5 ways to prepare for pay transparency
As companies with employees based in Europe are busy preparing for the requirements of the EU Pay Transparency Directive, which came into force last year (March 2023), employers in the UK as well as EMEA are realising they cannot ignore the change this wave of new legislation is bringing.
Firms are reporting changing attitudes and expectations among candidates and employees for greater pay transparency, and that embracing a pay disclosure strategy can bring significant benefits in attracting and retaining talent.
Pay transparency refers to any effort to make compensation information more accessible for employees and the public.
According to Aon’s Pay Transparency Readiness survey of 250 companies in August 2023, only 21% had a plan to address the upcoming regulations.
“Given there is so much to be addressed, most organisations do not know where to start”, says Adithi Jagannathan, partner, Aon Talent Solutions, UK.
5 tips for companies to prepare for pay transparency
1. ASSESS your level of readiness – Is your organisation ready to respond to the directive or to proactively implement pay transparency?
For many, this is still not a conversation being had at board and C-suite levels.
Assessment of your present position and any gaps will help you get ahead and change and update what you need to.
If you have a job architecture to evaluate and organise your jobs levels, now is the time to review and revise. If you have a significant gender pay gap, do you have a plan to close it?
2. ANALYSE your structures and pay gap – do you have the building blocks in place to address the regulations? Where are your gaps?
Reward fundamentals require you to have a well-defined salary structure, underpinned by a robust job evaluation framework. If you relying on mapping roles into compensation market surveys, review your salary structures and adjust them.
Use an analytical job evaluation methodology to evaluate and size your roles and look to implement this sooner rather than later. This is an important step towards reducing the risk of costly and high-profile equal pay challenges, something that many employers are discovering all too late.
The Directive includes the right for employees and candidates to enquire about pay ranges and requires employers to address any unexplained pay gap above 5%. A pay equity audit as this is the most comprehensive and statistically robust way of identifying and closing pay gaps.
3. ALIGNMENT to your people and rewards strategy - Decide how your approach to pay transparency links to your overall total reward philosophy. The Directive is extensive in that it also requires reporting on other elements of pay including benefits and pension contributions.
How can you optimise your total reward offering and articulate your employer value proposition to your employees and candidates? Embedding your approach into your rewards strategy and showing a link to your business and people strategy is crucial.
4. EDUCATE stakeholders – Multiple stakeholders need to be aware, involved and bought-in to implement a pay transparency strategy.
Identify and educate your stakeholders and have clear roles and responsibilities.
Whether or not pay transparency comes in through legislative or regulatory enforcement, employees and candidates expect companies to be more open.
5.GOVERNANCE and COMMUNICATION - Having a solid, defensible job evaluation mechanism alone is not enough. What is also important is how readily you can extract the necessary data and evidence from your systems, as and when you need it, to respond to employees’ requests or to meet reporting requirements.
Can you articulate to managers and employees how salary structures and pay decisions are made at the point of recruitment, promotion, or at pay review?
In Aon’s survey, only 15% of organisations said managers are well equipped to have these discussions. Start preparing your communication roadmap. Consider the stakeholders to include, what information you should share and how you will do this, by creating response templates, delivering manager training and piloting communications.
The level of change that addressing pay transparency will bring cannot be underestimated. Starting early allows more time to get the critical decisions right and will enable stakeholders to be comfortable with the changes and understanding of the benefits.
The information contained in this document is intended to assist readers and is for general guidance only and is not intended to provide advice (including but not limited to legal or regulatory advice) to the reader.
