Understanding Pay Progression and the EU Pay Transparency Directive 

The European Union is moving towards a new era of workplace equality with its Pay Transparency Directive. This legislation aims to combat pay discrimination, improve pay progression and close the persistent gender pay gap across EU member states.  

The latest data shows an overall EU gender pay gap of 12%, although there is significant variation between countries. Latvia has the highest gap at 19%, and Luxembourg has the lowest at -0.9% (showing that women outearn men). 

A key aspect of the Directive that organisations need to pay attention to is its focus on pay progression, which plays a crucial role in achieving long-term pay equity.  

Unstructured and unclear processes for awarding pay increases will likely be a key cause of the continuing EU gender pay gap.  

Numerous studies have shown that women are less likely to be awarded pay rises, and this is not necessarily due to women asking for them less than men. For example, one study found that women ask for a raise just as often as men, but men are more likely to be successful. Women who asked obtained a raise 15% of the time, while men obtained a pay increase 20% of the time.  

Article 6 of the EU Pay Transparency Directive states that: “Employers shall make easily accessible to their workers the criteria that are used to determine workers’ pay progression.” 

Pay progression is defined in the Directive as the process by which a worker moves to a higher pay level. The Directive also outlines the criteria related to pay progression and states that these can include individual performance, skills development and seniority. 

This means that employers need to be clear on why pay varies across an organisation. They also need to be able to explain the criteria for pay progression and why current pay for one role differs from that of another.  

Pay decisions can often be associated with bias and subjectivity. By requiring visibility of progression criteria, the Directive focuses on these practices and aims to eliminate bias from compensation decisions.  

Operational Implications  

The EU Directive is shining a light on fair pay practices and talent management practices, specifically career (and therefore pay) progression and performance management. To comply with the EU Directive, organisations need to have clear mechanisms in place to:  

Define pay progression criteria  

Organisations will need to clearly define and demonstrate the criteria for pay progression both within and between roles.  

This involves providing transparency around the specific requirements for progression, including proficiency in technical skills, soft skills, behavioural competencies, knowledge, and relevant experience.  

By outlining these criteria, employees can understand what is needed to advance within their current role or transition to higher-level positions. Visibility of these progression standards helps ensure fairness and reduces bias by making career pathways clear and accessible to all employees.  

Assess pay progression criteria  

Organisations must demonstrate how employees measure up against progression criteria to justify pay decisions and differentials. This necessitates a robust, unbiased process for assessing employee performance and proficiency against defined progression standards, which is crucial for justifying pay decisions and differentials. 

Recent research highlights significant challenges in this area: 

• 85% of organisations do not measure skills proficiency 

• 87% of organisations fail to connect skills proficiency to compensation decisions 

• 75% of organisations lack a centralised skills taxonomy, making it difficult to define progression criteria and evaluate performance against them 

These statistics underscore the complexities organisations face in implementing fair and transparent pay progression systems. Without a clear skills taxonomy and proficiency measurements, companies struggle to objectively assess employee performance and justify pay decisions. 

Share pay progression criteria  

Finally, organisations need to establish a mechanism to share their catalogue of jobs, clearly displaying the progression criteria within each job role and between job roles from one level to the next, and how this aligns with their pay structure.  

This could involve creating an interactive career framework or skills matrix accessible to all employees via an internal portal or HR system. The framework should illustrate the skills, competencies, and experience required for each role and level alongside corresponding salary bands or ranges. 

In summary, to ensure compliance with Article 6 of the EU Pay Transparency Directive, organisations will need to implement clear and robust mechanisms to define, assess and share progression criteria. This involves: 

• Defining comprehensive progression criteria for all roles, including technical skills, soft skills, behavioural competencies, knowledge, and experience requirements. 

• Establishing unbiased assessment processes to evaluate employee performance and proficiency against these criteria. 

• Creating transparent systems to share job catalogues and progression pathways, clearly illustrating how roles align with pay structures. 

• Regularly reviewing and updating these mechanisms to ensure they remain relevant and fair. 

• Communicating the progression framework clearly to all employees, ensuring they understand how their development can impact their pay and career progression. 

By implementing these measures, organisations can create a more equitable, transparent, and motivating work environment, whilst also meeting the requirements of the EU Directive.