I trust most readers of this article have at least heard about the Directive but I would bet that many have not yet started thinking about how to comply even though the deadline is approaching fast.

The focus of the Directive is simple and will probably appear just and fair to most: equal pay for equal work. This sounds good until one starts to dig a bit deeper and uncovers many questions that arise. What is equal work ? How can one compare eg the work of a marketing assistant and a technician on a line in a plant ? Many of the world’s leading compensation consultancies will tell you that is precisely what their system does. Maybe, but a certain bias towards white collar roles is often present, as is a gender bias where dominantly female jobs are often lower paid than their equivalent dominantly male jobs. What is equivalent though ? What is equal pay ? Do we have to start paying everyone about the same ? Is this the end of pay for performance ?

Equal work

Companies that have a job framework with criteria that are used to assess each job (family) and its place in the hierarchy, can reasonably claim to have a head start here. If that job framework then also determines a set of pay ranges, one might conclude that the hardest work has been done. True to the extent that these ranges are used in a consistent and fair way. In my experience, this is unfortunately not always the case, even in companies that have a framework and ranges. If exceptions confirm the rule, they often seem to be too frequent to do that.

The Directive foresees a number of objective reasons for pay differentials. Needless to say that gender, age and race are not considered objective. Importantly performance is, assuming performance has indeed been assessed on a regular basis. Experience is another accepted differentiator, albeit one full of potential traps. How to objectively assess experience, especially if part of it has been accumulated in different companies ? There is no easy answer but it is crucial to carefully weigh an applicant’s experience vs the experience your internal employees already have. Perception can often be reality here and, too often, companies are tempted to judge an applicant’s experience higher than what they see every day in their own business. It is hard to resist the lure of what seems like the perfect candidate and offer them just that little bit more salary to get them over the hump. The grass is always greener on the other side, not only for employees but also for employers.

Thus pay inequities are born and they fester like bad weed. Not just gender pay inequities but pay inequities in general, where employees with many years on the counter earn less than their colleagues who have freshly arrived.

Pay and Career Progression

Another element in the Directive concerns the transparency on pay and career progression. Companies will have to come clean on their pay ranges and the position of any employee within their pay range. That may lead to very uncomfortable discussions with employees who (sometimes for historical reasons) are low in the range or even below the minimum. The consequences are clear for everyone to see, there is only one way and that is up: it goes without saying that you can’t reduce anyone’s salary so all adjustments will be salary increases and hence cost increases. Not an easy discussion to have with management in times of already high (salary) inflation. A nice increase may be like music to the employee’s ears, or is it ? Once the happiness about the higher salary has sunk in, that employee may well be thinking why they were underpaid for so many years and bitterness may soon set in, leading to disengagement. Some employees might even take their employer to court over what they perceive as a historical discrimination.

Even if your employees might be reluctant to even ask about their pay range (don’t count on it though), whenever you will post a vacancy externally, you will be required to publish the corresponding pay range. Your own employees will also see that and questions will inevitable arise.

Reporting

Companies with more than 100 employees will have to report on their pay equity. That risks to be painful for many. Good students are those that have a pay discrepancy male/female of less than 5%. Not an unreasonable number but one company I worked with quickly realized how volatile this can be: one quarter the number came in nicely below 5% only to double in the quarter thereafter. Underlying reasons were turnover and hiring. Especially when the comparator group is small, one person moving in or out may have a significant impact. So watching the different parameters affecting the percentage will be necessary if one doesn’t want to end up with red cheeks.

Specialized companies exist that can run sophisticated analyses of pay equity. Cheap they are not but the information they provide is quite useful. There is also the do-it-yourself approach via Excel. The key challenge in any analysis is which employee to put in which group while at the same time ensuring that each group doesn’t become too small because then you shoot yourself in the foot. Serious discussions may ensue when some employees start to question their comparator group, especially if they suddenly become aware of how they are really seen in the company.

So this whole reporting will require a change management approach with your employees, depending on how open and consistent you have been so far.

The general direction of travel is unmistakable: more transparency. Some companies will be more reluctant than others but sooner or later, all will have to face reality. If you want to attract the best candidates, transparency will not only be essential, it is worth thinking about how to make it a competitive advantage. Projecting an image that you have nothing to hide is likely to win more and better applicants than a perfume of secrecy.

In conclusion, a few steps will have to be taken (if not already taken):

  1. Define equal work

The most straightforward way to define equal work is to establish a job framework.

  1. Define equal pay

Once a job framework is established, assess what each level for each job family should be paid and construct salary ranges for each.

  1. Analyze equal pay for equal work

Carry out a pay analysis for your company.

  1. Adjust where needed

Where pay inequities are uncovered, take remedial action. Given the cost implications, it might be advisable to spread any catch-up over a number of years.