In today's global economy, there is increasing cross-border competition for talent. While the Pay Transparency Directive targets EU member states, its influence will extend beyond these borders, impacting businesses in the UK, US, and other parts of Europe.
The Rise of Pay Transparency
Pay transparency refers to the practice of openly sharing information about employee compensation. Whilst the requirements of the Directive to report on gender pay will only apply to larger employers (i.e. those with more than 100 employees), all EU employees will have the right to request information about gender pay for their role and work of equal value. There are also requirements and prohibitions in relation to recruitment practices that will apply to all EU employers.
Impact on the UK
Although the UK is no longer part of the EU, the principles of the Pay Transparency Directive resonate with the new Labour Governments commitments to address pay inequality. Added to that, the Prime Minister had been clear that Labour does "not want to diverge" from EU rules. We might infer that the UK will not be far behind the EU and may look to replicate the rights and obligations set by the Directive.
Commercial global impact
In the US, States like California and New York have implemented laws requiring employers to disclose salary ranges in job advertisements, but even in States without such mandates, companies are recognising the competitive advantage of transparency. Employers increasingly want to be seen to be transparent at recruitment stage. Being upfront about compensation is viewed as a differentiator in a tight labour market, and can be particularly appealing to socially-conscious job seekers.
Over time the Directive is likely to have global impact, as global operations compete to attract top talent and enhance their employer brand. Rather than transparency being a differentiator, pay secrecy may become a negative differentiator.
Challenges
Of course, pay transparency brings a number of challenges, and employers will need to weigh up whether and when to adopt pay transparency, and what preparatory steps will be required. The starting point will be to review pay practices and to assess gender pay gaps, and the reasons for them, within the organisation. Timing and preparation will be crucial, to address any risks and imbalances before revealing pay information to employees and potential applicants.
It is clear that embracing transparency, where there is a positive story to tell, can lead to a stronger employer brand, and a competitive edge in attracting top talent. The key question for businesses is how will you tell this story?
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
