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09 Jul 2024
by Kathryn Dooks, Gary Fereday

Diversity and Inclusion: Top ways to introduce pay transparency into your reward strategy

Introducing practical steps to your organisation’s rewards setup will help you start to meet your obligations under impending EU legislation

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Pay transparency is a growing global trend driven partly by increased legislation across the Americas, Australia and now Europe with the introduction of the EU Pay Transparency Directive (PTD) which is to be implemented by June 2026. 

The PTD is the furthest reaching such legislation to date. It has been introduced to bolster equal pay protections and to reduce the gender pay gap. We are seeing several multinational companies adopting the PTD’s measures globally as a matter of best practice and to ensure consistency of employee experience. 

All companies with employees in an EU member state will be subject to the directive. Whether you are caught by the PTD or similar legislation globally, or you want to adopt greater pay transparency as a matter of best practice, we’ve set out below some considerations for introducing pay transparency into your reward strategy, although these may vary depending on your organisation’s existing maturity:

1. Educate stakeholders

Having buy-in from leadership teams and other stakeholders across the business is the key first step when considering adoption of greater pay transparency. Stakeholders need to understand the extent of the obligations and why the company wants to adopt best practices in this area, to ensure there are no roadblocks to adoption of these measures.

2. Set your ambition 

Are you aiming simply to comply with the legislation, or do you want to use this as a basis for an overhaul of your reward and DE&I strategies and processes? Setting your level of ambition first will help to guide you in building a roadmap of actions you will need to take and may influence your choices along the way.

3. Ensure you have a robust job architecture

The PTD requires employers to analyse the pay for “categories of workers performing the same work or work of equal value”. A robust job architecture will enable employers to analyse where there is “work of equal value” across organisation, which will be key to efficiently undertaking the analysis required for gender pay gapreporting; to be able to justify any gender pay gaps on objective and gender-neutral grounds; and to identify any equal pay issues.

4. Establish data collection processes

Under the PTD, employers with at least 100 workers in an EU member state are required to report on their gender pay gap in that state. This may involve collecting data from multiple human resources information system (HRIS) and payroll systems across Europe, including employees’ salary levels, bonuses, other variable remuneration and benefits in kind (which will need to be quantified). It is important to design an efficient and robust process for gathering such data in each jurisdiction and to ensure appropriate governance.

5. Undertake a ‘dry run’ of your data analysis

Under the PTD, where there is a gender pay gap of 5%+ which cannot be justified on an objective and gender-neutral basis and it is not remediated within six months of reporting, employers must carry out a “joint pay assessment” (in effect an equal pay audit) in co-operation with worker representatives and remediate any unequal pay within a reasonable timeframe. 

Employers who need to comply with the PTD would therefore be well-advised to undertake full gender pay gap analysis and equal pay audit now so that there is some time to remediate any issues identified before the reporting obligations under the PTD bite. This could be done under “legal privilege” (also known as attorney/client privilege), meaning the data is likely to not be disclosable in the event of a claim, enabling you to remediate on your own terms. 

Once the PTD comes into effect, results from the joint pay assessment will need to be disclosed to relevant authorities and worker representatives, which is likely to trigger claims.

6. Review your reward policies and processes 

After you have undertaken the dry run of your data analysis and considered the justifications for pay gaps, you will have a greater understanding of which aspects of your pay and pay progression policies are creating equal pay risk and will therefore be better placed to review them, based on meaningful and objective data. 

7. Consider taking a staggered approach to pay transparency

Jobseekers and workers have the right to receive a wide array of information on their pay under the PTD, which is something that could be overwhelming for line managers, workers and employee relations managers. This could be especially so if you are transparent about all aspects of pay at the same time, particularly if you have not previously had such a culture. Employers should therefore consider taking a staged approach to transparency, before the introduction of the PTD. 

For example, employers could first be transparent about grading systems and pay bands internally to line managers and then subsequently to employees. Nearer to the implementation of the PTD, once employees and line managers have become accustomed to greater transparency, you could then “go live” with the publication of pay bands on job advertisements externally. Taking a staged approach might help to reduce the uncertainty within the organisation about this aspect.

8. Develop a communications plan

Much of the gender pay gap reporting and other data which workers are entitled to under the PTD will need to be explained and put into context for employees and line managers. For example, there may be reasons why the company has a large gender pay gap such as low female representation at higher levels in the organisation, rather than an equal pay issue. A clear and well-considered communications plan, alongside training for line managers, will be key.

Global pay transparency legislation leaves reward and HR teams with much to think about and a lot of actions to take in preparation for compliance. Building effective stakeholder engagement and a robust roadmap towards compliance which is tailored to your own organisation’s maturity will be key to success. 
 

In partnership with Deloitte

Deloitte is a leading global provider of audit and assurance, consulting, financial advisory, risk advisory, tax, and related services.

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