Part two: Fair Pay Guide
For 50 years equal pay for male and female workers doing equal work or work of equal value has been a core principle of the European Union (EU). In 2014 the EU recommended that member states act on the lack of progress. This led to the current range of different regulations across the EU (see Part 4: Regulatory framework on Europe, U.S. and beyond).
In 2020 the European Commission (EC) re-evaluated the situation and concluded that equal pay is still not being implemented or enforced in full. Critically, they concluded that this is due, in part, to a lack of transparency that often leaves workers unaware of how much others in equivalent roles are earning.
The result is the draft EU Directive on Pay Transparency, tabled in March 2021. It is focused on greater pay transparency and improved enforcement mechanisms.
It is focused on greater pay transparency and improved enforcement mechanisms.
Ursula von der Leyen, President of the European Commission, said on introducing the proposals, “Equal work deserves equal pay. And for equal pay we need transparency. Women must know whether their employers treat them fairly. And when this is not the case, they must have the power to fight back and get what they deserve.”
“Equal work deserves equal pay. And for equal pay we need transparency. Women must know whether their employers treat them fairly. And when this is not the case, they must have the power to fight back and get what they deserve.”
Ursula von der Leyen | President, European Commission
The directive brings together current provisions and extends them in three key areas. Together these mean that every employer across the EU will need to be confident they are delivering equal pay. See Part 4: Regulatory framework on Europe, U.S. and beyond for summary of all provisions.
Every employee in the EU will have the right to receive information on average pay for their own category of workers, broken down by gender.
Every employer, in each member state, with 250+ employees will be required to share information externally on their overall pay gap and internally on the pay gap between genders for each category of workers (this is a more granular level than currently required). Employers will be required to assess and act if pay gaps exceed 5% and cannot be explained by objective reasons.
In any claim and subject to local legislation, the burden of proof will be on the employer to show there has been no discrimination and employees can receive compensation, including full recovery of back pay and related bonuses or payments in kind.
The draft directive is currently being reviewed by the European Parliament and European Council. When passed, there will be a two-year period for member states to adopt the provisions into local law. This means there is time for employers to prepare, taking into account other regulatory developments and their own agendas and needs.
Other external developments include the European Banking Authority revising its guidelines on remuneration policies, stressing the need for gender neutrality. In just the last few months, new regulations relating to gender equity have been introduced or are being proposed in seven U.S. States, Canada, Israel, UAE and South Africa. The Institutional Shareholder Services (ISS), a proxy advisory firm, now considers a company’s pay gap due to gender, race or ethnicity when issuing voting recommendations. While this only concerns large U.S. companies at the moment, it suggests that similar guidelines will be prompted for European companies. Pay fairness is also being captured within the growing Environment, Social and Governance (ESG) discussion, as a factor in social responsibility.
For some employers, it is not regulation that is bringing equal pay and fair pay more broadly to the top of the agenda. It is recognizing what pay says about the company. Our own research highlights that fair pay is an essential part of the employee experience. More organizations want to be confident in saying they are delivering equal pay as an inclusive and responsible employer. This not only applies to gender: where data is available, equal pay should encompass ethnicity, age, social-economic background and other dimensions of diversity.
Source: Willis Towers Watson High-Performance Employee Experience Model.
Whether driven by company values and/or by regulation, what matters is for employers to pause and take stock before rushing to act.
Equal pay is just one outcome of good rewards management. Employers will have additional requirements too. A sustainable approach to equal pay involves taking account of the direction of regulation globally, integrating this with the employer’s needs and the way rewards are managed, making adjustments to the latter as required.
Our approach for preparing for the upcoming EU directive is the same as we would take with any global company wanting to improve its position on equal pay. We start with articulating the company’s long-term ambitions for Europe and beyond. We then analyze the current situation to determine not only the areas where pay needs adjusting but also where improvements to these key levers are needed. Delivering these improvements paths the way to confidence on equal pay in the longer term.
| Title | File Type | File Size |
|---|---|---|
| Making an Impact: Fair Pay Guide | 6.2 MB |
