Achieving readiness requires active collaboration among various internal stakeholders, including:
While many organizations have made strides in communicating pay structures, the same level of transparency is often lacking when it comes to employee benefits.
A comprehensive understanding of your benefits is essential so an audit is strongly recommended. This audit should encompass a thorough review of benefit programs, including individual promises, unharmonized benefits resulting from previous M&A activity, and any grandfathered clauses.
Internal benefits policies and supporting processes along with any exceptions, should be clearly documented as they will be needed as potential evidence.
Organizations will need to ensure reward packages are set based on the principle of “equal pay for equal work”, gender-neutral objective criteria and organizational principles. For instance, if an organization promotes a “pay for performance” culture while simultaneously providing higher grandfathered benefits to long-serving employees, it could raise concern about whether performance or longevity is being prioritized, potentially undermining the integrity of the reward policy.
The EU Directive and draft local legislation published to date do not provide detailed requirements for benefits, leaving it to employers to determine how they will comply and the best approach for their company/employees.
Establishing benefits valuation guiding principles on a global/regional basis helps to ensure consistency, facilitates clearer communication, and supports disclosure to local regulatory authorities and worker representatives. Additionally, this enhances efficiency by reducing the need for each country to develop its own separate methodology and principles.
Organizations will need to decide how to communicate benefits to employees. For example, employees may respond more favorably to a message highlighting that the life insurance benefit provides financial support to their families in the event of a tragedy, rather than focusing on the value of the annual insurance premium. Conversely, significant benefits like pensions may be more effectively communicated in terms of their overall value, especially the opportunity to showcase matching opportunities in defined contribution plans or the significant financial value of defined benefit pensions.
Additionally, benefits such as employee assistance programs and certain types of caregiving or compassionate leave may be low-cost for the company but are highly valued by employees for the support they provide during challenging times.
Once the methodology is set, organizations will need to decide whether they aggregate quantitative benefit values into total pay or provide a more detailed breakdown of data in a Total Reward Statement or through their flexible benefits platform. Organizations that currently utilize annual total reward statements or flexible benefits platforms are well-positioned; however, it will be necessary to adapt these to ensure compliance with the Directive. Tailoring communications to meet unique employee needs, as well as meeting the transparency requirements, is crucial and presents an opportunity to demonstrate the value of benefits as part of total compensation in both quantitative and qualitative ways.
This is equally an opportune moment to communicate how the employer is investing in benefits and to raise awareness of key programs. Such communication reinforces the employer’s commitment to supporting employees' physical, mental, and financial well-being throughout the organization, while also ensuring transparency and compliance with the Directive.
We strongly recommend you plan ahead and proactively incorporate these pay transparency requirements into an annual process to enhance efficiency, provide a consistent experience for employees and avoid exposure to the varying disclosure timelines mandated by local legislation.
Lastly, a reminder that pay transparency is the first requirement under the Directive. In June 2027, pay gap reporting commences with headcount thresholds set by the EU as follows (noting that local legislation may change / reduce these thresholds):
Employers will be required to explain pay gaps (including benefits) exceeding 5% and take action to address them.
Is an experienced consultant in Pensions and Benefits at MMB.
Is an experienced multinational advisor at MMB.
