Salary Transparency Under the EU Directive: A Tool for Fairness or a Source of Conflict?

• What Does the Directive Require?
• How Transparency Can Motivate Employees
• The Hidden Risks of Transparency
• Practical Insights: What Works and What Doesn’t?
• Transparency: A Path to Success or a Source of Conflict?

Salary transparency is one of the most debated topics in modern workplace policies. The EU Directive 2023/970 sets strict rules for companies to eliminate gender pay gaps and promote fair pay practices. But how effective is transparency in reality? Is it a motivating factor for employees, or does it lead to conflicts and demotivation? Let’s explore successful case studies, hidden risks, and practical insights about this complex issue.

What Does the Directive Require?

The EU Directive aims to achieve equal pay for equal work by making salary structures more transparent. The key requirements include:

• Publishing salary ranges in job postings. Employers must disclose minimum and maximum pay levels for all advertised positions.
• Providing employees with access to salary data. Workers have the right to request information about average pay levels in their job category, broken down by gender.
• Annual reporting on gender pay gaps. Companies with over 250 employees must publish detailed reports showing disparities in pay.

At first glance, these measures seem to promote fairness. However, countries that have already implemented similar policies show mixed results.

France
In 2019, France introduced the Gender Equality Index (Index de l’égalité professionnelle), requiring companies with over 50 employees to assess and publish their gender pay gaps. While large companies reduced their gaps by 5% over two years, some male employees voiced concerns that increased focus on women’s pay was limiting their own career growth.

Sweden
In Sweden, salary transparency has been part of corporate culture for years. The country boasts one of the lowest gender pay gaps in the EU at 10%. However, resistance still arises in high-income sectors, where workers often see public salary disclosures as an invasion of privacy.

How Transparency Can Motivate Employees

1. Building Trust in Leadership
   Transparency fosters trust when employees understand how salaries are determined, reducing suspicion and creating a more harmonious workplace.
   Example: IKEA
   After introducing open salary ranges tied to performance metrics, IKEA saw employee satisfaction increase by 18% and staff turnover drop by 12%.
2. Encouraging Professional Growth
   Clear salary structures help employees see the connection between their skills and their pay, motivating them to invest in their own development.

   Natalia Illarionova, founder of AlbiCoins:
   “Salary transparency isn’t just about publishing figures; it’s about showing employees how their contributions translate into compensation. Without a clear and fair evaluation system, transparency is just an empty gesture.”

3. Attracting Top Talent
   Transparent salary policies make companies more appealing to highly skilled professionals.
   Example: Kone (Finland)
   After publishing gender pay reports, Kone experienced a 30% increase in job applications, reinforcing its reputation as an equitable employer.
4. Boosting Corporate Reputation
   Public salary reports build trust not only among employees but also with clients and stakeholders.
   Insight: A PwC study found that 85% of consumers trust companies more when they declare their commitment to equal pay practices.

The Hidden Risks of Transparency

1. Fostering Jealousy and Rivalry
   Without proper context, salary disclosures can lead to resentment among employees who feel underpaid compared to their peers.
   Example: BBC
   When the BBC disclosed salaries of top executives, it triggered backlash from mid-level staff. Engagement levels dropped by 15%, and complaints about pay inequality surged.
2. Misinterpretation of Data
   Salary transparency without clear explanations can erode trust instead of building it.
   Example: Germany
   In small German companies, implementing transparent pay structures led to an increase in employee dissatisfaction. Many workers misunderstood the reasons behind pay differences, leading to complaints.
3. Administrative Challenges for Small Businesses
   For smaller companies, complying with the directive can be a financial and logistical burden. Developing robust systems for tracking and reporting salary data often requires resources that small businesses lack.

Practical Insights: What Works and What Doesn’t?

What Works:

• Establishing clear criteria. Transparency must be based on measurable factors like skills, responsibilities, and achievements.
• Training managers. Leaders should be able to explain how salaries are determined and address employee concerns effectively.
• Providing context. Salary reports should include detailed explanations of why pay levels differ, minimizing misunderstandings.

What Doesn’t Work:

• Ignoring employee perception. Publishing data without engaging employees in the process can lead to dissatisfaction.
• Superficial compliance. Treating transparency as a box-ticking exercise undermines its value.
• Opaque evaluation systems. If employees can’t understand how their pay is determined, transparency can do more harm than good.

Transparency: A Path to Success or a Source of Conflict?

As demonstrated by IKEA, Kone, and ABB, salary transparency can be a powerful tool to build trust and motivate employees. However, its success hinges on thoughtful implementation. Transparency is not just about publishing numbers—it’s an investment in corporate culture, education, and communication.

Are companies ready to embrace this change and turn transparency into a competitive advantage? Or will they view it as a bureaucratic burden? Ultimately, the future of transparency will depend not only on legal mandates but also on the willingness of businesses to make fairness a cornerstone of their operations.

References

1. Is Pay Transparency Good? – Cullen, Z. (2024). Journal of Economic Perspectives, 38(1), 153-180.
2. The Gender Wage Gap: Extent, Trends, and Explanations – Blau, F. D., & Kahn, L. M. (2016). National Bureau of Economic Research Working Paper No. 21913.
3. Within-job gender pay inequality in 15 countries – Nature Human Behaviour (2022).
4. Review of the Effects of Pay Transparency – Oxford Research Encyclopedia of Economics and Finance (2024).
5. The gender pay gap – Equality and Human Rights Commission Research Report.
6. Equal pay for equal work between men and women: Pay transparency and enforcement mechanisms – European Parliamentary Research Service (2023).
7. (Un)Equal Pay for Equal Work – The Regulatory Review (2023).
8. Is Pay Transparency Good? – Cullen, Z. J. (2022). Harvard Business School.