HR COMPLIANCE
Pay transparency: Understanding the European Directive
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Pay transparency is now emerging as a key driver of HR transformation across Europe. Faced with growing societal expectations and increasing demands for fairness, companies are being encouraged to rethink how they communicate about compensation - and in some cases, to rethink their compensation practices altogether. Pay practices are still quite unclear in many sectors, fueling misunderstanding and mistrust. Today, these practices need to meet multiple - and sometimes competing - expectations: employees seeking fairness and clarity; management focused on steering and maintaining internal balance; social partners attentive to pay equity; and, more broadly, organizations facing heightened requirements in terms of accountability and compliance.
In this article, we look at the origins of the legislation, review the scope of application, examine its impact within organizations, and ultimately explore how this directive can be put into practice.
The EU Pay Transparency Directive, adopted in May 2023, marks a turning point. It introduces new standards to improve access to information, clarify compensationcriteria, and provide employers with a structured framework in response to increasing requirements. This measure represents not only a regulatory obligation, but also an opportunity to strengthen trust and enhance the organization’s attractiveness.
Origins of the EU Pay Transparency Directive
The adoption of the European directive stems from a widely shared observation across the continent: the gender pay gappersists despite decades of legislation.
In this context, the European Union sought to provide its Member States with a common framework capable of going beyond a simple comparison of identical roles. The concept of jobs of “equal value” has become central to the debate, paving the way for a more nuanced analysis of pay structures. Following extensive discussions among governments, social partners, and European institutions, the directive was adopted with the ambition of establishing concrete obligations on transparency and the right to informationfor all employees. Although the directive establishes a common European framework, it leaves companies considerable room in defining what constitutes a “job of equal value.” This deliberately broad scope of interpretation requires structured work on job evaluation criteria to ensure objective, shared, and defensible comparisons.
Beyond the gender criterion explicitly addressed by the directive, other factors of pay discrimination may emerge within organizations, such as age, part-time work, seniority, types of contracts and career paths, highlighting deeper structural inequalities.
Understanding the legal framework: what the directive says
The European directive requires employers to respond - through a transparent and explainable pay policy - to requests for information rights:
From employees:upon request, employers must provide the employee’s annual individual remuneration in full-time equivalent (FTE), compared with the average remuneration—broken down by gender—for jobs of equal value
From candidates: Employers must disclose starting salaries or pay ranges
The directive introduces 7 indicators covering gender gaps in basic pay, annual variable or additional pay on a full-time equivalent basis and the gender pay gap for a job of equal value.
When the gender pay gap exceeds 5%, a pay assessment will have to be carried out with employee representatives to identify, correct and prevent gaps that are not justified by objective criteria.
Finally, the directive provides for monitoring, enforcement mechanisms and penalties in the event of non-compliance, thereby strengthening the practical impact of the framework.
This broader, structured approach aims to make remuneration policies more transparent and comparable, while making employers more accountable.
How companies are affected: job postings, transparency requests and HR obligations
Once the directive has been transposed, companies will feel its effects immediately: all jobpostingswill now have to display a salary range, a change that will require companies to clarify and justify their pay structures in advance. Employees, for their part, will be able to request the criteria for career progression as well as access to the salary gridfor their job category. For companies, this means an obligation to document, explain, and ensure consistency in managing careers and individual development. This represents both opportunities and challenge.
An opportunity for HR and a cultural transformation
The directive will also require continuous pay gap reporting, and this includes part-time employees. HR departments will need to make full use of their HR information system tools and review their processes in order to produce the required indicators and respond with evidence-based explanations to internal requests. Companies will also need to train managersand engage in constructive communicationwith employee representatives on remuneration. This is an opportunity.
Indeed, beyond mere compliance, pay transparency offers companies a way to attract and retaintalent. It fosters fairness, trust, and open dialogue around compensation, and positions the company as a responsible player in a labor market where expectations around social responsibility and purpose are rising.
Seizing this opportunity means moving beyond a purely compliance-driven reading of the text and turning transparency into a driver of collective performance, a stronger workplace climate and lasting credibilityfor the organization. However, this also brings a few challenges.
Key challenges for HR
The new EU directive will require companies to make their remuneration policies clearer, while also strengthening HR’s ability to explain, justify and manage the gaps identified. This is an opportunity for HR to consolidate its role as a trusted intermediary, acting as the interface between employees, employee representatives and unions, and company leadership. This is reflected in three key areas: social dialog, financial considerations and employer branding.
Social dialogue and the evolving role of HR
The directive forces us to rethink how remuneration indicators are developed and discussed with employee representatives and unions. The key challenge is the ability to share, contextualize, and explain KPIs derived from analyses, turning them into tools for dialogue and collective development rather than confrontation. Pay transparency can thus contribute to strengthening the maturity of social dialogue and repositioning social partners as true stakeholders in the process
Financial challenges
Identifying unfair pay gaps may lead to adjustments with a direct impact on payroll costs. Transparency therefore requires greater budget forecasting and close management of remuneration policies. HR and finance departments need to integrate fair pay, economic sustainability and overall performance into their decision-making processes and multi-year plans.
Employer brand
Poorly prepared transparency, or transparency that reveals unfair gaps, can damage the company’s reputation, both internally and externally. Conversely, a structured, confident and well-explained approach can be a powerful source of credibilityand trust. In a context of talent shortages, the ability to demonstrate a fair and understandable remuneration policy becomes a way to stand out as an employer in the job market.
Transparency is part of the continuous transformation of HR, already well underway through digitalization and the deployment of artificial intelligence. HR leaders are now expected to rely on objective indicators to structure, defend and embody people strategies. Long seen as a support function, HR is becoming a central player in the company’s social and strategic governance.
Implementing pay transparency: methodology, preparation and social dialogue
Addressing these challenges and seizing these opportunities requires a carefully plannedimplementation of the directive. This requires preparatory work involves prior work on job roles: reviewing positions, defining a compensation policybased on shared criteria, and aligning it with existing collective bargaining classifications. This is essential to identify unexplained gaps and practices that could be perceived as discriminatory, anticipate employees’ questions, adapt processes and prepare HRIS toolsto collect and report the required data.
Only a structured and participatory approach—bringing together social partners, employees, senior management, and candidates—will make it possible to meet these challenges and unlock opportunities for transformation.
In summary, the success of this initiative depends heavily on transparency in the methodology and on effective social dialogue.
