At our Genesis 2024 fringe event on 5 December, Aon’s Suzanne Courtney, Human Capital Industry Leader, Life Sciences, EMEA, together with Matt Robinson, Life Science Industry Leader and Keaton Hoffman, Partner, Life Sciences, EMEA, discussed the impact of the EU’s upcoming Pay Transparency Directive and the lessons we can learn from it.
A major talent trend for the life sciences sector is the drive towards pay transparency. The EU's upcoming directive mandating pay equity, due to go live in June 2026, is a key force behind the target to reduce the pay gap between men and women, and to ensure that jobs of ‘equal value’ are paid the same. Not only is it about battling the gender gap; it is also ensuring that men in roles of equal value – eg: in different locations - receive the same remuneration.
The principle of the directive is that it requires employers to prove that they do not discriminate in pay practices. Employers must post salary bands on job advertisements and provide pay information upon request.
So far only two out of 27 EU member states – Sweden and Belgium – have published their local interpretation of the regulations, so there is clearly much work to be done to ensure compliance is reached. This could include posting salary bands on job advertisements and making salary information available prior to the interview taking place.
The Impact on Job Evaluation and Recruitment
A key principle is that employers must categorise jobs of equal value and ensure fair pay practices. However, if job advertisements include salary information, this can be challenging if current employees are not paid within the salary band.
One argument is that a balance must be struck between global and local approaches to pay transparency, with a focus on adhering to local laws in recruitment.
When there are social economic differences, and disparity of wealth and income amongst European member states, the cost of living can differ drastically between or even within different territories even for people doing the same job function.
“Managing pay transparency in different territories is a challenge that will need a consistent approach,” said Keaton Hoffman, “Most clients seem to be taking a global approach, because it's good for ESG and the positioning of company and employer value proposition.”
Pay transparency covers more than just salary, however. To audit and evaluate ‘equal pay for work of equal value’, employers must consider all kinds of rewards including not only base pay but bonuses, long-term Incentives, sign-on bonuses, benefits and pensions.
But what does ‘equal value’ even mean? It’s about evaluating jobs and justifying pay practices based on skills and responsibilities, according to Suzanne Courtney.
“If you have jobs aligned to market data, it's not enough to say, ‘this is why we pay someone in a certain way’. You need to be able to evaluate skills, the level of leadership and financial responsibility, and to be able to quantify it,” she explained.
Once the data is in place, total rewards can be analysed more effectively so a fairer solution can be modelled if needed.
“One of the key learnings we've seen is to address the source of the problem. This gives managers or recruiters the visibility to say: ‘if I make X salary adjustment, it's going to have this impact on the pay gap'”, Hoffman said.
Pay Transparency: The Right to Request
Perhaps the key principle behind full transparency is in Article 7, which states that employees must be told they have “the right to request, and receive in writing, information on their individual pay level and the average pay levels for categories of workers performing work of equal value to theirs.”
“Article 7 tends to scare employers, because employees have the right to request and receive information in writing about their pay and how that benchmarks to other jobs of equal value. So if they offer it to 50,000 people globally, does that mean they get 50,000 requests straight away?” Courtney asked.
For many employers, the potential workload and administrative challenges of handling pay transparency requests can be a concern. There are also challenges for smaller companies, as benchmarking information on issues such as gender can be harder to distil.
Implementing Pay Transparency Practices
The “variable pay elements” for treating jobs of equal value across different entities within the same business can be complex. As Hoffman put it, that requires “centralised data visibility” to highlight differences in rewards based on flexible choices around location, pensions, parental leave. In other words, the need for clear pay philosophies and documentation.
“You have to have a clear pay philosophy, clearly communicated to people, to explain the factors that influence pay and to make that transparent to people in the business,” Courtney added.
Meanwhile, Courtney outlined the phases of implementing pay transparency, which include planning, auditing, and compensation analysis, with particular importance on transparency of comms. and leadership buy-in as an entry point.
“It’s around also giving managers accountability and ownership for that, as well as planning how to sequence those communications. There can then be a cascade, with continuous education for managers and employees at the appropriate time,” she noted, adding that areas where there can be company or manager discretion, including performance management and equity awards, need to be addressed too.
A Structured Approach with Continuous Monitoring
The panel agreed that there is a need to develop a consistent approach to pay equity analysis that can be applied globally, while allowing for local nuances, to address pay gaps and ensure fair pay practices across organisations.
The EU directive appears to be a positive step towards addressing the source of pay gaps, and analysing how to move towards greater pay equity, in a structured manner.
Implementing a central review of current pay reporting and data availability - with continuous monitoring and adjustment - is arguably the key to successfully paving the way towards greater pay transparency.
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