How the EU Pay Transparency Directive Impacts Recruiters

The EU is forcing employers to disclose pay levels and range of salaries before hiring. How is this directive affecting recruitment and the gender pay gap?

Victoria Egba on October 04, 2023 Average reading time: 4 min
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How the EU Pay Transparency Directive Impacts Recruiters

Europe has taken a step toward bridging the gender pay gap and promoting a fair and equitable workforce for all. The Pay Transparency Directive’s primary objective is to uphold the right to equal pay between man and women throughout the EU by establishing standards of pay transparency. Due to this directive, new employees should have salary expectations before applying for a new role.

Why is there a Gender Pay Gap?

The gender pay gap is still a persistent issue across Europe, reflecting disparities in earnings between men and women in the workforce. In Europe, the gender pay gap persists at approximately 13%, with minimal reduction over the past decade.  Despite significant progress in gender equality, the gap endures, affecting countless women’s economic security and well-being.  In countries like the Netherlands, the gender pay gap is, in fact, growing rather than reducing. The National Salary Survey reveals that the gender pay gap in the Netherlands has increased from 5% to 7% over the past two years.

Historically, it has been suggested that men are more adept negotiators than women. However, recent research indicates a more troubling trend – bosses are more inclined to offer higher salaries to men who negotiate compared to women who negotiate. Research from the Harvard Law School found when women ask higher pay they find themselves financially penalized, viewed as less desirable hires, less likable, and facing limited prospects for promotion. In contrast, men don’t typically face these issues when they negotiate for better pay. Other reasons are:

  • The gender pay gap also sterns from women’s disproportionate responsibility for caregiving which often leads to career interruptions. Since they frequently take breaks from their careers to raise children, it typically results in lower lifetime earnings.
  • In many cases, men tend to focus their negotiations on salary, while women may prioritize negotiating for benefits like part-time work and flexibility. It’s important to note that as you allocate more attention to negotiating on other aspects, there may be less room for salary negotiation. This difference in negotiation strategies can impact the overall compensation and work arrangements for individuals of different genders.

Accountability in pay transparency 

Since negotiation is the top reason for the pay disparity, employers typically excuse themselves from having any fault. However, the new directive on pay transparency somewhat holds employers accountable.

Blaming individuals for poor negotiation skills is misguided; rather, it is the employer’s responsibility to ensure fairness in compensation.

While EU legislation has long championed equal pay for equal work, this has not translated into significant change. In response, the EU introduced the Pay Transparency Directive as well as a corporate sustainability report to address this enduring issue. The Corporate Sustainability report requires companies to disclose information on the social and environmental risks they encounter and its impact on people. It’s a way for the EU to better understand the root of social issues like the gender pay gap and address it properly.

Furthermore, the Pay Transparency directive mandates that employers provide prospective workers with information about the initial pay level or its range for specific positions and relevant provisions of applicable collective labour agreements. Additionally, employers are prohibited from inquiring about prospective workers’ pay histories from previous jobs, thereby preventing the possibility of pay disparities.

It means that when someone applies for a job, the employer must clearly state what the salary for that position is or at least provide a range within which the salary falls. For example, if a person is applying for a marketing manager role in the Netherlands, the company must inform them that the monthly salary for this position is, €3,230 to €4,650 (according to Giant).

Giant Content marketing manager salary range

Transparency increases applications and reduces the pay gap

However, talent intelligence shows that mentioning salary in job postings both provides transparency and a practical impact on the number of applicants. Job seekers are more likely to apply for positions when they have a clear understanding of the salary range. Additionally, platforms like Google for Jobs now mandate the inclusion of salary information in job listings. It aligns with the recruitment trends and movement towards pay transparency in employment.

The directive applies not only to EU member states but also to companies outside of Europe that employ workers within the EU. While the United Kingdom is no longer part of the EU due to Brexit, it is still inclined to adhere to the directive’s provisions for European employees.

The challenge of recruiting in light of the EU pay directive 

Recent research from the Future Workforce Study by Adobe highlights the significance of mentioning the salary range during recruitment. A staggering 85% of upcoming and recent graduates (Gen Z) express that they are less likely to apply for a job if the recruiter doesn’t provide information about the salary range.

Before now, employers could conceal the salary range until the final phase of an interview. At this point, the candidate may negotiate or feel compelled to accept the position. One of the underlying reasons for this move is to prevent the persistence of pay disparities when employees change jobs. Historically, increases in salary from one employer to another did not necessarily decrease the existing pay gap. It rather continues the cycle of pay gap, where the underpaid continues to be underpaid in their new roles without knowing.

The EU directive now necessitates that applicants view the salary range before applying. While this is a win for achieving equity in the gender pay gap, it presents a new challenge for talent acquisition.

Employers need sufficient data to determine the best remuneration range to give the company a competitive advantage while minimizing talent acquisition costs.

Once a company has the appropriate salary range, it can enhance its employer brand and help attract top talents.

Preparing for compliance 

Compliance with the EU Pay Transparency Directive presents a significant challenge. Therefore, proactive measures are recommended. Rather than waiting until the deadline, organizations should conduct in-depth pay equity analyses, remediate any issues, and develop plans to address promotion disparities.

Moreover, companies should be aware that the reporting is public, and stakeholders, including investors and potential employees, will scrutinize the data. Therefore, it is essential to act now to align compensation practices with the values of fairness and equity.

 This article was inspired by the Chad and Cheese Podcast  


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