EU Pay Transparency Directive (PTD): June 2024

12 questions every CEO and CHRO should ask, with example answers, answers to be adapted:

Q1: Does this Directive approved in June 2023 affect us?

A1: Yes it does.  It applies in every country in the EU where we do business and that is xx countries out of the 27 EU countries. We have already updated the HR team. We are compliant currently as we are globally and we will see exactly what the Directive may add when countries bring it into effect by June 2026 at the latest (“transpose” in legal terms).

Q2: What is it aiming to achieve that decades of legislation and pay equality strategies at company level have not achieved?

A2: There has been progress but the Directive adds much more detailed disclosure requirements aimed at accelerating this.

Q3: What is new?

A3: We do a lot of reporting on female versus male pay in many of the countries but this Directive will require that we look at a wider worker population including contractors, perhaps even gig workers, and then also has a much broader definition of pay, for example it includes company pensions and pay for attending training in line with fair career progression being a focus.  

The methodology for assessing equal pay for work of equal value is likely to be more granular and come under more scrutiny, and comparison can be with workers in other companies.  

Also new is the requirement for a joint assessment with worker representatives where there is a difference of 5% or more in any category, as defined. And when hiring there must be transparency with candidates about pay, either an amount or a range, everywhere – today this is the case in some places but not everywhere, see Q4.

Q4: What is not new?

A4: Not new is the principle of equal pay for work or equal value which essentially all employers espouse.  Today individual employees are able to take legal action in most countries (tbc) where they believe this is not the case, but the PTD workforce scope is wider and the pay definition also wider.  We already sharing methodology on pay setting and career progression with worker representatives, but the PTD may deepen this.  We share pay ranges when we hire in many countries, for example as required by state in the US and then in some states by city, such as New York, or county.  And our managers already know the salary and bonus ranges for their employees as they need this for pay planning and also when hiring – they will have a sense of equal pay for equal work in the perimeter that they manage, defined by role and level, but they do not have the calculation for pay equity and a view across the business.  HR does have that and can run audits for the direct workforce.

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Q5: How does it overlap with other EU legislation?

A5: The closest overlap is the EU Corporate Sustainability Reporting Directive which has a broad Environmental, Social and Governance (ESG) view.  It makes sense that we consider this in parallel as the CSRD includes some disclosures on female:male pay differences and the compensation of the highest paid versus the median worker (similar to what exists today in the US.  The PTD does not require disclosure of the ratio of the highest-paid to the median.

Q6: Does it change our global HR pay strategy, policies and communications?

A6: No.  But it may extend some reporting and hiring disclosures. This is a trend in other countries around the world, such as Brazil and the US.

Q7: When will it start to apply to us?

A7: June 7, 2026 for individual cases and 2027 for reports for countries where we have 150+ workers. 2031 where we have 100-149 workers.  This is xx countries with 150+ and yy with 100-149 based on the most recent workforce data. Each EU country is to enact the Directive (“transpose” it) by June 7, 2026 at the latest so it could be earlier if they do this before.  And they can decide to extend below 100.

Q8: Has there been any reaction from employees, the unions or the European Works Council?

A8: Not much as we are in wait-and-see mode for the precise country legislation.  But unions at country level may see this as an opportunity to be more involved. The Directive does imply deeper engagement with worker representatives on pay methodology and data.

Q9: Can our current HR systems provide all the worker and pay data required?

A9: No because worker and pay scope is so broad.  This is especially true for those who are not in our direct workforce an where costs are tracked but not by individual or pay component and that is a constantly changing population. We are assessing what additional systems may be required and the costs. 

Q10: Do we need to consider changing anything now in our current grading and pay methodology?

A10: No. Our roles are clearly defined and then we benchmark grading and associated pay with the methodology and assistance of a recognized consultant, (add name(s) of the consultant(s) ). This should be accepted. We will assess extension to the extended workforce when legislation is set. Clearly we also apply any leveling and pay requirements under collective agreements. Reporting by high-level category, such as the standard in France, is unlikely to be sufficient. 

Q11: What are the potential penalties?

A11: Country legislation will set this. It would make sense for this to be based, as today, on any individual cases or by category. 

Q12: What are the next steps and can I help?

A12: The PTD and also the CSRD are in line with what we have been working on globally and will continue to progress. Pending the detailed legislation we will provide you with a global update on pay equity and transparency in 2H 2024.  In some countries we currently have a salary budget to address any pay gaps and will continue with that.

QUESTIONNAIRE

EU Corporate Sustainability Reporting Directive versus the EU Pay Transparency Directive