Pay transparency – prepare for change

Robert Shore: Hello, and welcome to the Brightmine podcast, formerly known as the XpertHR podcast. Brightmine is a leading provider of people data, analytics and insight, offering employment law expertise, comprehensive HR resources and reward data to meet every HR and organisational challenge and opportunity. You can find us any time of the day or night at www.brightmine.com.

Hello everyone. My name is Robert Shore, and today we’re going to be talking about pay transparency. To do this, I am joined by Justine Woolf, director of consulting at Innecto Reward Consulting.

Justine, hello.

Justine Woolf: Hi Robert. Nice to be here.

Robert Shore: So, as I said, our subject today is pay transparency. There’s a little something in the Government’s Employment Rights Bill but actually the change that’s coming may not be driven principally by that. There’s a lot going on in other jurisdictions, and that’s what Justine’s going to be telling us about. So Justine, where do we begin with regard to this change?

Justine Woolf: Okay. So just picking up on what you were saying about the Employment Rights Bill, it’s obviously making progress through Parliament and it has got some reference to increasing transparency, and that’s in terms of producing an equality action plan. So that will come potentially in 2026. We’ll wait to see how quickly it moves through. And that will be on the end of the gender pay reporting regulations.

But it’s not suggesting some of the changes that we’ve seen implemented elsewhere in the world. So if we think about the US, for example, there’s currently about ten states that have got pay transparency legislation, and I think it’s about another thirteen who are considering it. So at the moment we’ve got about 26% of the US labour market that’s covered by some form of legislation.

And all of the states have got nuances in terms of what they require, in terms of their pay transparency laws. But there’s sort of three broad themes. So typically, we see things around having salary history bans. So not asking for people’s salary and using that as a basis to set a new salary. Employers have to provide a salary range for all the jobs that they’re advertising. And they’ve also got to share total compensation related to the role.

So as I said, there’s nuances. Not every state is the same and some have more requirements and some have less. But the aim of the legislation, regardless of which state it’s in, is to help employees feel more informed about the opportunities that they have around jobs, but also to empower them to negotiate salaries effectively because
that then reduces the wage disparities that we see in terms of gender or age or ethnicity and so on.

Robert Shore: That’s what’s going on in the US. But of course – and I know quite a lot of employers are interested in this – there’s a lot going on in the EU as well, isn’t there? There’s a pay transparency directive that was passed last year. Can you tell us about that? What’s included in that?

Justine Woolf: Yeah. Well, it might be useful to explain what we mean by ‘pay transparency’. It depends on who you are and what context you’re operating in, in terms of the definition. I think some people, when they hear the word ‘pay transparency’, think we’ve got to share everyone’s salaries with everybody. But that’s not necessarily what we’re talking about.

Thinking about it in a broader context, we’re talking about sharing the relevant information around pay, how we determine pay, how pay decisions are made. And that ultimately promotes fairness and equity in the workplace because it empowers people to understand how their pay compares to others.

So in terms of the EU pay transparency directive, so that was passed in June 2023 and it comes into effective next year, so in 2026. So it only applies to the countries that are in the EU. So it doesn’t apply here in the UK. But its aim is to ensure equal pay for equal work, and it also gives rights to employees to get more information about their pay and how it compares to peers on an average basis. So it’s not saying, you know, ‘You get paid £10,000 and I get paid £10,000 and I need to know that.’ It’s just saying, on an average basis, comparing to others doing the same or similar work, what organisations are paying.

Robert Shore: So it’s sort of semi-transparent?

Justine Woolf: Semi-transparent. Exactly. So going back to that, ‘What do we mean by transparency?’ it’s like midway on that spectrum, I guess. But it also requires…the directive requires member states to show if they’ve got pay gaps what they’re doing about them, and also how they’re going to eliminate those gaps.

So that’s the similarity, I guess, in terms of what’s happening in the Employment Rights Bill that we started with.

Robert Shore: Yeah. And I think one thing that’s interesting about the directive is that there is a penalty for not closing gaps as well, isn’t there?

Justine Woolf: Yes. So it talks about fines. What those look like could well vary in country to country.

Robert Shore: Yeah. Because the implementation of EU directives is quite a complicated process, isn’t it, in that the EU passes a directive; that doesn’t mean to say that it’s ready to be adopted in each EU member state immediately. What is current progress?

Justine Woolf: So, the aim of the EU directive is to create consistency across all member states. So that’s what the directive is there to do. But the reality is all of the member states have to transpose that directive into local legislation. And so it means that, whilst the directive has set some indicative requirements, when companies transpose that into law they have to meet those requirements but often they might
go beyond.

So if we think, for example, in France they’ve got gender pay reporting requirements, as the directive does, but the directive talks about having requirements for employers with more than 250 employees. In France, the current legislation is based on 50 employees and above, so it’s unlikely that they’ll increase that requirement. So we’ll see, likely, that as the countries transpose the directive into local legislation they’ll actually go above and beyond the requirements, depending on what they’ve got in place already. And so far we’ve only seen one region of Belgium has transposed the legislation, and Sweden have given an indication of a draft. And I believe just before Christmas Poland also put a draft in for consideration. And in the information that they’ve shared so far, they’ve included additional requirements. So in Sweden and Belgium, for example, they’ve put in a requirement for a comparison of pay progression by gender for those who have and haven’t taken parental leave, and that’s already in some countries’ gender pay requirements already.

So we’re still waiting for a lot of countries to say if they’re going to be going above and beyond the requirements of the directive. But there’s also still quite a lot of ambiguity about what the directive means. So for example, the directive is requiring companies to show average pay for categories of worker. We don’t know what ‘categories of worker’ really means. So it could be it’s a broad level, like a manager, a senior manager. Maybe you can use your grade structure, if you’ve got one. Or actually, do you have to be bringing in objective job evaluation so that you can level your roles appropriately using, you know, analytical frameworks? So there’s still some ambiguity around that, that we don’t know about. So it will be useful when the directives are transposed to have more clarity.

But the other thing that the directive talks about is that it’s asking for comparisons on pay in the broader sense of the term, so including things like pensions that are being provided, healthcare premiums, care allowances. So there’s quite a lot of information potentially that employers are going to have to collate. But again, it’s going to potentially vary by country to country.

So there’s quite a lot of complexity to it, and there’s an awful lot of ambiguity at the moment.

Robert Shore: 2026 is the date by which it’s supposed to be adopted into national law. It’s not unusual, I think, for member states to delay and defer a little beyond that, but next year potentially. What’s going to happen in the UK as a result? Well, I suppose we should begin by saying what is the current position in the UK?

Justine Woolf: The EU transparency directive doesn’t apply here, obviously, because we’re not in the EU. We are expecting the new legislation in the UK, which is going to require companies of 250+ employees to develop, publish and implement action plans to close their gender pay gaps, and also the new Equality, Race and Disability Bill will require mandatory disability and ethnicity gap reporting. There’s still some more information to come on what exactly that’s going to look like, but I think even though the directive doesn’t apply here, it is putting pressure on companies to be more open about pay, particularly when they’re, you know, global organisations and they’re competing in a global market for talent. And we’re working with a number of clients at the moment who’ve got a global footprint, and they’re thinking about, ‘Okay, well bearing in mind we’ve got to adhere to this legislation in the EU and also in the US, how can we create consistency across our business and have that sort of one business footprint when it comes to pay transparency?’ So, there are a lot of organisations that, even though they don’t have to do something, will be, you know, progressing their agendas.

Robert Shore: So, you think then that things will change as a result of this and if so… Well, first of all, why should leaders care?

Justine Woolf: I think leaders need to understand that there’s evidence that shows greater transparency of pay in the workplace leads to improved job satisfaction, morale. Employees are more likely to believe that they’re paid fairly, which means we’re more productive and, as employees, we’re more engaged. And all of that boosts
organisations’ reputations but also bottom lines, which is what leaders care about. So, I think it’s really important we get our leaders on board with how they can be more open about pay with employees so that, you know, employees understand how pay works, how pay decisions are being monitored (so they have confidence that they’re being fair), and also what organisations are doing to ensure pay equity.

We’ve seen societal expectations changing significantly. So younger generations are far more open to sharing information about pay than, you know, when you or I started work (only five years ago, obviously!). And we know that, for example, job ads, if you put a salary on a job ad, you’ll get twice as many clicks and six times as many applicants. So you know, you could be missing out on talent as an organisation if you’re not being more open about your pay policies.

So I think leaders do need to recognise that the train has left the station and actually, if they want to, you know, be able to attract talent and retain talent, they’re going to have to be more open about how pay works in their organisation.

Robert Shore: You said that greater transparency leads to employees feeling that things are fairer. Presumably that means that greater transparency means that organisations have to be fairer because I think sometimes there are things that could be published that you’d find and you might think are particular unfair, actually.

Justine Woolf: Possibly. What this does is it makes us hold a mirror up to ourselves. And I think deep down, if you’re in HR, you want to be treating your employees fairly. I don’t think there’s ever an agenda where an HR director thinks, ‘Oh, I want to get away with this as much as I can.’ Actually, there’s a morality that sits behind this.

So, I think what this is forcing us to do is go on that journey and say, you know, it’s not okay to sweep this under the carpet anymore. In the same way that we’ve seen various movements over the last few years that have galvanized change in society, this is the same, you know? People should be paid fairly for what they do, and they should have the ability to understand why they’re paid what they are. I don’t think it means everyone needs to get paid the same. Absolutely. But they need to be able to understand why they’re paid what they are and what the policies are that an organisation is using.

Robert Shore: So from what we’ve said so far, I think you might get the idea that pay transparency is really an extension of what we’ve been talking about with gender pay gap and ethnicity and disability pay gap reporting. Is that right?

Justine Woolf: The transparency directive is focusing specifically on gender, so I guess yes, in that respect. But I think what it’s doing is making us think about transparency more broadly. So I think, whilst we might be reporting on the basis of gender, actually it’s the other demographics, and also the intersectionality analysis that organisations are doing to see how, you know, gender and ethnicity play out, how does age and gender play out? So, what this is doing is just giving us a toolkit to start exploring it on one particular characteristic. But actually, that shouldn’t be the primary focus. We should be thinking about pay transparency across the board and how does it play out in different guises.

Robert Shore: And we know that a lot of organisations are already thinking about these things. I know that one thing people often say about gender pay gap reporting is that obviously there is a mechanism in place for doing this now, and that seems to work quite successfully, but actually change can be quite hard to achieve. So you sort of have the data…

Justine Woolf: Yeah.

Robert Shore: …but you don’t necessarily know how to use that, or even what sort of level of progress to expect from year to year either.

Justine Woolf: It’s really interesting, actually. So, if you think that we’ve had gender pay legislation for a number of years now, there’s not that many organisations that have really shifted the dial. And I think one of the reasons for that is because the structural makeup of an organisation very much affects your gender pay gap. So it doesn’t necessarily mean – and this is obviously where the misconceptions come into play – that you’re paying men and women significantly differently in the organisation. It’s an overall view. But if you’ve got a lot more women at the bottom of the organisation and more men at the top, that will significantly impact your gender pay gap.

Where organisations are making change, it’s where they are changing that demographic spread in their organisation. But it doesn’t necessarily happen overnight, particularly if you’ve got gender segregation, you know, by particular disciplines and career types.

But it doesn’t mean that you have to accept the status quo. Organisations have been making progress, particularly to bring in more females at the bottom to increase that pipeline. But what that does is, by bringing more females in at the bottom, you’re having an impact on your gender pay gap. So often the number’s going the wrong way, even though it’s a longer-term ambition.

So, I think the gender pay gap itself is a lens. It’s making us look and see, ‘Okay, well how is pay distributed in our organisation?’ But then we have to go beyond that and we have to look at, ‘What are our recruitment policies? What’s our promotion practice like? Are we giving people the same training opportunities? How are our policies being applied?’ The gender pay gap regs don’t ask for that information. But when you go beyond and start to understand what other factors are contributing to pay gaps, that’s when we can start to move that dial a bit more.

Robert Shore: Yeah. And of course in the Employment Rights Bill there is something about creating action plans. But again, there are no penalties attached to that at this stage, or not…

Justine Woolf: That we’re aware of.

Robert Shore: …directly. And that, I guess, is…I’ve often heard it said that that is the thing that might really change things. But equally there you said that, interestingly, an increase in gender pay gap might also be a sign of people beginning to prepare a pipeline that might bring about real change…

Justine Woolf: Yeah.

Robert Shore: …in the right direction but in, I don’t know, five to ten years’ time.

Justine Woolf: Exactly. But the interesting thing at the moment is there’s no requirement to give a narrative behind your numbers. So although many organisations will, and they’ll write reports and they’ll share that on their websites, there’s absolutely no requirement to do that. So, not all employees or people looking from the outside in will necessarily understand, ‘Why is your gender pay gap the way that it is? Are you just, you know, not doing anything about it? Or…’ You know, so if you are putting those long-term plans in place, having the narrative and an action plan around that will help employees and future employees understand what organisations are doing to change the picture makeup in their organisation.

Robert Shore: There’s obviously the thing that it is about pay, but it is also about trying to encourage different people to come into professionals that they’ve not traditionally done, which is a whole other question in a way. And yet obviously it is ultimately related.

Justine Woolf: It is. I mean, it’s a big societal change that needs to happen. You know, it goes back to school, it goes back to role-modelling, it goes back to, you know, job opportunities, apprenticeships, university, all of that. There’s so much stereotyping that goes on in organisations generally. But it’s also about work and how work is designed. If you look at organisations where they have introduced more flexible options for working for males and for females, you will see a better change in demographic makeup.

I was just listening to a podcast on the way here actually, and they were talking about care and the impact that has on the workforce, and particularly hitting women of a certain age. And it’s interesting, the gender pay gap is almost non-existent below 40. And it’s where, you know, families come into play or people want to have more flexibility around their work life to manage children or older generations.

So all the gender pay gap reporting and the pay transparency directive are doing is they are lifting the lid on practices that are going on in organisations. But if we really want to change the dial we’ve got to make a much more fundamental shift and change the way that we design our work and the flexibility that we provide men and women to make it more equal.

Robert Shore: You said there at the outset that since the introduction of gender pay gap reporting in the UK, that overall the numbers have not moved very far.

Justine Woolf: They have moved but it’s a very slow trajectory.

Robert Shore: Yeah. But actually, possibly quite a lot of other change has happened at a faster rate that is going to bring about more visible progress?

Justine Woolf: Yeah. I think with, you know, more legislation around flexible working it’s all little nudges in the right direction. But I think the challenge is always going to be, with these little nudges you’re only going to move a little pace. So, you know, it takes fundamental shifts in legislation and societal expectation for things to really change the dial. I think we’ve moved on significantly in the last five, ten years but, you know, at this pace how long’s it going to take us to make true change?

Robert Shore: I think you have some tips that organisations might adopt, and some steps that they might take on board?

Justine Woolf: So, if we’re thinking about going on a pay transparency journey, creating more awareness for senior managers. So, let’s start the conversation beyond the gender pay reporting requirements. Let’s think more broadly about, ‘What does pay transparency mean in our organisation? What’s right for our organisation?’ ‘Cause it will look different from company to company in terms of how it sits with their culture. But getting your senior leaders on board with the direction of travel, and also involving them in policies and development of pay ranges, so they really understand how pay works. So I think that’s one key thing that organisations can and should be doing.

I think we need to be looking more at our data. So, obviously we’re going to be having requirements in the UK to look at ethnicity, disability data. So we need to start looking at what information we’ve got now. Most organisations will have gaps to fill, in terms of collecting that data. I mean, there’s some real questions around how we even collect disability data. It’s not necessarily as binary as, ‘Are you disabled or not?’ because you might meet the criteria of being disabled but not see yourself as being disabled. I know I certainly meet the criteria but I don’t believe or wouldn’t classify myself as a disabled employee. So there’s a lot of questions still to be answered about how we do that. But start to talk to your employees and start to collect information. Where are you going to get it from?

And then also thinking about, even if the pay transparency directive doesn’t apply here, it shouldn’t stop you going beyond the reporting requirements and asking, ‘Well, if we’ve got gaps, what’s driving them?’ So, if we’ve got gaps, you know, beyond 5% or differences in the offer can we really explain them? Can we stand behind them? Can we justify them? ‘Cause a lot of organisations will have things in place that have been in place for years. They’ve never really questioned whether they’re still fit for purpose. Are they still right?

Think about, on the back of that, starting to think about what an action plan might look like. Again, we don’t know specifically what the guidance is going to specify. But you can start by looking at, if you’ve got gaps, understanding what the reasons are, think about how you’re going to address them and what actions you might need to take. And you can start to socialise that in your organisation as well.

But I think the other thing that we can do that we’re not necessarily very good at is educating our managers. And obviously organisations will vary depending on how they manage pay, how they involve managers in pay decisions. There’s a lot of studies that show managers either aren’t educated on pay policies in organisations or don’t necessarily feel like they have the confidence to talk about pay.

So, as well as getting your senior leaders on board, we also need to start educating our line managers so that they can answer some of these difficult questions. ‘Cause they’re often that first port of call. ‘Why am I paid this? Why is so-and-so paid more than me?’ And often they don’t have a clue. So, starting to help them understand
what’s the pay policy in your organisation. Start to share data with them if you can. If you’re doing pay benchmarking, help them understand where it is you are benchmarking, how you’re using that data. So even if you’re not at the point of sharing them and saying, ‘Oh, your finance managers are X in the market and we compare Y to the median,’ at least being able to explain to them, ‘Well, we submit into this pay survey. These are our competitors and they’re in this survey so we know we’re looking in the right markets for data and so on.’ Just educating your managers means that they can start having those conversations with their teams as well, and it raises the overall awareness and understanding of how pay works. It’s less of a dark art. And then employees will start to trust that pay is fair. And all of that builds on that sort of pay transparency journey.

Robert Shore: So, the word ‘transparency’ and taking that idea seriously is really a key to the process?

Justine Woolf: I think we’re on this sort of change curve. I think many people will be familiar with the Kübler-Ross change curve, and if you think about it from a pay transparency directive, we’ve kind of gotten over the shock of the introduction of legislation but we’re now in that dip because we’re not quite sure how it’s going to affect us. So really we need to start planning to think about, ‘How do we come out the other side and move on?’ And we have to take people on that journey with us. And I think as HR professionals we’re probably further along in the curve than much of our organisation. So I think it’s recognising where are you, in terms of the things in your mind, what you think your organisation needs to do. But I think we’ve got to take our employees, our managers, our senior managers on that journey as well. So there’s quite a big engagement and communication piece that sits alongside this.

Robert Shore: So Justine, thank you so much for introducing us to the next part of this journey towards transparency. And of course we have lots of supporting materials on the Brightmine website, and I will include links to those in the show notes. Until next time.