When clarity brings tension: How employers should respond to the incoming pay transparency regime
Greater visibility around pay levels could create unease in Irish workplaces, but there are steps employers can take now to reduce the risk.
How would you feel if you had been working with your employer for a decade but realised, on seeing a job advertisement for a new position identical or similar to yours, that you were being paid at the lower end of the range for your role?
Up until now, this issue has been unlikely to arise, but this is about to change.
On foot of a European directive, pay transparency must become law in Ireland by the middle of 2026 at the latest and when this happens employers will lose the significant information advantage they currently have over employees and job applicants.
The key measures of the EU Pay Transparency Directive are:
- Job ads will have to include a salary level or a salary range – information that will be as much of interest to existing employees as it will be to job applicants.
- Employees will have the right proactively to request information on pay levels for their positions and to see the effect of career progression on pay.
- Gender pay gap reporting will continue for employers with a certain number of employees, but this reporting requirement will be extended to include the valuation of benefits.
- Where pay gaps above 5% exist for any level in an organisation that cannot be justified using objective gender-neutral criteria, employers will be obliged to explain them. They may need to consult with workers’ representatives and even potentially undergo joint pay assessments.
- Where pay gaps between men and women doing work of equal value exist, employers will need to address them.
Given the level of change involved, these measures are going to have a major impact and create issues for employers that will be complex to manage.
Mercer’s global survey on Pay Transparency shows that organisations have an awareness of the expectations when it comes to pay transparency but are not yet prepared to navigate the path ahead.
As it stands, for example, employers regularly assert that the existence of a gender pay gap does not mean that they are engaging in unfair pay practices. This is usually a fair assertion as the level of correlation between gender pay gaps and pay equity is little to none, but employers have rarely been required to prove that their pay practices are fair.
Under the Pay Transparency Directive, the burden of proof on pay equity moves pretty decisively to the employer in the event of claims of unfair practice.
Once the directive takes effect in Ireland, employees will be able to see how their pay compares with that of new hires and peers doing the same work or work of equal value. They will be free to form their own judgements on whether they are being paid fairly or not.
Managerial discretion in setting pay can lead to perceptions of unfairness, especially when employees can compare their salaries with new hires. The common practice, where job markets are hot, of offering new hires premium salaries may produce a hostile reaction from existing employees when greater visibility over pay norms exists. At a minimum employers will need to be able to justify such distinctions by reference to legitimate factors such as experience or qualifications.
Given the potential for upheaval, it’s likely that neither employers nor their people will want new anomalies to come to light every time a job and the accompanying pay range is advertised. To avoid this happening, employers will need to prepare, and they should start to do so by conducting a comprehensive pay equity analysis. Under this process, an employer should assess current pay structures, identify any discrepancies, and evaluate the justification for these differences. By understanding the existing pay landscape, they can make informed decisions about necessary adjustments.
Employers should also establish clear pay ranges for all roles within their organisation. This transparency will not only help in aligning salaries with market standards but also provide a framework for future hiring and promotions. Where pay ranges already exist, it should be checked that they reflect the organisational reality. If not, this situation should be addressed.
Clear guidelines on how pay is determined—based on allowable factors such as relevant experience, performance and qualifications—should be communicated to all employees to foster trust and understanding.
Training for hiring managers and HR personnel is crucial. They must be equipped to handle inquiries about pay and understand the implications of the new directive.
Employers should consider implementing regular reviews of pay practices and policies. This ongoing assessment will help ensure compliance with the directive and allow for timely adjustments as needed. Engaging with employees through surveys or focus groups can also provide valuable insights into their perceptions of pay equity and transparency.
Objectively, a world in which pay is transparent may be a better one for both employers and employees.
Visibility over pay norms across industry sectors is going to increase significantly. Employers, as well as employees, may benefit from this: it’s going to become far easier to determine the going rate for any particular position in any particular sector.
Arguments over fairness of pay can become toxic in a non-transparent world, with misinformation sometimes playing a very destructive role. This is far less likely to be a factor where pay is transparent, where ranges are visible and where the factors affecting pay have been clearly articulated.
Fostering a culture of openness and communication around pay will be vital. Employers should aim to create an environment where employees feel comfortable raising pay-related concerns and HR feel comfortable addressing them. Ideally, employers will not only comply with the Directive but will also build a more equitable and trusting workplace.
Danny Mansergh is the leader of Career Practice at Mercer Ireland
Previously published in the Sunday Independent