European Union (EU) directive on equal pay and pay transparency
Transforming pay for a fairer workplace
In today’s competitive talent market, fair compensation isn’t merely a compliance matter; it’s a vital factor in employee retention and overall organizational success. This is especially true in the European Union, where the EU Pay Transparency Directive will take effect in June 2026.
Mercer’s 2024–2025 Global Talent Trends Study shows that employees increasingly prioritize pay equity, particularly within the EU, where perceptions of unfair compensation are a leading reason for leaving organizations. Limited career advancement opportunities are also frequently cited as reasons for leaving, emphasizing the importance of fostering a culture of transparency through ongoing career and compensation discussions.
A lack of pay transparency can lead to reputational damage, decreased employee satisfaction, and challenges in attracting and retaining top talent. It also exposes organizations to legal repercussions for noncompliance with evolving legislation.
At Mercer, we help organizations navigate these risks to promote a culture of trust and fairness through transparent compensation practices.
Pay transparency varies by region
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Current implementation ratesAbout 77% of organizations globally are developing or have developed a pay transparency strategy, with Pacific (68%) and Türkiye (61%) furthest behind. However, only 9% of European organizations have fully implemented their pay transparency approach, compared to 14% globally.
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Compliance driversAround 90% of organizations in the US, Europe, the UK and Canada cite legal compliance as a key driver.
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Employee satisfactionIn 2025 over half of respondents indicated employee engagement (56%) and market competitiveness (55%) are important factors influencing pay transparency.
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Candidate expectations63% of employers globally agree that candidates, even more than current employees (58%), expect pay transparency.
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Future trendsThe disclosure of hiring pay ranges is expected to increase from 60% to 94% within two years (based on 2024 data). However, the sharing of more sensitive information, such as pay gaps and adjusted pay equity, remains cautious and largely compliance-driven, indicating a gradual but hesitant expansion of pay transparency practices.
Key highlights from the EU pay transparency directive
- A gender-neutral job evaluation structure ensures there are no gender-based pay differences between workers performing the same work or work of equal value.
- Pay transparency for job-seekers requires that pay range information be published in all job ads or shared prior to interview.
- Pay and career-progression transparency applies to all employees, regardless of company size.
- The employee right to request information exists for all employees, regardless of company size.
Pay gap reporting requirements begin in 2027:
- Employers (legal entities) with at least 100 employees will have to publish information on the pay gap between female and male workers, with reporting frequency depending on company size.
- Employers will be required to explain pay gaps exceeding 5% and take action to address them.
- The data used for 2027 reporting will be based on 2026 payroll meaning the time to correct risk areas is now
EU directive implementation
Growing awareness and legislative mandates for pay transparency have made pay equity a priority for many businesses looking to enhance their reputations and attract talent. The EU pay transparency directive is a key step in addressing the gender pay gap.
EU countries are actively working to adapt. So far, we’ve seen updates from Sweden, Belgium, Poland, Ireland, the Netherlands, Finland, the Czech Republic, France and Lithuania. We continue to monitor these developments with the support of legal experts and local legal counsel.
Pay transparency readiness checklist
The "Mercer Pay Transparency Readiness Checklist" outlines essential components for achieving pay transparency, centered around four key areas:
- Job Architecture: Ensures clarity and structure of job roles for fair compensation.
- Pay Equity: Promotes fair and unbiased compensation practices across the organization.
- Policy: Focuses on robust policies that support transparency in pay practices.
- People and Culture: Emphasizes effective communication of pay policies and practices to foster a transparent culture.
The outer ring labeled "Compliance" highlights the importance of meeting legal and regulatory requirements related to pay transparency.
The checklist focuses on four key dimensions for effective assessment to help you identify areas for improvement:
- Job architecture
- Pay equity
- Policy
- People and culture
Each of these dimensions plays a critical role in ensuring compliance and promoting a culture of transparency within your organization.
Best Comprehensive Solution
It is worth noting that for the first time, multinational businesses with employees in the EU and the European Economic Area will need to consider not just base pay and incentives, but also pensions, perks and other benefits to comply with the Directive. The legislation aims to strengthen the principle of equal pay for equal work between men and women, driving equality in the workplace and enhancing pay transparency, and benefits form part of the analysis. Do you have the right data, tools, and processes in place to quantify your entire suite of benefits, including historical arrangements? Do you have well documented benefits policies and procedures to reduce the risk of gaps?
Mercer has a team of benefits experts to help clients assess their plans and data, enabling them to enhance overall transparency.
How else can Mercer help you prepare for the new EU directive?
Get certified with the Universal Fair Pay Check
