll conducted at the gathering of senior executives responsible for pay, 44% of participants said that they were “concerned or very concerned” about the impact on wage bills, with only 3% “not at all concerned”. Of the 75 respondents to the live poll, 43% said that the Directive could increase their European wage bills by between 2.6% and 5%.

“Our analysis shows that complying with the Directive is data-intensive and requires a high level of cross-functional collaboration, so it is a concern that many businesses have not yet begun to prepare for it”, said Jean-Marc Verbist, Leader of The Conference Board Human Capital Center, Europe. “Compliance is likely to come with a significant cost. Beyond the anticipated short-term rise in wage bills, businesses will also need to invest in training, data gathering, and internal and external communications. Chief Human Resource Officers need to ensure their boards and senior managers are aware of the risks of non- and low-quality compliance: not just potential fines, but also increased workplace tensions and loss of productivity.”

Key highlights from the report include:

SETTING GLOBAL STANDARDS:

Pay transparency is gathering momentum around the world:

• 10% of survey respondents already have a global framework for pay transparency in place, while 45% say that they are planning a global approach.
• 30% say that they will restrict pay transparency to EU regulatory requirements, while 15% remain undecided.

REGULATORY READINESS

Businesses are off to a slow start in preparing to comply with the EU Directive:

• 16% of businesses assess themselves as being a significantly long way from readiness, and 41% have not yet begun preparing for implementation.
• Less than 2% of businesses believe that they are already compliant with the regulation, while 10% believe they are close to readiness.
• 44% of respondents say that their internal systems and data require additional work to capture and analyze the data required by the Directive.

IMPACT ON EMPLOYEES

Managers see the upside of pay transparency regulations, but there are risks:

• 30% of respondents believe that the Directive will help them to address the gender pay gap and improve female representation at a senior level.
• 25% say that the Directive will enable managers to have open discussions with staff and debunk perceptions around pay.
• In discussion, executives voiced concerns about the impact on labor relations and negotiations with social partners, including unions and works councils.

Media Contact 

Harry Miskin: hmiskin@tcb.org  

About The Conference Board 

The Conference Board is the member-driven think tank that delivers Trusted Insights for What’s Ahead™. Founded in 1916, we are a non-partisan, not-for-profit entity holding 501 (c) (3) tax-exempt status in the United States. www.ConferenceBoard.org