Pay transparency directive could spur ‘massive change management exercise’

Most organizations are not prepared for the expanding global scope of pay and career transparency requirements, according to a survey about workplace equity and pay transparency conducted by Syndio. Transparency legislation varies by jurisdiction and spans interconnected obligations across pay equity, pay reporting and pay transparency, the report said.

Nearly half of the respondents to Syndio’s survey said they are concerned about the impact the European Union’s Pay Transparency Directive will have on their operations. Syndio described the directive, which will begin with 2026 payroll data, as the most significant piece of pay equity legislation anywhere in the world in the past 50 years.

“Based on hundreds of conversations and over a dozen roundtables with large employers across Europe, it’s clear that these leaders understand how the Directive will upend how they manage and explain pay,” said Christine Hendrickson, VP of Strategic Initiatives at Syndio. “As one leader put it: ‘We’ve moved from pay reporting being a compliance exercise to a broad Human Resources-wide strategic mandate.’ But I fear there are too many leaders, including some U.S.-based employers with a footprint in the EU, who have not yet digested what a massive change management exercise this will be.”

Transparency requirements have exploded in recent years, requiring companies to explain how they pay and advance employees and prove that it’s fair and consistent. This requires that leaders prepare for two distinct components of transparency: pay transparency – how and why employees are compensated what they are – and career transparency – how and why employees progress through the organization.

Read more: Salary transparency: Good for business or bad for morale?

Only 12% of organizations indicated they are fully prepared for both pay and career transparency, according to the survey. A primary reason for this is that pay decisions are often inconsistent. About one-quarter of respondents said they regularly deviate from stated pay and career policies. In addition, the merit matrix is not responsive enough to ongoing organizational and market changes that impact pay, said the report.

“These issues lead to both newly hired and tenured employees being paid too little or too much,” the report said. “And challenges compound: as small inequities accrue over time, companies end up paying similar employees different amounts without any justifiable reason — often resulting in unlawful pay gaps.”

The increasing use of long-term incentives and other tools to drive retention and performance, such as bonuses, shift differentials and car allowances, also open the door for unintentional inequities in compensation, the report noted.