Over the years, legislation has had some impact on pay and pay equity, starting with the Equal Pay Act in 1970 and more recently the Gender Pay Gap Regulations 2017 and the Pay Ratio Regulations 2019, which require organisations to report chief executive officer pay as a ratio of full time equivalent UK employees.
The journey to greater openness on pay now takes a giant step forward with the introduction of the EU Pay Transparency Directive that member states must enact by June 2026.
The stated aim of the Directive is to help tackle pay discrimination at work and contribute to closing the gender pay gap by supporting workers to enforce their right to equal pay for equal work or work of equal value.
The UK is not an EU member, so why does this matter?
The UK government has already signalled support for employee rights with a focus on equality and fair pay, stringent pay gap reporting, and transparency. Many UK organisations are considering how to react and many with employees across the EU are choosing to treat their UK employees the same.
The public sector should be interested in pay transparency:
- Accountability and trust: As public entities are funded by taxpayers, there is an inherent need for transparency to build trust and demonstrate accountability in how funds are allocated.
- Equity and fairness: Pay transparency can help identify and address pay disparities, ensuring that employees are compensated regardless of discriminatory factors.
- Attracting talent: Transparent pay practices can make public sector jobs more attractive to potential employees who value openness and fairness in compensation.
- Employee morale and engagement: When employees understand how pay is determined and see it applied consistently, it can lead to higher morale and engagement.
- Benchmarking and budgeting: Pay transparency can aid in benchmarking salaries against other public and private sector organisations, helping to ensure competitive compensation packages.
- Cultural shift: Embracing pay transparency can signal a cultural shift towards openness and inclusivity.
Overall, pay transparency in the public sector can lead to a more equitable, efficient, and trustworthy organisation.
What does the Directive mean?
The Directive covers four key areas regarding access to information by employers:
- To provide easily accessible information regarding the criteria used to determine pay levels. It gives employees the right to request information on average pay levels, broken down by sex, for categories of employees doing the same work or work of equal value.
- To provide information on the criteria used to determine pay and career progression, which must be objective and gender neutral.
- To inform job seekers about the starting salary or pay range of advertised positions, whether in the vacancy notice or ahead of the interview, and prevents recruiters from asking about their pay history.
- To report, explain and act on any pay gap of more than 5% that cannot be justified by objective, gender-neutral criteria.
Full details of the Directive have not yet been published, but what is known is that unlike the current pay gap reporting based on a whole legal entity, the reporting will be split into more granular categories.
What should you be doing?
- Add it to your risk register – implementing pay transparency involves identifying potential risks, assessing their impact and likelihood, and developing strategies to mitigate them.
- Alongside risk management:
- Have a robust reward strategy, supported by overarching reward principles that are applied consistently across the organisation.
- Clearly document and review pay and incentive principles regularly.
- Have a robust job levelling approach free of bias that is used to create an appropriate organisational hierarchy.
- Define pay ranges linked to your job hierarchy using appropriate sector specific data.
- Effectively communicate pay and progression principles and processes to all employees and prospective employees.
- Define and document a process for employees to request pay information and how you will respond.
- Make sure your employee data is robust and easy to report on.
- Communicate transparently – in UK organisations there is still a tendency to be secretive about job grading, pay setting and pay progression.
While, for many, the new era of greater transparency may seem an uncomfortable place to be, there are advantages and opportunities for innovative organisations, including:
- Creating an environment of greater trust between employer and employee and encouraging conversations about organisation values and rewards
- Allowing individuals to plan their career path through the organisation
- Reducing unfair pay decisions and potential bias in decision-making
- Reducing speculation and misinformation from unauthorised sources
- Enhancing staff pay satisfaction and increasing perceptions of pay fairness
The Gallagher Reward Consulting team have expertise in key areas that will support you in a drive to greater openness and transparency on pay.