Mercer: Pay Transparency Directive; will it finally bring pay equity to the EU?
The right to equal treatment as regards access to employment, vocational training and promotion, and working conditions has been a founding principle of the European Union (EU) since the Treaty of Rome in 1957. Bringing parity across Europe to that right has so far proved elusive. In the 1970s, women earned on average about 50 per cent of men's wages in manufacturing and professions and the gender pay gap currently remains at circa 13 per cent, having only changed minimally over the last decade. The imbalance remains even after successive attempts by the EU to introduce and enforce legislation to close the gap.  “Pressure is mounting from a variety of stakeholders, including investors, shareholders, employees, consumers and regulators, who want organisations to achieve pay transparency and pay equity for their employees,” said Mercer’s Pay Equity Leader for Europe, Lea Lønsted. “However, there remains both behavioral and attitudinal challenges that prevent progress.”
Current research from Mercer shows that more than two in five (43%) organisations in Europe regard compliance with existing regulations as the greatest driver in their efforts to achieve pay transparency, while a third (33%) are ‘exploring implementing pay transparency regardless of compliance requirements’. More than four fifths (81%) of organisations in Europe only include compensation elements in job postings where required by legislation.
What this means is that many organisations are only motivated to change where legislation specifically requires them to make changes. So far, legislative attempts by the EU to close the gap have failed for a variety of reasons.
This may all be about to change. The new EU Directive on Pay Transparency seeks to ‘strengthen the application of the principle of equal pay for equal work or work of equal value between men and women through pay transparency and enforcement mechanisms’. On 30th March 2023, the European Parliament voted "yes" to the text of the directive, and formal adoption of the directive takes place in April of 2023. Once formally adopted, the directive is expected to come into force during summer 2023, giving EU member states until 2026 to adopt the directive into specific legislation.
The directive seeks to bridge specific gaps in existing EU legislation and address a lack of pay transparency, legal uncertainties around concepts of pay and work of equal value and access to justice and procedural obstacles for redress.
At Mercer, we believe that this legislation will only be successful if companies determine a skills and jobs architecture that enables accurate comparisons across roles and responsibilities.
We are in favour of the Equal Pay and Pay Transparency directive, especially as it seeks to level the playing field and close the gender pay gap for good. The challenge facing employers, especially international companies, is how to accurately undertake like-for-like comparisons to ensure that they are compensating employees with equal pay for equal work. There may well be additional challenges in this respect when differing jurisdictions across the Union implement the directives with potentially different legislative interpretations.
The second element to consider here is reporting; and especially where there is a variance in pay that on the surface, appears to be discriminatory. Companies will need to provide a valid reason for any pay discrepancy between employees that seemingly have the same role and responsibilities. Pay equity regression methodology is a helpful to assess that employees are paid the same for the same positions under the same conditions.
Organizations need to understand the implications and be ready to respond to the risks and opportunities that pay transparency presents. This covers three distinct areas:
- Legal compliance
- Pay equity
- Employee experience
As with any organizational transformation, the first step is mapping your journey. You can find more information about the EU Directive and how to move towards Pay Transparency on our website.
Date: April 2023
Author: Mercer |
