Pay transparency: a mandatory opportunity to review company organisation and internal procedures

Simone Carrà
BCA Legal, Milan
scarra@bca-legal.com

The implementation of Directive (EU) 2023/970 is currently underway and, across EU Member States, a lively debate has emerged which, in my view, should be understood as involving two distinct, albeit interconnected, dimensions. The first is a more legal and interpretative one, regarding the debate among practitioners, academics and legislators on how best to transpose the Directive into national law. The second is a more practical and operational one, concerning companies which are trying to understand the compliance obligations they will soon be required to meet.

Let us begin with the legal and interpretative perspective, relating to the legislative policy process aimed at identifying the most appropriate technical solutions to implement both the spirit and the content of the Directive. From this perspective, I will concentrate on two brief observations.

First, the Directive is remarkably clear and detailed. While it certainly leaves some room for manoeuvre for national legislators – particularly when it comes to specifying certain principles or introducing additional measures aimed at achieving even higher standards of protection – it does not lend itself to excessive simplification or manipulation during the transposition process. The Italian case, at least so far, provides an example of how far the transposition currently deviates from the Directive’s intended approach.

Second, the Directive identifies four objective and gender-neutral criteria to cluster jobs of equal value: skills, effort, responsibility and working conditions. In my view, these criteria are not relevant only – or even primarily – in the phase of ‘clustering’ jobs of equal value. Rather, they will become particularly important when employers are required to justify pay differences between workers performing work of equal value. In such cases, differences in remuneration will have to be explained on the basis of objective and gender-neutral factors, and the same criteria will inevitably play a central role. It is important to recall that the Directive does not require identical pay for identical work, but rather that pay differences must be justified by objective and gender-neutral criteria.

The most interesting perspective, however, is not the legal or interpretative one, but rather the practical and operational dimension. Indeed, it is our role as lawyers to help clients understand that treating the Directive merely as a compliance obligation would be extremely limiting and inefficient, ultimately resulting in a waste of time and resources.

A far more productive approach is to recognise that pay transparency offers companies an opportunity to conduct a broader assessment of their organisational structures. Such an exercise is not only aimed at ensuring compliance with the Directive, but also at reviewing remuneration systems, incentive plans, organisational charts and job classifications, while identifying and eliminating the structural inefficiencies which often develop within pay systems and that, quite literally, subtract valuable points of earnings before interest and taxes (EBIT) from the company.

In many organisations, remuneration systems are the result of gradual stratification over time. Historical salary policies, individual negotiations, market pressures, corporate acquisitions and organisational changes often lead to pay structures that lack internal coherence and are difficult to justify on the basis of objective criteria.

The Pay Transparency Directive, by introducing obligations of transparency and gender pay gap reporting, effectively requires companies to undertake a rationalisation exercise. If approached strategically, this exercise may become a powerful driver of organisational efficiency rather than a purely bureaucratic burden.

From a practical standpoint, companies are likely to face at least four main areas of intervention.

1. Organisations will need to map existing job positions and identify the objective criteria that allow roles to be classified as work of equal value. In many cases, this requires reviewing job descriptions and job evaluation frameworks, which are often incomplete, outdated or inconsistently applied across the organisation.
2. Companies will need to analyse existing remuneration structures to determine whether pay differences can be justified by objective and gender-neutral factors. The Directive does not prohibit pay differences as such; rather, it requires that those differences be explainable and defensible under transparent criteria.
3. Particular attention should be paid to incentive systems, which often represent the least transparent component of overall remuneration. Discretionary bonuses, individual awards and loosely structured performance evaluation processes may easily become sources of unexplained pay disparities if not supported by clear and objective criteria. This is why – despite what it is happening in Italy – it is not possible to carve out discretionary bonuses from the scope of the new legislation.
4. Companies will need to establish internal procedures capable of managing the new transparency obligations introduced by the Directive, including employees’ rights to information and the various reporting requirements. This will inevitably require coordination between different corporate functions – typically HR, legal, compliance and finance – as well as the development of reliable data collection and monitoring systems.

If addressed with a purely defensive mindset, these adjustments risk becoming an expensive administrative exercise.

However, if viewed through a broader organisational lens, the implementation of the Directive can offer companies a valuable opportunity to redesign their remuneration architecture in a more rational and transparent way.

From this perspective, pay transparency should not be regarded solely as a regulatory constraint imposed by EU law. Rather, it should be understood as a catalyst for companies to reassess how they design, justify and communicate their remuneration policies.

For businesses that approach the Directive strategically, the transition to pay transparency may ultimately prove less about regulatory compliance and more about improving organisational coherence, strengthening internal governance and reinforcing trust within the workplace.