Pay transparency: a legal obligation by 2026

Salary transparency is still rarely part of corporate culture, or even a taboo subject. While a number of companies still question its application, while others firmly reject it, the question will soon no longer arise. In 2023, theEuropean Union adopted a directive imposing salary transparency^[1], which must be transposed into national law by June 2026. What exactly are the new rules? What are their objectives? How can pay transparency be implemented? Answers.‍

What is pay transparency?

The need for pay transparency is rooted in the discrimination to which some women in particular are still subjected, despite the various laws that have already been passed.

The legislative framework

The law on equal pay of March 23, 2006 was already aimed at eliminating pay disparities . This was followed by the professional future law of September 5, 2018 imposed an obligation on companies to achieve results in terms of equal pay, with the introduction of the Index de l'égalité professionnelle femmes-hommes. This was followed by the PACTE law of May 22, 2019, which requires CAC40 companies to disclose existing pay gaps between employees and their executives, i.e. "the ratio between the remuneration of each executive and the average and median remuneration of full-time employees".

Pay differentials still a reality

Despite the various laws on equal pay for men and women, discrimination persists. Gender stereotypes, the glass ceiling and the lack of shared family responsibilities are just some of the reasons for the pay gap. What's more, when women return from maternity leave , they are often penalized in terms of pay, as their salaries have stagnated. By law, however, they are entitled to the same pay rises as their colleagues, which means they can catch up. Their career development is also often held back, with a number of them preferring to work part-time.

Even today, women in the EU earn on average 13% less than their male counterparts, with dramatic consequences for their retirement pensions in the longer term, with a gap of up to around 30%. Equal pay for men and women will undoubtedly require pay transparency, which will make it easier to identify any discrimination and close the gender pay gap.

A new European directive

Having agreed on the need to eliminate the pay gap between men and women, the European Parliament and Council adopted a directive on pay transparency on April 24, 2023. As a result, the countries concerned have three years to transpose these rules into their legislation. Here are the main measures:

• Companies in the European Union are obliged to make available information on the remuneration they pay to women and men for work of equal value. They are also required to notify the national authority of the gender pay gap, and to take action if it exceeds 5%.
• Employees will therefore be able to request information on average pay levels, by gender, for categories of employees performing the same work or work of equal value. They have a right of access to the criteria used to "determine pay, pay levels and pay progression", which must be objective and gender-neutral. 
• Recruiting companies will be required to inform jobseekers of the starting salary or salary range.

Companies that fail to comply with these rules will be penalized. 

What are the advantages and drawbacks of salary transparency?

Due to regulatory requirements, communication within companies is going to have to develop around a subject that is still all too often taboo.

The main obstacles

For historical, cultural or structural reasons, the question of salary is still often a taboo subject, and a source of jealousy, with some having negotiated better than others, for example.

• ‍Persistent pay gaps of disparate origins

Apart from the wage discrimination that still persists between men and women, the size of the company and its culture can influence the way in which remuneration is determined: in a start-up, VSE or family-run SME, salaries are sometimes decided on the basis of negotiations with the new employee, without reference to formal pay scales . This can lead to significant pay discrepancies, particularly when recruiting for short-staffed positions, or in a sector such as IT. Pay differentials also exist outside of gender discrimination. Indeed, for a position of equal value, a person may have more skills and perform better. However, it is important to be able to justify these differences to employees. This means that salary transparency can have a negative impact on the social climate if it is not prepared in advance.

• ‍Theabsence of a compensation policy

While large companies generally have a structured compensation policy in place, some still lack a system for objectively evaluating work of equal value , and therefore its remuneration. Hence their fear of communicating about salaries.

According to a wtwco^[2] survey on compensation transparency, 50% of companies surveyed claim that their current compensation policy is not ready to be communicated. Only 6 out of 10 companies have developed a job classification system, and 54% a job architecture.

The benefits of salary transparency

Despite the constraints imposed on companies by the European directive, the objective is a virtuous one and should lead to greater performance and fairness.

• ‍More efficient recruitment

When the salary is not mentioned in job offers, there is a risk of losing the candidate during the recruitment process (disappointment on discovering the salary, wasting time in fruitless negotiations, leaving for a competitor with an attractive salary). What's more, 46% of candidates say they do not respond to job offers that do not mention salary^[3]. So, in a tight labor market, the new obligation to display salary levels on job ads should attract more applications and, indeed, better-informed candidates. A recruitment agency will also find its work easier, as it will be able to concentrate on the essentials - skills - and recruit future employees more quickly. Even if this can also complicate the exploratory work that is sometimes requested by the customer to go beyond the initial brief. ‍

• ‍Alever for pay equity

According to the adage "equal pay forequal work", the new legislation on pay transparency aims to achieve pay equity, in particular by eliminating hidden discrimination. To prevent pay discrimination , companies are encouraged to adopt a genuine remuneration policy, with job classification and pay scales, and to communicate transparently. In addition, since women tend to ask for lower pay than men^[4], better information would reduce the gender gap.

• ‍Adecision-making tool

Another advantage of transparency, when operational, is that it simplifies salary negotiations with social partners . It allows us to provide well-argued, quantified answers before launching payrise campaigns. What's more, during an annual meeting with an employee, a manager can explain his or her decision on whether or not to grant an individual increase and/or promotion, based on objective, measurable criteria. Of course, this won't stop some employees from making awkward comparisons and continuing to feel short-changed.

• ‍Growing customer loyalty

Reliable, transparent communication on remuneration is also a way of preserving the company's human capital . It establishes a relationship of trust and contributes to recognition, insofar as an employee is paid what he or she is worth. Transparent salaries immediately show potential candidates how their careers can evolve, and enable current employees to see themselves in the company for the long term. 

How can salary transparency be introduced?

The companies concerned have three years in which to implement salary transparency, in accordance with certain milestones.

Take stock of the existing situation

First and foremost, it's essential to analyze the causes of pay discrepancies between men and women, identify pay bands and ensure that they are appropriate, in order to draw up an effective action plan. Indeed, for work of equal value, disparities often exist within the same company. It is vital to be able to eliminate inequalities, whether hidden or not, or to initiate a gradual salary catch-up, if necessary, to prepare for salary transparency and communication with employees.

Defining a compensation policy

Remuneration, strictly speaking, encompasses the basic salary and salary accessories (individual and/or collective bonuses, profit-sharing, benefits in kind, etc.). There are a number of tools available for implementing a fair, structured compensation policy.

• ‍Thecollective bargaining agreement: Most of the time, all you need to do is refer to the collective bargaining agreement for the professional branch to find out how jobs are classified. Each benchmark job is associated with a coefficient or hierarchical index, which sets the agreed minimum remuneration.‍
• Job weighing: Job evaluation is carried out by measuring certain criteria for each function, such as autonomy and creativity, problem-solving complexity, responsibility, etc.‍
• Job classification: Weighing up the positions gives a score which then determines the job classification, such as, for example, executive from level 1 to 3, supervisor from level 1 to 4, white-collar worker, blue-collar worker and so on. This classification is used to define foreseeable career development and the associated pay level. ‍
• Salary grids: These include various criteria such as position, salary coefficient, point value and minimum fixed base salary. All these objective criteria also make it possible to understand salary differences that are not discriminatory, and in particular toexplain the difference in salary between an employee and one of his or her colleagues in the same type of position(seniority, job category, qualifications and level of education).

Finally, in terms of strategy, and to meet transparency obligations, it's crucial to define SMART (Specific, Measurable, Achievable, Realistic and Time-bound) objectives to justify individual raises, or a bonus linked to individual performance.

Prepare your communication!

Once the compensation policy has been structured, it is essential to train managers, as they are generally the ones who pass on the information to employees. With the support of reference documents, employees should be able to situate themselves on the pay scale, and project themselves into their careers. The fact of being accompanied and informed avoids the unspoken and maintains the relationship of trust with the employer. As far as external communication is concerned, it's a good idea to display the salary or an initial salary range in job advertisements, and, when interviewing candidates, to communicate career development scales. 

In conclusion, the introduction of pay transparency marks a crucial change in the European workplace. The directive adopted by the European Union aims to close the persistent pay gap between men and women by making pay information accessible and encouraging fair pay policies. Despite the challenges to be overcome, such as cultural resistance and the absence of clear pay policies, the potential benefits are significant: better pay equity, more effective recruitment and a stronger relationship of trust with employees.