Mandatory salary transparency in the EU: A way to tackle gender pay gap

Since April 2023, it has been compulsory for job advertisements in European Union member states to disclose the salary. According to an EU directive, the new regulations also seek to guarantee that workers obtain essential salary details during their employment and that pay structures are founded on gender-neutral job evaluation and classification systems. This article examines the potential effects of this directive, its advantages for employees, and the adjustments required for employers.

Why is tackling the gender pay gap important?

For centuries, women's work has not been adequately recognized or compensated. A 2022 World Bank report indicates that about half of the world's countries still lack a regulatory framework requiring companies to provide equal pay for all genders. Additionally, a survey by Moody's Analytics found that the gender gap could potentially cost the global economy up to US$7 trillion.

In the European Union, gender pay transparency has been emphasized as a crucial aspect of the Union’s Equality Strategy 2020-2025. The entitlement to equal pay for women and men performing equal work or work of equal value is established in Article 157 TFEU and Directive 2006/54/EC on equal pay. However, enforcing and applying this principle has been difficult for a long time, partly because pay discrimination frequently remains unnoticed due to insufficient pay transparency, preventing victims from filing claims.

A lack of pay transparency has been identified as one of the key obstacles to closing the gender pay gap which remained at around 13% on average in the EU in 2020. This means that women on average earn 13% less than men per hour.

How will salary transparency benefit employees?

• The new regulations require employers to provide salary information to potential hires in the job description or before an interview for any advertised role, whether it pertains to the starting salary or wage scale.

  
  

• Pay structures that assess pay levels must be founded on and incorporate gender-neutral job evaluation and classification systems.

  
  

• Pay structures are now based on gender-neutral criteria, which are also used in gender-neutral job evaluations and classification systems to compare pay levels.

  
  

• Employees are eligible to receive individual and/or median compensation data and likewise a breakdown per gender.

  
  

• Employers are no longer allowed to enquire about a candidate’s wage history.

  
  

• If a gender pay gap rises above 5%, EU companies will undergo an assessment of salaries which may even lead to the payment of a fine.

Regarded as a measure that will affect both employees and employers, it remains too soon to evaluate the impact of the new regulations, as more data is required for an accurate analysis. Nonetheless, examining employees' current expectations is intriguing.

Results and findings from recent Monster.com research on the future of work and the evolving jobs market:

• 98% of employees consider that employers must share wage ranges in their vacancy postings, and 53% would simply not apply for a job if this information is not available.

  
  

• For more than half (61%) of employees, salary is the highest priority during the job-seeking process.

  
  

• Most employees view salary disclosure regulations positively for their careers, with 53% thinking it will enhance salary equity, 43% believing it will result in higher salaries for everyone, and 42% optimistic about its impact on boosting employee productivity and overall satisfaction.

  
  

• However, 22% worry that wage disclosure regulations might cause tension among colleagues due to pay disparities. Additionally, 18% believe it could result in more lawsuits against employers for pay discrimination.

According to the data from Monster.com mentioned above, one potential conclusion is that companies with larger salary disparities compared to their competitors might risk losing top market talent and could experience considerable harm to their reputation if they fail to take measures to narrow these gaps.

What strategies can businesses implement to reduce the gender pay gap besides equalizing salaries?

Although certain methods and strategies might be beneficial for one company and vary in effectiveness for different businesses, the DevelopmentPeople recruitment team has curated a special list of tactics and strategies designed to help reduce the gender pay gap in your organization.

• Encourage promotion and pay transparency

• Re-assess hiring, promotion, and bonus packages

• Support salary negotiations

• Promote male parental leave

• Promotion remote working

• Training on conscious inclusion, unconscious bias, and diversity

In conclusion, disclosing data on gender pay gaps seeks to enhance transparency, serving as a crucial instrument for fostering positive change - what is measured can be transformed. We will soon observe the outcomes of this initiative and assess its impact on companies' efforts to promote inclusivity and diversity within their workplaces.