The European Council on 24 April adopted a pay transparency directive, which previously passed the European Parliament. It remains to be transposed into national legislation but will require companies to share information about how much they pay women and men, and take action if the gender gap exceeds 5% for the same work.
“With this new European directive, transparency is entering a new era,” said Gwladys Costant of recruitment agency Gotofreedom. “All companies will have to act, probably the smaller ones too, if they want to remain competitive for jobseekers.”
Under the directive, employers must indicate the initial pay level to prospective employees. They must also provide staff with a description of the criteria used to define their pay and pay progression. Employees also have a right to information about average pay levels, broken down by sex, for people doing the same work.
Companies with fewer than 50 employees are exempt from some of these rules, while companies with more than 100 staff must report pay gap information to relevant national authorities.
“Job advertisements that mention pay receive 7.8% more applications than those that do not,” said Costant, explaining the benefits for companies to be transparent. Giving a clear sense of the structure of salaries can also motivate employees. “It allows them to see where they stand,” with staff more engaged when they know their company is paying them fairly.
Useful information for newcomers
While many larger companies already have pay scales in place, the directive could lead to a shift in culture to discuss salaries more openly, the recruiter said. It is not uncommon for employers to contractually forbid staff from discussing their salaries--a legal grey area. Transparent pay scales will help fill some of those knowledge gaps.
The problem often is that the woman doesn’t know that her male colleague earns more.
“The problem often is that the woman doesn’t know that her male colleague earns more,” said Emilia Minacapilli, a legal adviser at the Chamber of Employees. But this is also true for outsiders entering a company or the Luxembourg job market.
Kieron O’Connor of KR Recruitment that “a high percentage” of people newly arriving in Luxembourg get underpaid at first, because they do not have sufficient information on their market value during pay negotiations.
The new rules, he said, “will help everyone get a fair ‘market rate’ salary for their experience and skillset.”
The imposition of more regulation and reporting requirements will require more HR resources, O’Connor predicts, adding that it could be “difficult to manage for companies internally, in the first instance.”
Objective skills assessment
Analysis by jobs platform Adzuna shows that fewer than two out of ten vacancies include salaries for the position. Globally, only around one in five companies post pay ranges in their ads, a study by US data company Payscale shows.
At the same time, there are benefits not included in the pay scale, such as housing or education packages, access to a company car or bonuses.
Not only do more people apply for job postings with a salary range, research by UK-based recruiter Reed also shows that these applications are more relevant and a third of hiring managers in a survey said it speeds up the recruitment process.
“For recruiters, it will be a way to work on the objective assessment of skills,” said Costant, on the other hand warning that the move could lead companies on a path of overly performance-related culture, rewarding individual performance over collective achievements.
A more objective assessment could also help prevent people being considered more or less successful in their jobs simply because they were more or less successful at negotiating a good salary, she said.
Under the directive, employers are also barred from asking a prospective hire about their previous pay.
Maternity, parental leave
But Costant doesn’t expect the directive to be a big priority for Luxembourg. Countries have three years to implement the EU rules nationally. in terms of hourly wages, data published this year shows, with the gender pay gap at -0.2%. “So it won’t be a revolution in that sense in Luxembourg.”
The gender pay gap in Luxembourg is more structural, with women more likely to work part-time and in lower-paying jobs, such as cleaning. As a result, the country has one of the highest gender pensions gaps in the EU, at over 40%. However, the pay gap directive will not help solve these issues.
It won’t be a revolution in that sense in Luxembourg.
The Chamber of Employees’ Minacapilli, for example, warns that salary (and career) progression should not be hampered by maternity or parental leave. “Should a difference in salary treatment nevertheless be noted, the employer must be required to remedy it without delay and provide proof of this to the staff delegation,” she said.
In the transposition of the directive into national law, the legal expert wants to see a substantial role for staff delegations and labour unions, for example in developing the mandatory pay level criteria.
And the government should also make it mandatory for smaller companies to provide pay transparency, with member countries free to exceed the requirements set out in the EU directive.
“We strongly encourage all companies to follow the obligations and criteria of the future directive,” Minacapilli said.
“On the one hand, employees will be better protected against any wage inequalities and on the other hand, this will allow companies to benefit from a better image, which could make them more attractive, a not insignificant aspect in a period when the shortage of labor and skills is a challenge.”