Countdown to EU’s New Law on Pay Transparency: Multinationals Must Move Faster

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Countdown to EU’s New Law on Pay Transparency: Multinationals Must Move Faster

21 June 2024 / Report

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The European Union’s Pay Transparency Directive, effective from June 2026, sets new standards for openness and fairness in pay practices. It aims to ensure equal pay for equal work or work of equal value across genders, workers with disabilities, and non-binary or gender-neutral individuals. This report, based on a survey of 78 of Europe’s largest employers, looks at the issues faced by firms to meet the directive’s requirements.

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Mandated disclosure: Under the directive, firms must disclose pay information to employees and job candidates, demonstrate pay equity, and report annually on their gender pay gap. If the gap is higher than 5%, they must take mitigating action or face mandatory fines. Firms have work to do—research shows that women in Europe currently earn 13% per hour less than men and the gap has decreased only minimally in the last decade. The gap is much higher within the private sectors of countries including Germany (20%), Netherlands (18.7%) Ireland (17.6%) and Italy (15.4%).
Strong concerns from executives. Survey respondents express concerns that the new requirements could expose salary information to competitors. Also, it potentially weakens the link between individual pay and performance because companies may narrow pay ranges to preempt demands to justify the difference between salaries at either end of the range. This levelling effect could reduce managers’ ability to reward their best performers.

Wage Impact: The law’s effect on wages is unpredictable. Wages may increase as companies eliminate pay gaps, however transparency on pay ranges could raise the expectations of employees and job candidates. As companies become more cautious about pay disparities between employee groups, the value of pay differentials as a tool for talent recruitment and retention is likely to be reduced. Chief Human Resource Officers (CHROs) may need to revise their pay structure based on reliable data and fair and objective criteria, and communicate this program effectively to internal and external stakeholders.
Impact on employees: embedding pay transparency into people processes and regular gender pay gap reporting may contribute to a more inclusive culture, but this depends on clear communication about pay policy and how to interpret reporting data. Survey respondents expect higher quality discussions between managers and workers regarding

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Authors

Marion Devine

Principal Researcher, Human Capital, Europe
The Conference Board

Neil McPherson

Council Director, Global Pensions & Benefits Counc…
The Conference Board

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