Compliance

Pay transparency is coming for the global workforce. Is your HR department ready?

Multinational employers are navigating pay transparency laws now in effect not only in US states, but also in Europe, and countries like Australia, Brazil, and Japan.
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Francis Scialabba

5 min read

While pay transparency has been top of mind for many US-based HR managers in recent years, legislation requiring companies to share more information about compensation is taking effect across the world.

“The complexity that has arisen from this is the need for that global coordination,” said Tauseef Rahman, a career practice growth leader for northern California and Hawaii at professional services firm Mercer, which has been advising multinationals on global pay transparency regulations.

Consultants advising HR pros on compensation say that in addition to complying with this patchwork of global laws, multinational employers should think more broadly about whether they want to go even further on pay transparency.

An evolving global landscape. Some 28 countries “require some type of pay reporting,” according to pay-equity software platform Syndio. Legislation varies, with countries including Chile, the Netherlands, and the UK requiring employers to publish regular reports detailing gender-based pay differences at their organizations.

One piece of legislation that could have major implications for multinational firms in the coming years is the European Union’s pay transparency directive, which was adopted by the EU Council last year.

The directive requires, at a minimum, that EU member states direct employers to share the starting salary or pay range of positions they’re hiring for with job seekers, as well as prohibit businesses from asking candidates about salary history. Companies with more than 250 employees will be required to report on their gender pay gap annually, while those with more than 150 workers will have to produce reports every three years.

EU member states have until 2026 to adopt national legislation adhering to the directive, and 250-plus-person companies will have to share their first pay gap reports by June 2027.

Best practices. As multinational organizations prepare to comply with the EU pay transparency directive specifically, Kelly Voss, head of rewards and career advisory for North America at Aon, said the firm has been advising employers to focus on three key areas:

  • Baseline pay equity. The EU pay directive requires companies to take action if their gender pay gap exceeds 5%. The current gender pay gap in EU countries varies greatly (in Germany, for example, it was 18% as of 2023%, though the EU average is 13%). As such, Aon is recommending that employers know “what their gender pay gap is today,” Voss said. “There’s a heavy lift, and there’s a lot of work to be done” in order for employers to reach the 5% benchmark, she said.
  • Job architecture and job evaluation. Under the EU directive, the criteria employers use “to determine pay and career progression…must be objective and gender neutral,” according to a statement from the EU Council. To comply with this aspect, Voss said her team is advising employers to focus both on “job architecture” (i.e., a framework defining different roles and levels within an organization) and “job evaluation” (i.e., how positions are compared against one another to determine pay rates). Job evaluation isn’t a standard practice in the US, Voss noted, “so that’s something [multinational US companies with operations in Europe] need to get started on.”
  • Communications. As organizations revise their compensation practices to comply, managers will need to “to communicate compensation expectations on a regular basis,” Voss said.
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Regardless of which jurisdiction-specific legislation employers are working to comply with, Rahman said his team typically recommends they go through a “readiness assessment” to evaluate their approach to things like job architecture, pay equity, and market benchmarking.

Rahman noted pay transparency requirements will continue to evolve, so employers can’t simply take a “set it and forget it” approach. He said Mercer is working with organizations to develop a plan that can be adjusted as new regulations are enacted.

More than compliance. Experts with both Aon and Mercer noted multinational organizations are approaching pay transparency in different ways. While some seem to be doing the bare minimum to comply with the laws in jurisdictions where they operate, others are aiming to go further.

“They will talk about it as a spectrum,” said Brooke Green, Aon’s head of human capital in North America, with some organizations looking to merely comply with pay transparency in a particular jurisdiction, and others pursuing “a full-fledged cultural transformation, where [their] whole identity as a company is around transparency.”

Research suggests HR departments may see positive returns from pay transparency, in the form of motivated workers, for example, or more efficient recruiting practices.

But if companies decide to be “fully transparent,” they should have a plan for communicating their pay philosophy to employees, said Muriel Taing, senior compensation consultant with Mercer. “A large piece of this work is really coming from the employee lens, which sometimes can be a shift for an organization…making sure the employee understands their pay, that they understand how they arrived at their pay.”

Quick-to-read HR news & insights

From recruiting and retention to company culture and the latest in HR tech, HR Brew delivers up-to-date industry news and tips to help HR pros stay nimble in today’s fast-changing business environment.