Preparing for Transparency

Pay Equity Audit

The very first step toward transparency is to organize your people data - create your Base Salary Structure Design, also known as Job Architecture. You need to make sure your title structure and level structure are aligned and that you have objective, gender-neutral descriptions of the criteria needed to perform in for each position.

By dividing your people data into job families and levels, you enable unbiassed cross-function comparisons, as you compare "the chair" rather than the person in the chair. This is known in the EU Pay Transparency Directive as Categories of Workers and each individual have the right to know where they belong and how they compare to your organization.

With your people structure in place, you run a Pay Equity Audit to identify problem areas that need rectification. 

Your initial audit should go through all the elements of your annual cycle allowing you to identify the root causes of any inequity, so they can be properly addressed. All policies must be reviewed, and a new culture may need to be adapted around the future pay dialogue. This is a laborious task, so we recommend starting the process in good time before the Pay Transparency Directive enters into force locally. Once the requirement for public reporting begins, any inequalities you have not yet dealt with will become public knowledge.

Addressing any inequities your Pay Equity Audit may have revealed could beneficially be broken up into manageable sub-processes over the desired timeframe. The timeframe depends on local legislation; however, ceteris paribus, you should be prepared to publish your first gender pay report in 2027.

Fixing a Pay Equity issue fairly requires a 360-degree review, which is done through your Pay Equity Audit, as described above. Once you have conducted your review and thus have an overview of the issues that need your attention, you can start planning how to best address the issues.

To break the process up into feasible portions, you could divide your identified challenges into groups, where some can be addressed through your regular salary review cycle, and some require an out-of-cycle review. Those challenges that could be addressed during the annual salary review should be subdivided into two groups - those that can be fixed in one go, and those that should be addressed in stages over several cycles to avoid a disruptive effect on your organization and financial planning. 

You will likely find that your organization has a variety of equity pay gaps that require a differentiated solution comprising all elements of your salary and career cycle.  

The solution could entail targeted raises over time, as well as out-of-cycle reviews and will likely also necessitate changes to your corporate policies and pay dialogue culture. Thus you will need to look at all your processes from recruitment to reviews and promotions. It is of utmost importance that your plan for fixing it fairly also ensures against issues reoccurring. This is why your audit should also look at your policies, as these may unintentionally lead to pay gaps arising as a result of periods of leaves or part time employment, etc.

The Recruitment Process

The EU Pay Transparency Directive specifies several specific criteria your company must comply with during the recruitment process. 

You can learn more about those here. 

The Salary Review Process

Going through your Salary Review Process you want to consider which structure best suits your company and helps you reach your pay equity goals while also supporting your company's growth objectives. Your process should ensure that no one falls behind while simultaneously addressing the identified equal pay gaps you need to address.

If a gap is relatively small or only applies to a few individuals, it could be addressed in one go; however, if it's a larger gap or a larger group you may need to plan for addressing it over time in a number of review cycles. 

Out of Cycle Reviews

This is a process most companies typically only utilize when a key employee resigns, and salary or promotion could be used as a retention strategy. However, this is also a highly useful tool to address Pay Equity Gaps if your audit for example have found key employees that have a high organizational value but are unfairly paid as a result of e.g. missing raises and/or promotions during e.g. periods of parental leave. 

The Promotion Process

When reviewing your base salary structure you may have identified individuals whose level or titles do not match their roles. This might be addressed through a promotion process. 

Executing your Pay Equity Gap Rectification Plan

In rectifying the Pay Equity Gaps your audit revealed, you may meet resistance and feelings of unfairness from other employees, which in turn may lead to dissatisfaction. Hence, how you communicate your plan is also of utmost importance and it could be worth it to bring in a specialist, either from your inhouse MarCom team or an external Rewards Consultant, to draw on their experiences.

Fixing the problem is not just about eliminating existing equal pay gaps; it is also necessary to review your policies and ensure inequalities will not reoccur. A common source of Pay Equity Gaps is promotion policies and policies for raises, that disfavor parttime employees and employees on leave. 

Once the problem is fixed, we can help put in checks and balances, to keep the problem from reappearing. That is good governance, and this way you are also ready when the Pay Transparency Directive enters into force.

The Promotion Process

A defined base salary structure that includes pay ranges provides a solid foundation for salary review and career development discussions. 

With a well-functioning job architecture in place, the yearly employee review process becomes easier for your managers to execute and your employees to actively prepare for, which decreases the risk of gender-bias in the promotion process. 

The Pay Transparency Directive encourages companies to make career progression information available to all employees, thus enabling these to take a higher degree of responsibility for their own worklife success and act against discrimination. 

Career steps and their requirements should be described in gender-neutral, objective terms and this could encompass elements such as educational, professional, and training requirements, skills, effort, responsibility and working conditions as pertinent to the individual position. Not all factors are relevant, thus the four essential factors, skills, effort, responsibility and working conditions, should be weighed depending on their relative relevance. Career advancement should be accessible to all employees irrespective of differences in working patterns.

Historically, far more men have been promoted to senior positions than women. One explanation has been that there were fewer female candidates. This in turn could have several explanations, one of which could be the lack of transparency around what it takes to get promoted, and also the cultural implications of women traditionally being more likely to take career breaks to care for children or elderly family members.

We tend to promote those similar to ourselves (unconscious bias), and with men in top positions, it often leads to more men being promoted to the levels below. This in turn, ends up creating career “glass ceilings” for women that can be hard to break through. 

Career path transparency is thus a prerequisite for removing career "glass ceilings" and ensure a better gender balance on all levels incl. top management. To avoid this source of bias, men primarily promoting men, the directive enforces that the criteria for promotions need to be clear, objective, gender-neutral and widely communicated in the organization.

Most companies already live up to some of these criteria, but only a select few live up to all. Many career path descriptions lack the level of details necessary to eliminate these types of biases; there may be a broad description for what a leader at e.g. VP level means, but it is seldomly explained what it will take to be qualified for this level. 

Research has shown that women more often than men tend to expect to tick all boxes before feeling qualified or entitled to apply for a certain position; this could partly be offset by more clear and transparent criteria for every position within your job hierarchy.