"In 2026, pay will come out of its black box." Virgile Raingeard

A new directive on pay transparency was adopted by the European Council in April 2023. EU member states must now transpose the directive by adapting their national legislation by 7 June 2026 at the latest. The new rules fall into 3 groups:

☞ Access to information:

• employers will have to inform jobseekers of the starting salary or the initial pay range for the roles advertised,
• employers will not be allowed to ask candidates about their pay history,
• employees in post will have the right to request information on average pay levels, broken down by sex, for categories of workers doing the same work or work of equal value,
• workers will be able to request the criteria used to determine pay and career progression, which must be objective and gender-neutral.
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☞ Reporting obligations:

• companies with more than 250 employees will be required to report, each year, the gender pay gap within their organisation,
• for smaller organisations, the reporting obligation will apply every three years.
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If the report reveals a pay gap of more than 5% that cannot be justified by objective, gender-neutral criteria, companies will be required to take action in the form of a joint pay assessment carried out in cooperation with workers' representatives.

☞ Access to justice:

• workers who are victims of sex-based pay discrimination can receive compensation, including full recovery of back pay and any related bonuses or payments in kind.
• the employer will have to prove that they have not broken EU rules on pay equality and transparency. Penalties for breaches must be effective, proportionate and dissuasive, and will include fines.
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Faced with all these new requirements, how should companies get ready? Which of them have cause for concern? To shed some light on this, we spoke to Virgile Raingeard, head of Figures, a compensation management platform that works with many companies. 

#1 What will this new European standard change?

Well, in concrete terms, this standard is going to shine a light on companies' pay practices by requiring them to publish gender pay gaps and starting salary ranges. Employees will now be able to ask their employer to account for how their pay criteria compare with those of their peers. In terms of sharing information, it's a genuine revolution!

Essentially, pay is going to come out of its black box. Historically, a company's pay policy is very opaque. This regulation will bring the reality of pay policies to light, and on two levels. On the one hand, the big pay gaps relative to the market and, on the other, the internal gaps, between employees at the same company.

A company must offer pay that is equal relative to the market, and fair relative to employees internally.   

It's important to distinguish between two concepts: equality and fairness. When it comes to pay, equality is external to the company and concerns pay relative to the market. We're talking about a type of role, years of experience, sector of activity, and so on. Fairness, on the other hand, is internal to the company and concerns pay gaps between employees. To justify those gaps, you have to draw on performance, the value of what has been achieved, and a person's commitment within their company. 

With this transparency requirement, companies will have to ask themselves 2 questions: 

Are my employees underpaid relative to their value on the market?

Are my employees underpaid relative to their peers, within the company?

#2 How long do companies have to bring themselves into line with the standard? 

HR directors must fall into line by 7 June 2026 at the latest. In practical terms, Europe is telling companies with more than 100 employees: "You must implement national laws that contain these elements by this deadline".

But if companies want to do it right now, that's perfectly possible. And if they want to go further, they're free to add extra criteria. In future, they'll come out ahead.

That said, it's better to start with the "bare minimum". Some companies are already going to struggle to comply with the existing rules… Imagine that some employees at your firm are paid 20% less than their colleagues, with no comparable criteria. It'll be tricky to restore fairness in a single pay cycle. Structuring your pay policy, benchmarking against the market, comparing people with one another, measuring these gaps. All of that takes time, hence the transposition timetable set out by the directive.

It's worth noting that companies with fewer than 100 employees can also apply these criteria to themselves. They'd be well advised to get on with it, in fact. In France, the government has announced an overhaul of the gender equality index, notably to include elements of the directive, with the threshold lowered to 50 employees (more ambitious than the European minimum of 100). So if you're going to gear up for reducing the gender pay gap anyway, you may as well follow the roadmap set out by the new European standard, even without being directly concerned in the first instance.

#3 What do companies that fall short risk? 

The thrust of the European directive is this: companies will have to justify all pay and all pay gaps. If the stated criteria aren't met (if the gender pay gap exceeds 5%, for example), companies will have to disclose this disparity and enter into negotiations with their staff representatives.

As soon as the national laws come into force, the company and its HR department will have to justify everything. In the event of a claim for pay discrimination, the burden of proof will shift from employees to the company. What's more, and this is already somewhat the case in France, though it should intensify further, the company will have to justify these gaps against objective criteria. Those criteria will form the basis of the evidence for defending itself against any potential claim of pay discrimination.

But this coercive mechanism shouldn't be the main driver towards pay transparency. In fact, companies have every interest in applying it because they'll gain a real "employer brand" advantage. In the US, a Gartner study (2022) showed that firms that don't publish salary ranges on their job ads receive half as many applications. Another finding from that study reports that 68% of employees say they won't apply for roles that don't include a salary range.

Under pressure from the market, companies will have to get on with it quickly. And the movement could well gather pace under pressure from international groups such as Airbnb. For them, these laws have been in force in the State of California and the State of New York since the end of 2022. Their position is as follows: "If we're required to do it in 2 US states, then in 2023 we'll do it everywhere in the US, but also everywhere in the world, otherwise it's unmanageable."

The more international groups put it in place, the more the other "local" companies will have to follow suit.

#4 What methodology should you follow to be ready in time?  

I've always told companies: "Behave as if every decision you could make about pay were going to leak tomorrow." It forces companies to have a safeguard, it forces them to make objective, less discriminatory decisions. The advice makes even more sense with this transparency standard. By keeping this safeguard in mind, companies can move forward in 3 stages. 

☞ First stage: take stock and measure the pay gaps. 

Before anything else, you need to take a full stock of what you're offering. That's no small thing. It means comparing your pay scale with the market's, comparing salaries internally, measuring the gender pay gap and your gap for equal roles. You have to know how to list, quantify and measure all these parameters. Only then can you structure your pay policy.

☞ Second stage: identify the areas for action, roll them out, measure them.

Once you've carried out your internal audit, something that often isn't done, or isn't done properly, in most companies, you then have to identify the areas for action (e.g. the places where there's potentially internal unfairness) and measure the impact of your actions so you can correct them the following year.

☞ Third stage: take control of the narrative.

Train your managers so they can respond to their teams. Most companies never communicate about pay; that's no longer an option. If they don't do it, employees will do it for them! "Have you seen the new law?" – "Do you know if we're below the 5%?" and so on.   

That said, some companies do communicate, but they can sometimes make a classic mistake: communicating about their pay policy even though the first two stages (taking stock + action plan) aren't yet in order. 

Pay is slippery (not to say flammable) ground, and shouldn't be treated as just another topic. In March 2023, a woman reposted in a tweet (see below) a job ad from her own company with a salary range shown externally. The problem: the range on offer was higher than her own pay, for the same job. After tens of thousands of retweets, the company took the ad down.  

In terms of a company's image, it's catastrophic. On that occasion, the company created its own leak by communicating before it had even taken stock and reduced its pay gaps. Think of the safeguard, always. 

#5 Being up to speed by June 2026: mission impossible?

Impossible, no. But the task won't be simple for every company, that's for sure. And to maximise your chances, it's best not to drag your feet. Especially for the largest companies. Imagine you have tens of thousands of employees; it's a colossal undertaking. The time left before the deadline is really no luxury.

I'll drive the point home even further. Take a company like La Française des Jeux. FDJ's HR team took 10 years to bring a gap of 13% down to 4%, even though it's a company with a strong culture of diversity, inclusion and pay-gap awareness. It's one of the best in France, with an index that has always been 100/100. Fewer than 2% of French companies can boast such a score. So if one of the leaders in the field took 10 years to go from 13% to 4%, imagine what it's like for the rest.

Another telling figure: 82% of Virgile's clients (organisations concerned by the issue, then) have average gender pay gaps of more than 5%. As a reminder, that's the target set by the European standard.

#6 What "unwanted" side effects should you anticipate?

Companies that individualise pay may perhaps suffer from the justification requirement set out by this new standard. Before going any further, it's important to distinguish between an individualisation policy and a discretionary policy.

The companies that will be hardest hit will be those where the discretionary approach dominates. In particular, those outfits where the pay-rise budget is handed to managers, who then work out how to divide it among each member of their team. This practice is risky because it takes no account of the sharing of information between teams. When it comes to justifying the gaps within the company, it's going to be tough. This practice, which favours individualisation, is therefore also discretionary.

Now, there are companies that individualise pay without being discretionary about it. These companies base pay rises on performance, awarding the biggest increases to the firm's stars. And that's interesting, because it's a genuine criterion, based on a performance assessment. For these companies, pay transparency can have consequences.

The new standard will force everyone to put facts behind their pay decisions. Enough to worry companies: "Will I manage to justify this huge differentiation to the others?" "Is the annual performance review substantial enough to constitute evidence?"

One last point, to finish. With transparency, the more individual differentiation you apply, the more it will get out, with the effect of putting some noses out of joint... Don't forget: most people rate themselves as better than average. The internal consequences. This new directive should probably trigger more collective pay at company level. "Superstar" profiles could well go "freelance". Watch this space.

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Now you know pretty much everything about this new pay transparency directive. If you have any ideas to enrich the topic, don't hesitate to share them with us in the comments field below!
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