Pay Transparency Can Lead to Better Equity Across Benefits

The movement for pay transparency — driven by both global regulations and cultural shifts — is revealing deeper inequities than previously understood. The worldwide pay gap between men and women is still problematic at 23 percent.¹ Beyond simple wages, the gap extends into other areas of compensation, like retirement savings and affordable access to healthcare.

Part of the inequity occurs at a fundamental level. If raises and bonuses are based on pay, and other benefits are based on the same flawed criteria that create the pay gap in the first place, those benefits will be skewed in the direction of inequity. Even benefits that are pay-neutral like paid leave tend to increase with tenure. This poses a disadvantage to female employees, who are more likely to have work gaps.

Another issue is access and affordability. Lower-wage earners often pay a higher portion of their income for basic benefits. Our research also shows that 23 percent and 63 percent of U.S. workers live in counties with primary care and mental health provider shortages, respectively. Other countries are experiencing similar shortages, with over 110,000 provider vacancies in the UK.² The World Health Organization estimates that there is a 1.8 million health worker shortage across Europe, which could more than double in the next few years.³

There are three critical reasons for human resources to take a closer look at equity across benefits:

1. The EU Pay Transparency Directive requires looking at all total rewards — not just pay.
2. Beyond compliance, ensuring benefits are as fair and accessible as possible will give organizations a competitive advantage in attracting and retaining the best talent.
3. This will in turn help achieve diversity, equity and inclusion (DE&I) goals.

A Closer Look at The EU Pay Transparency Directive

The EU Pay Transparency Directive mandates that all 27 member countries must pass legislation requiring companies with at least 100 employees to publish pay gaps of 5 percent or more between men and women doing similar work. Pay gaps include wages, as well as pensions, defined contribution retirement plans and other benefits. This highlights the need for employers to understand the value of their benefits, how that value varies between employees performing the same category of work and whether those gaps can be explained by objective reasons.

Other requirements of the directive include:

• Employers must disclose how pay is set, progressed and managed, details on promotion and progression criteria, as well as the existing pay gap between female and male workers.
• Job applicants will also have the right to receive information on the initial pay level/range for any advertised position. Employers cannot ask about previous or current pay, nor prohibit employees from discussing pay.
• Employers must have tools to compare and assess pay levels. Those levels must be based on gender-neutral criteria and include gender-neutral job evaluation/classification systems. This could represent a significant change for any employers who do not have a job architecture underpinned by a recognized analytical job evaluation methodology.
• Although most countries already have pay equity mechanisms, they will have to certify they meet the directive's terms. For those without pay equity programs, this will be a substantial change.

Beyond the EU directive, companies will need to comply with pay transparency mandates in more than two dozen countries, including Australia, Canada, Japan and various U.S. states and cities. These mandates range from requiring several companies to post salary ranges in job postings to Iceland’ s Jafnlaunavottunu,⁴ a pay equity certification that renews every three years. These regulations typically apply to companies that have or are recruiting employees in the regulated jurisdiction, including multinational organizations.

While salary disclosures were the focus of early pay transparency discussions and regulations, the conversation has expanded to include all elements of total rewards.

Five Steps to Address Benefits Equity

1. First, organizations need to look at their data to better understand where there are inequities across their benefits and compensation. Doing so often reveals the need for more specific data. For most firms, access to salary data is easy, and information about insured benefits is top-of-mind given current costs. However, data around pensions and non-insured benefits, like discount programs, may need to be quantified. Organizations can do this by tracking participation and calculating the value of the benefits received.
2. Once the data is acquired, start analyzing gaps — not just in terms of current gaps, but also gaps compared to stated DE&I goals and external benchmarks.
3. Once the data is analyzed, the employer will need to choose whether or not to address benefit gaps. Creating and implementing a new benefit structure should keep in mind the same gender-neutral, skills-based criteria as used for determining how employees are compensated.
4. Prepare a strong communications strategy. Communication will be vital for compliance with the EU directive or potential future regulations. It’s also important because employees are going to need clear and direct communications from their employer to understand any existing gaps, their causes and what solutions are being implemented.
5. Finally, institute regular monitoring of benefits equity. As the workforce changes, the carefully considered and data-driven plans will be tested. Maintaining equity should be easier than achieving it in the first place, assuming the implemented programs were well-designed.

The Time to Act Is Now

Legislation derived from the EU directive is still being adopted and other countries are moving at their own pace. There is still time for employers to act. However, organizations should use this time to their advantage and get started soon. Along the way, employers should consider a trusted advisor to help objectively benchmark and analyze the data, design communications for employees and reporting purposes, develop gender-neutral, skills-based compensations structures and help with the deployment of equitable benefit programs.

¹ Equal pay for work of equal value
² Staff shortages: what’s behind the headlines?
³ Europe Is Struggling to Keep its Health Systems Afloat
⁴ Jafnlaunavottun