Q: In the directive, is the 5% average pay gap threshold based on the average of all positions or on the average of each job level?
For the 5% threshold for action, it’s per category of worker. Action needs to be taken in respect to any unexplained gap in average total male and female pay, within a category of worker.
See our video series on the EU Pay Transparency Directive for more information on this and the other provisions of the directive.
Q: What is the difference between unadjusted and adjusted pay gaps?
Unadjusted pay gap is the difference in average male and female pay within an employee group as a percentage of male pay.
Adjusted pay gap is the difference in average male and female pay within an employee group as a percentage of male pay, after taking account of objective reasons for the difference (e.g., job location, individual performance). It’s calculated using a statistical analysis, called regression analysis.
In terms of the directive, calculating an adjusted pay gap per category of worker is an efficient way to determine whether an organization can explain total pay gaps by category of worker of 5% or more.
WTW supports clients in calculating both unadjusted and adjusted pay gaps in line with the directive.
Q: Can WTW share any information on a data approach to calculations and useful technology platform options?
WTW has developed an EU Pay Transparency Directive Data Book and Analytics Methodology guide. This is accessible to clients that we support on the directive.
For conducting the analytics, we use the software of our partner, PayAnalytics. Clients often look to our global pay equity team to support them in conducting their initial pay gap and pay equity analysis using PayAnalytics. Clients may also purchase a license, and we can support them in utilizing the software to proactively assess their pay gaps and prepare compliance-related analytics on their behalf. Please reach out to your WTW consultant for more information.
Q: When employees’ pay is strongly related to their professional history, how can we efficiently and effectively explain the pay gaps related to very different professional histories that are hard to compare?
Calculating pay gaps (to verify that the EU Pay Transparency Directive’s 5% threshold is being met) using regression analyses allows you to take account of a range of objective reasons for differences in pay, including experience in role or career. When we conduct regression analytics for a client, we test a range of factors that the client thinks may determine pay to see if there is a relationship. We then select the factors that do determine pay and are in line with the client’s pay policies. All this is subject to the data being available and validated for accuracy. We’re happy to demonstrate the analytics and software to you. Please contact your WTW consultant for more information.
Q: How should differences in pay between core and noncore positions be dealt with? If there is a difference, how would this be evaluated in terms of fairness, especially differences between the U.S. and Europe?
Individuals within the same or similar positions can be paid differently provided it is for objective reasons. To pay employees fairly, you need to be clear about the reasons why pay may be different. You also need to know what is driving the pay difference and be able to explain it to employees. These principles underpin the EU Pay Transparency Directive and apply to pay equity and transparency more generally and across markets.
Q: Many companies have abandoned performance ratings in recent years. What are they using instead to justify performance-based differences in pay?
Good question. If individual performance isn’t influencing base or variable, then it doesn’t matter. Where clients have dropped ratings, often personal performance is no longer a factor in determining base pay progression, and bonus is based on team/division or corporate performance. Where this is not the case and no data are available, unexplained pay differences can result, making it imperative that other performance-related metrics be considered to validate the differences identified by the analysis. However, in conducting pay equity analytics over the past 20 years, our global team has observed that individual performance has less of an impact on pay than you might think.
EU Pay Transparency Directive: Workers in scope
Q: How are expats handled in pay transparency? What about employee groups without a salary range?
Under the EU directive, our assumption (subject to final local law) is that expats are included as workers in their “host” EU entity. All their pay will need to be included in the average pay and pay gap calculations; however, their expat arrangements can be an objective reason to explain any differences.
See our video series on the EU Pay Transparency Directive for more information on this and the other provisions of the directive.
Q: Are investment consultants in scope of the directive?
“Workers” are covered by the directive. This includes people who have an employment contract or a job with the employer, as defined by local law, collective agreement, case law or practice. The working assumption is that those on an open-ended employment contract and a fixed-term contract are in scope, and those who are self-employed and provide services to the employing entity are out of scope. This will need to be confirmed under the final regulations for each member state.
EU Pay Transparency Directive: Preparation
Q: What should organizations do next in preparing for the EU Pay Transparency Directive?
For those companies that have not started to plan their approach, the key next step is to create a road map: what needs to be done, who will do it and what resources are required.
For those that have already done this, the next step is to proceed with the relevant workstreams, whether data collection and analytics; job, rewards or talent acquisition actions; or stakeholder engagement.
WTW can support you at whatever step you have reached. We can help you develop your road map and provide support in specific areas where you have less capacity or capability.
EU Corporate Sustainability Directive
Q: How could the EU Corporate Sustainability Reporting Directive (CSRD) impact the reporting for pay transparency? Does it differ? Or is it duplicative?
The CSRD sets out the new requirements for nonfinancial reporting for EU companies and companies operating in the EU. It includes several pay and benefit reporting requirements (e.g., adequate wages, highest paid pay ratio and gender pay gaps). The pay gap requirements aren’t as granular as the EU Pay Transparency Directive, but the scope is wider (i.e., organization-wide gender pay gaps on a cross-country basis).
Q: What’s your perspective on pay gap reporting requirements (overlaps) under the CSRD and the EU Pay Transparency Directive? Should companies report a single pay gap figure as part of environmental, social and governance reporting? Or will the reporting follow the approach similar to the EU directive (country/legal entity pay gaps based on the broad definition of pay)?
The scope of the CSRD and the directive’s gender pay gap reporting requirements are different. CSRD numbers are higher-level but can be cross-country, with disclosure in an aggregated report. The EU Pay Transparency Directive is more granular, but on a per-entity basis only, with transparency of some data on an employee level. WTW can support both CSRD and EU Pay Transparency Directive preparation.
U.S. pay transparency and salary range transparency
Q: Is pay transparency the same as salary range transparency?
Pay transparency is a spectrum. Transparency on salary ranges is one part of that spectrum.
In the U.S., pay transparency regulations have been focused on salary range disclosure on hire and bans on utilizing prior salary history in making pay decisions (on hire as well as promotion). The objective is to reduce differences in pay that occur on hire, which are a common driver on equal pay issues.
In Europe, regulations are requiring transparency beyond pay ranges. The EU Pay Transparency Directive also requires transparency on average pay levels and pay gaps by categories of workers to support the delivery of equal pay.
View the replay of our North America webcast for an illustration of the pay transparency spectrum and further insights on the U.S. and EU requirements.
Q: What are the most common reasons employers give for not publishing pay ranges for all roles/levels to all employees?
Our survey highlights the most common factors holding back more pay program information:
- Concerns regarding manager’s ability to explain compensation program (52%)
- Possible employee reactions (50%)
- Undecided on our (global) pay transparency ambition and the level of transparency we aspire/need to provide (35%)
- Pay programs not ready (32%)
Q: The WTW survey shows that “hiring range” is the most popular approach when disclosing a salary range. This is more popular than full range, narrow segment of range or wide segment of range. What is the difference between the hiring rate versus full salary in your definition? What is a narrow/wide segment?
Hiring rate is a portion of the full salary range relevant for the hire.
A narrow segment of salary range is less than 50% of range.
A wide segment of salary range is 50% to 80% of range.
Q: Understanding that regulations are focused on base pay ranges on hire, curious if you’re seeing trends toward posting broader total cash/comp info out there?
Requirements to post pay ranges focus on base pay. We aren’t seeing a move to post total pay ranges, but our survey highlights the move to providing more information on how base pay and other pay elements are determined.
Q: Do employers find that posting pay ranges in job postings garner a larger, more diverse and more qualified pool of candidates?
We haven’t seen research to support this question; however, some companies are starting to track this metric.
Q: For the U.S., what are the chances that new regulations like these may be challenged in court at the federal level and overturned? Are state regulations being challenged in court?
In the U.S., federal regulations are still working their way through Congress. State regulations are not being contested in court. Rather, we have observed increased enforcement efforts in New York City and Washington state.
Q: For U.S. companies that got in trouble over state regulations, can you summarize the primary issues (e.g., no range listed, range too low, range too wide)?
The primary issue is a failure to provide a range in postings.
